The Dow gained 21 points, or 0.2%, to finish at 13,117. The blue-chips
traded to a high of 13,187 and fell just short of tripping our 13,200
target. If cleared, there is further room for the bulls to run up to
13,350-13,400. The bears will be looking to get the Dow back below 13,000
over the next few days.
The S&P added 3 points, or 0.2%, to end at 1,394. The index reached a peak
of 1,399.63 and came within a stone’s throw of cracking 1,400. If this
level is cleared on the close, the S&P could trade up to 1,425. The
52-week high stands at 1,422. If resistance holds, the index faces risk
down to 1,375 this week.
The Nasdaq was up a double-deuce (22 points), or 0.7%, and settled at
2,989. Tech did manage to kiss 3,000 during Wall Street’s lunch break and
traded to a high of 3,000.24 before finishing below this level. This
opened the door for a test to 3,125-3,150 which is a 4+% move from current
levels. This would be a really big advance without a catalyst but we said
the bulls could lean on Apple (AAPL, $622.55, up $6.85) and the iPhone 5 as
shares are a heavily weighted component of the Nasdaq.
The Russell 2000 added a six-pack, or 0.7%, to close at 794. The
small-caps traded up to 797 but fell short of clearing the 800 level which
would be very bullish and could lead to a run up to 810-820. The 52-week
high for the Russell is 847 which is nearly 5% away. The 750 level is also
5% away and if we had to make a bet on the over/ under right now, we would
still lean towards 750 printing before 850.
The S&P 500 Volatility Index ($VIX, 15.95, up $0.31) traded higher, which
is telling us something, despite an up day on the market. For our new
subscribers, the VIX often trades lower when the market is moving up and
will move higher on market pullbacks. The VIX has also been stuck in a
mini range of 15-20 over the past few months and we still believe a move
above 20 is coming which indicates nervousness and would be bearish. We
have said the VIX could move to the low teens on a market breakout but
yesterday’s action could be a clue the bears are not finished attacking the
market.
One stock we wanted to cover this morning is First Solar (FSLR, $19.06, up
$0.02) which surged nearly 12% yesterday after opening the session at
$17.11.
Here were our thoughts in Sunday night’s Weekly Wrap (8/5/12) and the
option prices from Friday’s close (8/3/12):
“This looks like a good opportunity for a straddle or strangle option
trade, if there is any follow through or a pullback. Keep an eye on the
September 20 calls (FSLR120922C00020000, $0.65, down $0.35) for a quick
trade if shares can regain their momentum following Friday’s 5% pullback.
If not, watch the September 14 puts (FSLR120922P00014000, $0.70, up $0.15)
for a drop back below $15. Together, the calls and puts would form a
strangle option trade to whereas First Solar would need to be above $21 or
below $13 by mid-September for the trade to have success.” (END)
The September 20 calls (FSLR120922C00020000, $1.40, up $0.75) opened at 66
cents on Monday and zoomed nearly 120% for the day. The September 14 puts
(FSLR120922P00014000, $0.40, down $0.30) opened at 59 cents. The total
cost of the trade would have been $1.25, or $1,250 for 10 contracts. The
value of both the call and put options are currently at $1.80, or $1,800,
which is already a 44% gain in 24 hours.
The object of strangle option trades is to make over 100% or more on one
side of the position to cover the cost. Once the call or put gives you a
triple-digit gain, you close that side of the trade to lock-in profits.
You would then have a free call or put to play a reverse.
In this case, if you sell the First Solar calls into strength now or on a
pop over $20, the puts become house money and have over a month before they
expire. If shares move lower and fall below $14 the September 14 puts
would then be “in-the-money” which would allow you to profit from both
sides of the trade.
We will continue to monitor First Solar as a possible option trade but we
may have to use both calls and puts to play the volatility.
Futures are showing a green open and look like this: Dow (+44); S&P 500
(+7); Nasdaq (+18). We have added a bevy of possible New Trades for our
Watch List that look like good entry points but we still have to be
patient.
MEMBERS AREA
Do not risk more than 5% of your trading account on any one trade but do
try to take ALL of the trades. Please remember, ALL “Exit Targets” and
“Stop Targets” are targets. You should not have any “Hard Stops” entered
to close any trades or “Exit Orders” in your brokerage account unless we
list one. We will send out a “Profit Alert” or “Trade Update” if we want
you to close a position OR if a new trade comes out. Otherwise, follow
instructions at all times in the 9am and 1pm updates. Also, we will
usually give you a heads-up if we think we are going to send an email
outside of these time frames.
Wynn Resorts (WYNN, $97.80, up $2.24)
September 80 puts (WYNN120922P00080000, $0.65, down $0.15)
Entry Price: $0.85 (8/2/12)
Exit Target: $1.70
Return: -24%
Stop Target: 50 cents
Action: There is choppy resistance up to $100 and shares reached a peak of
$98.63 before pulling back. We believe once shares fall below $90, a test
to $80 will come into play, possibly $60. The 52-week low is $90.11 which
was set just last week.
Veeco Instruments (VECO, $36.46, up $1.99)
September 30 puts (VECO120922P00030000, $0.60, down $0.40)
Entry Price: $0.90 (8/2/12)
Exit Target: $1.80
Return: -33%
Stop Target: None
Action: Shares traded to a high of $36.86 and we said a move above $36-$37
would be bullish. We are looking for shares to drop below $33-$32 which
would get a test to $30 back into play.
Apollo Group (APOL, $27.24, up $0.58)
September 24 puts (APOL120922P00024000, $0.80, down $0.20)
Entry Price: $1.10 (7/31/12)
Exit Target: $2.20
Return: -27%
Stop Target: None
Action: DeVry (DV, $19.51, up $1.16) will announce earnings on Thursday
and we expect them to disappoint Wall Street. Hopefully, shares selloff
and the damage hits the entire sector. Apollo Group hit a fresh 52-week
low of $25.77 last week and we have a near-term target of $20. Longer-term
we expect shares to trade to the mid to lower teens. A break above $30
would force us out of the trade.
Other 2012 Portfolio OPEN positions (8): These are trades that are still
open in the portfolio but are down over 50%. They have longer expiration
dates and are on “hold” but are not worth mentioning until they turn
around. This means we would not open any new positions. We are still
keeping track of the trades and we will record the results, accordingly,
when we close them or if the options expire. Click on the 2012 Portfolio
link in the Members Area to view ALL open/ closed trades.
Bank of America January 12.50 calls 2013 (from March 2012)
iShares Dow Jones US Real Estate August 57 puts (from June 2012)
AOL August 24 puts (from June 2012)
Consumer Discret Select Spiders August 41 puts (from June 2012)
Freeport McMoRan Copper & Gold August 29 puts (from June 2012)
PowerShares QQQ August 59 puts (from June 2012)
Dow Jones Industrial Average Spiders September 119 puts (from July 2012)
S&P 500 Spiders September 123 puts (from July 2012)
WATCH LIST SECTION
These trades are NOT recommendations. They are trades that we like but
have not added to the portfolio as an official recommendation because of
market conditions or because we are waiting for better entry prices. We
try not to have more than 12-15 open trades at any one time which is why we
created a Watch List. We will not list entry prices because these stocks
are on the verge of breaking out or they could sell off but these are the
trades we are watching as new candidates.
Buffalo Wild Wings (BWLD, $73.41, up $0.25)
September 80 calls (BWLD120922C00075000, $1.00, flat)
September 65 puts (BWLD120922P00065000, $0.95, down $0.05)
Thoughts: Shares of BWLD have been volatile of late. In late July, the
stock fell from $78.90 to $70.43 the day after the company reported
earnings and traded down to $68.71 intraday. The recovery high was $75.01
which is near-term resistance. This is the level we will need to watch for
a bullish breakout and buy calls. A move below $70 would suggest we use put
options for a possible test down to $65-$60.
SanDisk (SNDK, $41.48, up $0.11)
September 45 calls (SNDK120922C00045000, $0.80, flat)
September 38 puts (SNDK120922P00038000, $0.85, down $0.10)
October 35 puts (SNDK121020P00035000, $0.90, flat)
Thoughts: We would wait for a move past $42.75 before going long which is
the end of July high. A close below $40 would be bearish and could lead to
retest of $35 or worse.
Dillard’s (DDS, $68.75, up $2.13)
September 75 calls (DDS120922C00075000, $2.20, up $0.60)
September 60 puts (DDS120922P00060000, $1.75, down $0.45)
Thoughts: The 52-week high is $72.46 and shares are making a run at new
highs. The options are expensive and this would make a pricey strangle
option trade. We would prefer to go short at $65 or lower because the
chart is pointing towards a possible test to double-nickels ($55) if $60
fails to hold.
Broadcom (BRCM, $33.90, down $0.11)
September 35 calls (BRCM120922C00035000, $0.90, down $0.10)
September 32 puts (BRCM120922P00032000, $0.80, up $0.05)
Thoughts: The 52-week high is $39.66 and this is a cheaper way do play
Apple’s possible run to new highs. We would wait until shares clear $35.25
before going long and on a break below $32 we might look to go short.
Ingersoll-Rand (IR, $42.73, up $0.13)
September 40 puts (IR120922P00040000, $0.80, down $0.10)
September 45 calls (IR120922C00045000, $0.75, up $0.10)
Thoughts: A move above $43.50 could lead to a test of the 52-week high
which is $45.62 which is why we have listed the calls this week. We are
looking for a drop to $36 by mid-September and would wait for shares to
move below $41 before playing the puts.
Akamai Technologies (AKAM, $35.82, up $0.34)
September 33 puts (AKAM120922P00033000, $0.70, down $0.10)
September 37 calls (AKAM120922C00037000, $1.15, up $0.10)
Action: A close above $36 could lead to a test of the 52-week high of
$39.14. If shares make a move past $40 it would represent blue-sky
territory and a possible push to $45-$50. A drop below $33 would be bearish
and could lead to a test of $30.
KLA-Tencor (KLAC, $52.03, down $0.07)
September 55 calls (KLAC120922C00055000, $0.60, down $0.10)
September 48 puts (KLAC120922P00048000, $0.75, flat)
Thoughts: We have recommended 4 put option trades on KLAC since April and
they made 172%, 144%, 29%, and 6%. It might be time to get bullish if $50
continues to hold. Shares look headed to double-nickels ($55) but a move
below $50 would reverse the recent uptrend.
