Dear Momentum Options Subscriber,
The bears are trying to end the month with a bang, and the party started Sunday night while futures were showing a nasty open. However, the bulls held steady during the opening onslaught and managed to briefly push the small-caps into positive territory heading into afternoon trading.
This week is already shaping up to be just as exciting and explosive as last week. While this is often an options trader’s dream environment, it is also a little like Las Vegas given the current volatility. This means that we’ll need to set tighter stops and react more quickly to changes in the market. However, if this action makes you nervous, it is OK to sit on the sidelines until the dust settles.
This type of action can be both exciting and dangerous, so it is wise to lighten up on the amount of capital you risk on each trade. For instance, if you normally trade 10-20 option contracts per trade, consider only trading 5-10 contracts. If you prefer to calculate using a dollar amount and you usually put $1,000-$2,000 into each trade, consider lessening your exposure to $500-$1,000 per trade.
My point is, while it is fun to swing the bat during this kind of market environment, each pitch is being thrown like a Clayton Kershaw curveball. The LA Dodgers pitcher has made many a batter look silly, and the market can make traders look the same way.
I didn’t like the trade setup this morning on the PowerShares QQQ Trust (QQQ, $105.47, down $0.14) that I mentioned in today’s Pre-Market Update, but I’m still watching it for a possible trade. In the meantime, I’m building an explosive Watch List for other trades, so we just have to be patient.
The Dow is currently down 42 points to 16,600, while the S&P 500 is slipping 6 points to 1,982. The Nasdaq is lower by 11 points to 4,817, and the Russell 2000 is gaining a point to 1,164.
Our current trades are listed below, but stay locked and loaded into the close in case I see a trading opportunity that I like.
Momentum Options Play List
Closed Momentum Options Trades for 2015: 83-29-2 (73%). 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 12:55 p.m. EST.
I hereby disclose that I will be participating in the following trade(s). Every 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 portfolio.
KB Home (KBH, $14.75, up $0.32)
KBH October 16 calls (KBH151016C00016000, $0.46, up $0.09)
Entry Price: $0.33 (8/27/2015)
Exit Target: $0.70
Stop Target: None
Action: Resistance is at $14.50-$14.75, followed by $15 and the 200-day moving average. Short-term support is at $14, with risk to $13.50 if breached.
Trades on Hold — other 2015 Portfolio Open positions (3): 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 I would not open any new positions. I’m still keeping track of the trades and will record the results accordingly when the trade closes or if the options expire. Click on the Open Trades and Closed Trades pages to see all open and closed positions.
Bank of America (BAC) September 18 calls (from 8/17/15) — Continue to hold.
JPMorgan Chase (JPM) September 70 calls (from 8/10/2015) — Continue to hold.
iShares Russell 2000 (IWM) September 123 calls (from 8/19/2015) — Continue to hold.
Editor and Chief Options Strategist