Dear Momentum Options Subscriber,

I have been talking about how the financial stocks need to show continued strength to lead the market higher in recent weeks. After going hunting for an option trade, I want to expand on those thoughts.

The Financial Select Spiders (XLF, $24.95, flat) continue to make a nice recovery following the mid-December test to $23.55 and the 50-day moving average.


I have talked about a possible run to $30 for the index coming in 2015. This is an aggressive price target, but it is one that can be achieved, as the 2007 high reached $32. The 10-year chart below also shows the solid uptrend following the 2009 low of $5.32.


It would be hard to complain if you bought the XLF in the single-digits, and they have rallied roughly 20% from the February low just above $20.


It took 10 months to make the move from $20 to yesterday’s high north of $25.

To find a suitable option trade, I looked at the XLF June 26 calls (XLF150619C00026000, $0.65, flat). These options have over six months before they expire and would be worth at least $1.00 if XLF shares reach $27 by mid-June 2015. The return would be roughly 50% from current levels.

These aforementioned call options would double from current levels, or be worth at least $1.30, if XLF shares trade to $27.30, technically, by mid-June 2015. The options would be $1.30 “in the money.” This would require shares to move nearly 10%, but the payoff on the options would be 100%.

A 10-lot contract would cost $650 at current levels. One contract would cost $65. Buying 1,000 XLF shares would cost $25,000 at current levels, while 10 contracts gives you control of 1,000 shares for $650. Buying 100 shares would cost $2,500, while one contract gives you control of 100 shares for $65. This is the beauty of leverage, as a 10% stock move provides you an opportunity for a 100% return with the right option.

The XLF September 26 calls (XLF150918C00026000, $0.90, flat) would provide a nine-month time frame for the XLF to reach $28. If this level is reached by mid-September, these calls options would be worth at least $2.00. Shares would have to rally 12% from current levels to possibly get a double, but these options also provide three extra months of time premium.

As you can see, both options offer an attractive risk/reward set up if shares do reach $27-$28 over the next six to nine months.

These trades require patience and could provide a good way to ignore the market noise, as the goal would be to hold both options into June and September, respectively.

Near-term support is at $24.75-$24.50. A break below $24-$23.50 and the 50- and 100-day moving averages would suggest that a top is in. Positions could be closed to avoid further losses if these levels come into play.

If the financial sector can stay strong, I like both of these call options at current levels. If I add them to the portfolio as official trades, I will be sure to send out an alert.

Heading into the second half of trading, the Dow is down 51 points to 17,986, while the S&P 500 is declining 6 points to 2,084. The Nasdaq is lower by 17 points to 4,789, and the Russell 2000 is giving back 2 points to 1,216.

I have another Profit Alert this afternoon, this time on American Express (AXP, $94.20, down $0.07). While I talked about a possible XLF trade above, my favorite way to play the financial sector is to use individual stocks.

The larger price movements in select financial stocks allow me to use near-term options for quicker profits. I recommended the AXP January 95 calls at $0.60 in mid-December.

I suggested that subscribers lock in profits on the first half of the trade at $1.50 on Christmas Eve. Shares have been trying to clear $95 for the past three sessions, and they reached $94.89 on Monday. If you haven’t locked in profits in the position yet, I suggest you do so now to protect the gains.

We also closed our remaining trade in JNPR today when its stop limit triggered, and I’ve elected to close our QQQ trade at current levels, so let’s go take a look.

Momentum Options Play List

Closed Momentum Options Trades for 2014: 99-63 (61%). All trades are dated and time stamped so new subscribers can look at the past history to see how the trades have played out.

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 I list one. I will send out a “Profit Alert” or “New Trade” if I want you to close a position or if a new trade comes out. Otherwise, follow instructions at all times in the 9 a.m. and 12 p.m. – 1 p.m. updates. Also, I will usually give you a heads-up if I think I’m going to send an email outside of these time frames.

All prices given in this update are current as of 12:30 p.m. EST.

Every new Momentum Options recommendation is listed with the price at which I entered my own position. If the price is slightly different than my recommended entry or exit price when you receive the alert, don’t let that keep you from getting into or out of a trade. Occasionally, you might even get a better “fill” price than what is posted in the Open Trades and Closed Trades.


AT&T (T, $34.12, up $0.01)

T February 35 calls (T150220C00035000, $0.33, flat)

Entry Price: $0.35 (12/26/2014)

Exit Target: $0.70

Return: -6%

Stop Target: None

Action: Near-term support at $34-$33.75 is holding. Resistance is at $34.50-$34.75. I have a near-term target of $35-$36 for the stock. Given the recent market volatility, I like the trade as long as $33 holds.


Juniper Networks (JNPR, $22.70, up $0.11)

JNPR January 23 calls (JNPR150117C00023000, $0.38, down $0.07)

Entry Price: $0.36 (12/19/2014)

Exit Target: $0.75

Return: 3%

Stop Target: $0.37 (Stop Limit)

Action: The Stop Limit of $0.37 has triggered following the stock’s dip to $22.46 this morning.


Boston Scientific (BSX, $13.28, up $0.05)

BSX February 14 calls (BSX150220C00014000, $0.40, flat)

Entry Price: $0.45 (12/19/2014)

Exit Target: $0.90

Return: -11%

Stop Target: None

Action: Resistance is at $13.25-$13.40. Support is at $13 and the 50-day moving average. A close below $12.75 and the 200-day moving average would be bearish.

These options have 51 days before they expire. I will likely continue to hold this trade into 2015, as there is plenty of time to wait for a possible run past $14.


American Express (AXP, $94.20, down $0.07)

AXP January 95 calls (AXP150117C00095000, $1.10, down $0.05)

Entry Price: $0.60 (12/15/2014)

Exit Target: $2.00+ (closed half at $1.50 on 12/24/2014)

Return: 113%

Stop Target: $1.05 (Stop Limit)

Action: The calls have traded to a low of $1.01 this morning, triggering the $1.05 Stop Limit on the second half of the trade.


Marvell Technology (MRVL, $14.44, up $0.11)

MRVL January 15 calls (MRVL150117C00015000, $0.15, down $0.05)

Entry Price: $0.35 (12/11/2014)

Exit Target: $0.70

Return: -57%

Stop Target: None


MRVL February 15 calls (MRVL150220C00015000, $0.45, flat)

Entry Price: $0.55 (12/11/2014)

Exit Target: $1.10

Return: -18%

Stop Target: None

Action: Fresh support is at $14.25 and the 200-day moving average. Backup support is at $14-$13.75. The next wave of resistance is at $14.50-$14.75, and a close above the latter would be super bullish. I could shed the January calls and keep the February calls if $14.50 isn’t cleared before Wednesday’s close.


iShares Russell 2000 (IWM, $120.82, down $0.23)

IWM January 121 calls (IWM150117C00121000, $1.60, down $0.20)

Entry Price: $0.90 (12/5/2014)

Exit Target: $2.20 (closed half at $1.80 on 12/29/2014)

Return: 89%

Stop Target: $1.40 (Stop Limit)

Action: A run to $122-$123 is possible going into January, while a dip below $120 will likely trigger the Stop Limit.


PowerShares QQQ (QQQ, $104.52, down $0.50)

QQQ January 107 calls (QQQ150117C00107000, $0.30, down $0.15)

Entry Price: $0.98 (12/5/2014)

Exit Target: $2.00

Return: -69%

Stop Target: None

Action: Close the trade at current levels to save the rest of the premium.


JDS Uniphase (JDSU, $13.81, down $0.11)

JDSU March 14 calls (JDSU150320C00014000, $0.90, down $0.05)

Entry Price: $0.70 (12/3/2014)

Exit Target: $1.40

Return: 29%

Stop Target: $0.80 (Stop Limit)

Action: Near-term support is at $13.75. A drop below this level could lead to $13.50-$13.25, which would trigger the Stop Limit.

A mini-trading range has formed with resistance at $14-$14.25. The 52-week peak is at $14.99.

You can read my full update on JDSU in the Dec. 3 Alert.


Flextronics (FLEX, $11.20, down $0.12)

FLEX January 11 calls (FLEX150117C00011000, $0.40, down $0.05)

Entry Price: $0.68 (9/5/2014)

Exit Target: $1.25

Return: -40%

Stop Target: None

Action: Shares are holding $11.25, and the next wave of resistance is at $11.50. Support is at $11-$10.75.

This is the last remaining trade from September, and I would like to see a run past $11.50 by Wednesday. If not, I could close the trade and look at further-out options to buy more time for the trade.

The FLEX April 12 calls (FLEX150417C00012000, $0.45, flat) could replace our current position to buy more time for the trade, as they have 107 days before expiration. If I make the swap, I will send out a New Trade Alert. I may also elect to add them while rolling the dice with our current position in the FLEX January 11 calls into the New Year.


Holiday Savings Event: The local stores have their holiday decorations up and I’m still thinking about gifts, so today I wanted to invite you to join me for a special Holiday Savings Event that I’m throwing for a limited time only. Renew your Momentum Options service today and save $200. It doesn’t matter when your subscription expires because I’ll just extend your current membership. Click here now to take advantage of this savings opportunity!

Trade on!

Rick Rouse
Editor and Chief Options Strategist
Momentum Options