9:00am (EST)
The bulls made another run at greener pastures on Wednesday but ran out of steam at the next resistance levels following Tuesday’s big push. The Financial stocks helped the bulls from the start and had another good day while other sectors lagged. The strong gains in American Express (AXP, $56.15, up $1.90) and Capital One (COF, $52.33, up $1.33) were good to see as each rallied 3%, on average, but the options gains we made for our subscribers were jaw-dropping. More on this in a minute.
The Dow added 16 points, or 0.1%, to finish at 13,194. The index had trouble at our 13,200 resistance target but did reach a high of 13,221.
The S&P slipped 2 points, or 0.1%, to settle at 1,394. The index reached a high of 1399.42 and once the talking heads started cheering for 1,400 we knew the bulls weren’t going to hit the upper-end of our fluff targets.
The Nasdaq gained nearly a point and closed at 3,040 after kissing 3,051 while the Russell 2000 fell 8 points, or 1%, to end at 823 and is sending us warning signals. The index struggled at the open and once again failed to advance past 835 which will be the next “all clear” sign for the bulls.
Despite the mixed session, we had one of our best days ever as far as closing winning trades as we were quick to the punch on Tuesday morning. We knew coming into this week that the bank stress tests were due out Thursday so our plan was to target a few of the stronger Financial stocks for a quick trade. We spent a lot of time over the weekend looking at the charts and the option chains and went with American Express and Capital One. We listed some option trades on Tuesday morning on our Watch List before the opening bell in our 9am update and this is how we drew it up in the sand (quotes from that day):
American Express (AXP, $52.77, down $0.43)
April 55 calls (AXP120421C00055000, $0.40, down $0.25)
July 57.50 calls (AXP120721C00057500, $0.80, down $0.20)
Thoughts: The financial stocks could rally in the back-half of the week on the bank stress tests which will be out on Thursday. The banks could be better capitalized than most people expect which, dare we say, could start another rally. The April calls may be a good trade for the week at current prices. (END)
An hour after the opening bell, we sent this Trade Alert to our subscribers (quotes from that day) as we felt the momentum building:
American Express (AXP, $52.87, up $0.10)
Buy to OPEN April 55 calls (AXP120421C00055000, $0.40, flat)
Action: Use limit orders up to 45 cents but do not pay more than 50 cents to establish positions.
This trade will be quick in nature as we plan to be out of them by Thursday or Friday. (END)
As you can see, American Express has rallied $3 in two days which is a nice 6% pop but here is what our subscribers will be reading this morning inside our Members Area:
American Express (AXP, $56.15, up $1.90)
April 55 calls (AXP120421C00055000, $2.05, up $1.15)
Entry Price: $0.40 (3/13/12)
Exit Target: $0.80 (closed half at $1.75 on 3/14/12)
Return: 375%
Stop Target: $1.55 (HARD STOP)
Action: Shares of American Express went out near their high of $56.28. We said a break above $55 could lead to $60 but we have raised our Hard Stop on the other half to $1.55 in case the stock retreats. If not, we will move it higher if American Express continues to perform. (END)
This trade will be easy to manage from here on out as we now have the luxury of the Hard Stop which helps take the emotion out of the trade. The reason we mention all of this is because too many times option traders will hold out for higher prices but it is always important to follow your trade setups and stick to your plan. Often times, by waiting for higher prices that don’t come, option traders can and do give back a lot of their gains.
While we would love to keep this trade open until mid-April, this wasn’t the plan and here is why. If shares of American Express are UNDER $55 by mid-April then these options will be worthless. Of course, shares could continue to zoom higher and hit $60 before there is a pullback but anytime you make 375% in 48 hours, it best to lock in some gains.
We were both good and lucky on this trade. Good because we did the research and we got in before the crowd, and lucky because our gains are now at 375% and shares moved quicker and faster than we had expected. This gives us the luxury of riding the other half of these call options higher or once again, we let the Hard Stop take us out on a pullback which still locks in a total return of over 300%.
In fact, it’s so easy, well, you know the rest of the story.
Our Capital One call option gains are up 167% in 2 days while we also hit a triple-digit winner on another call option trade as well. Oh, and we have made 60% so far on a bullish Pepsico (PEP, $64.06, down $0.28) trade in just over a week. Talk about fast money. Although February was sloppy and choppy we decided to step on the gas in March one last time because we have been expecting this breakout and we have called this market perfectly since November.
It should be an exciting rest of the week so let’s go see where we are at.
