9:00am (EST)
NEW TRADES!!!
Barrick Gold (ABX, $40.14, up $0.67)
Buy to OPEN March 42 calls (ABX100320C00042000, $0.48, up $0.10)
Buy to OPEN April 43 calls (ABX10041700043000, $0.96, up $0.09)
Action: We have been watching Barrick for over a month and yesterday’s close above $40 was a good signal that we could run a little further. On February 3rd, shares were at $36 and we thought they could fall to $32-$33 which they did just a couple of days later. However, the stock bounced off those levels in a hurry and quickly shot back to $35 within the same week.
Now that we are over $40, we could see shares quickly run to $42. Our plan is to use the March calls for quick profits while using the April calls for a possible run back to its 52-week high of $48.
Use limit prices up to 75 cents for the March calls and $1.20 for the April calls. These limit prices might be a little high and we should get filled at much better prices at the open if Barrick stays flat.
Current Trades
Qualcomm (QCOM, $38.69, up $0.76)
March 39 calls (AAO100320C00039000, $0.69, up $0.16)
Entry Price: $0.70 (3/3/10)
Exit Target: $1.05
Return: -1%
Stop Target: None
Action: The March options expire on the 19th so we have a little over two weeks. Here is a 3-month chart of QCOM where you can clearly see resistance at $40. For those of you new to charting, print this out and draw a red line along the 40 line. See the huge drop off right before February? Notice how each time the stock has gotten near $40 (or your red line) it pulls back.
This is what we are facing so this position will be volatile.
If these options expired TODAY, then they would be worthless because the stock is under our $39 strike price. So basically, the 69 cents the options are currently at is ALL time premium. I know I’m going deep for you new option traders but I’m trying to outline the risks of this trade.
Time premium will really be a problem for us but if the stock can get PAST resistance ($40) then these calls will be in-the-money and will trade dollar-for-dollar. If Qualcomm is at $42 by the time expiration rolls around then these calls will be worth $3, or well over 200% from current levels.
If the stock is at $39.50 then the calls would be worth 50 cents and we would show a loss. Playing with options with less than three weeks left before expiration is risky which is why I wanted to show you both sides of the trade going forward.
My feeling is that Friday could be a “non-event” with the unemployment numbers which could set us up for a nice rally going into next week. Earnings season is winding down and now is when we might start seeing earnings guidance for the first quarter. If companies start raising guidance like Sandisk did on Monday then we could really start to see the market rally.
I guess what we are trying to say is that we took profits early on other trades so that we could take a small risk on a trade like this. In other words, we will probably roll the dice and just leave this position open going into Friday and next week.
FedEx (FDX, $86.14, up $0.73)
April 90 calls (FDX100417C00090000, $1.65, up $0.25)
Entry Price: $1.35 (3/1/10)
Exit Target: $2.70
Return: 22%
Stop Target: $1.35
Action: Continue to hold.
F5 Networks (FFIV, $61.32, up $1.63)
April 60 calls (FLK100417C00060000, $3.70, up $1.05)
Entry Price: $1.20 (2/22/10)
Exit Target: $4.00 (closed half on 3/2 @ $2.50, closed half at $3.60 on 3/3)
Return: 154%
Stop Target: $3.00
Action: The calls trade to a high of $4.00 which was our target for the other half of the trade. We closed a little early but we wanted to explain the gain for the trade. A 10 contract trade would have cost $1,200 and we closed half at $2.50. That gives you $1,250. The other half was closed at $3.60 which would have given you another $1,800. Together we get $3,050, or $3.05, as the average selling price.
Berkshire Hathaway Class B (BRK/B, $82.95, up $2.18)
June 100 calls (BPY100619C00100000, $0.20, flat)
Entry Price: $0.50 (2/1/10)
Exit Target: $1.00+
Return: -60%
Stop Target: None
September 100 calls (BPY100918C00100000, $0.70, up $0.10)
Entry Price: $0.95 (2/1/10)
Exit Target: $2.00
Return: -26%
Stop Target: None
Action: The “asking” price for the September calls got stronger following yesterday’s rally and these calls do not expire for another 197 days. The June calls still have 106 days before they expire. Continue to hold.
Other 2010 Portfolio OPEN positions (2): These are trades that are still open in the portfolio that have longer expiration dates but are not worth mentioning until they turn around. This way you know we are still tracking them and we will record the results, accordingly. Click on the 2010 Portfolio link in the Members Area to view ALL open/ closed trades.
EMC (EMC, $17.55, down $0.10)
Shuffle Master (SHFL, $8.34, down $0.04)
Action: EMC is an April call option trade while Shuffle Master is a May option trade that we profiled in January 2010.
WATCH LIST SECTION
These trades are NOT recommendations until we send out an alert. These are trades that we like but have not added to the portfolio as an official recommendation because of market conditions. We will not list entry prices because these stocks are on the verge of breaking out or they could sell-off.
Freeport-McMoRan (FCX, $79.24, up $1.26)
March 75 puts (FHZ100320P00075000, $1.08, down $0.51)
April 70 puts (FHZ100417P00070000, $1.38, down $0.39)
Action: Cooper seems extended and could be peaking. Freeport is basically a “copper ETF” as traders use it as a way to play the metal. Watch for now…
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