1:40pm (EST)
Although we penciled-in some downside action this week, it remains to be seen if the bears’ latest fight turns into a brawl or another whimper. We have talked about some of the bearish signs that have appeared this week but also said the damage has been minimal as the bulls continue to hold support (and the VIX).
As much as the talking heads and slick talking pros have said the market needs a 5%-10% pullback, we have mentioned we still see another 1%-2% upside potential and that a mini-trading range could develop until the next leg higher (or lower).
These types of environments can be frustrating and another reason why it’s not wise to short a dull market. If and when the 10% slide comes, we will be ready for it, but in the meantime it remains “a stock picker’s market”.
We have done well avoiding the pitfalls of overtrading and being impatient as we said February is always a tricky month to trade and that March could be volatile.
We have been mostly long call options since the beginning of last year and while we did nibble on a few put options at the beginning of February, we are 27-8 for all of our closed trades. Our Daily Portfolio is showing a gain of 154% and our Weekly Wrap is pushing profits of nearly 30%.
We have used “cheap” options for much of the year and by that we mean most of the premiums we have paid to place a trade have been under $1. When there is a clear trend, we will pay up to $2 for nearer-term options.
We do this to reduce our risk. Options that are priced higher than $2 can have big drawdowns if you losses are capped at 50% and there is major volatility. Under the same assumptions, this is also 3 or 4 “cheaper” option trades if you are buying 50-75 cent options. By doing chart work and homework, we usually don’t carry 50% stops on options under $1 because you can get “stopped out” of a lot of good trades by falling into this type of portfolio management.
We have mentioned our new subscribers keep tabs on other major options newsletters because they tell us how frustrated they were before they found us. Most option newsletters don’t have Track Records and most of them don’t take their own trades.
We don’t roll that way and why we keep our people as we continue to grow. We work hard to get our results and we care more about making you money than providing useless trades with no accountability. This is what a lot of the bigger boys do and why they care more about their numbers than yours.
We do have another New Trade today on a stock that is a current recommendation for our Weekly Wrap as well. Shares are pushing 52-week highs again and are the verge of a blue-sky breakout.
Shares are just south of $6 and could be headed to $8 by late April. If so, the call options we are targeting could return upwards of 350%. The current price on the option is 55 cents and they could be worth $2.50 if our Price Target of $8 triggers. There is heavy action in the trade so it is very liquid and the bid/ask is just a penny spread.
As we head to press, the Dow is down 36 points to 16,314 while the S&P 500 is off 4 points to 1,863. The Nasdaq is higher by 3 points to 4,310 and the Russell 2000 is up a point to 1,188.
Breaking News!!! Our World Wrestling Federation (WWE, $29.76, down $0.04) call option trade has officially been closed for a 203% return as we were stopped out of the remaining quarter of the March 30 calls (WWE140322C00030000, $1.40, down $0.30).
Closed Trades for 2014: 27-8 – the Weekly Wrap is 11-2 for 2014 (96-9, or 91% win rate, since 2011) and is designed for traders that want to use options with less risk.
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 tradesor “Exit Orders” in your brokerage account unless we list one. We will send out a “Profit Alert” or “New Trade” 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.
1:40pm (EST)
New Trade!!!
Zynga (ZNGA, $5.80, up $0.15)
Buy to OPEN April 5.50 calls (ZNGA140419C00005500, $0.55, up $0.10)
Action: We like these calls at current levels. If shares can reach $6.50 by mid-April we will double our money. Of course, we are aiming for a much higher return if shares can push $8 but we would be happy with $6.50 and a double.
Verizon (VZ, $46.70, down $0.33)
April 45 puts (VZ140419P00045000, $0.60, up $0.10)
Entry Price: $0.62 (3/10/2014)
Exit Target: $1.30
Return: -3%
Stop Target: None
Action: We believe shares could test $40 over the longer-term and fall below $45 over the near-term. Resistance is at $48.
Opko Health (OPK, $9.14, down $0.10)
April 10 calls (OPK140419C00010000, $0.40, down $0.05)
Entry Price: $0.65 (3/4/2014)
Exit Target: $1.30
Return: -38%
Stop Target: None
Action: Resistance remains at $9.50-$10 and a close above the latter would be super bullish for a run to $12-$13 on short covering. Support is at $9-$8.75.
Discovery Laboratories (DSCO, $2.66, up $0.07)
April 2 calls (DSCO140419C00002000, $0.80, up $0.05)
Entry Price: $0.65 (2/24/2014)
Exit Target: $1.00-$1.30
Return: 23%
Stop Target: 65 cents (Hard Stop)
Action: A close above $2.70 would be bullish and yesterday’s high was $2.72. Support is at $2.50 and a dip below this level will likely force us out of the trade. Yesterday’s low was 67 cents on the options.
World Wrestling Federation (WWE, $29.92, down $0.17)
March 30 calls (WWE140322C00030000, $1.70, down $0.30)
Entry Price: $0.40 (2/18/2014)
Exit Target: Limit Order at $3, lower to $2, to exit remaining quarter (3/5/14 closed half @ $0.80, 3/6/14 closed a quarter at $1.80)
Return: 219%
Stop Target: $1.45 (Hard Stop on remaining quarter)
Action: We have set limit orders to try and close the last quarter of the trade at $2 today.
Like a classic wrestling match, the last quarter position of this trade is still hanging in there. The options traded to a low of $1.60 yesterday but with time decay rapidly approaching, we will likely get stopped out if shares can’t clear and hold $30 at the open.
Kodiak Oil & Gas (KOG, $11.18, down $0.63)
June 13 calls (KOG140621C00013000, $0.40, down $0.20)
Entry Price: $0.70 (2/13/2014)
Exit Target: $1.40
Return: -43%
Stop Target: 30 cents
Action: We believe the company is a takeover candidate that could get a bid north of $15. Support is at $11. Resistance is at $11.75. If the stock fails to hold $11 and the options fall below 30 cents, we will have to decide if we want to leave the trade open. We do not have a Hard Stop listed because we like the takeover aspect of the company being acquired. Given the time the trade has, we will likely keep it open as we have a good history of picking takeover targets.
We have said over the years Bud, Marvel Entertainment, and most recently Knight Capital would be acquired. Knight was an especially bold call given the trading debacle they went through. We could be totally wrong about Kodiak but that is the water-cooler talk.
Exact Sciences (EXAS, $13.64, down $0.15)
April 19 calls (EXAS140419C00019000, $0.50, flat)
Entry Price: $0.88 (1/22/2014)
Exit Target: $1.75
Return: -43%
Stop Target: None
Action: Support is at $13. Resistance is at $14.50 and a move above this level should get us back near even.
The company should get some FDA news in March on its Cologuard drug. These are April options with 2 months until expiration and we plan to hold through the volatility because we want to be in when the March news is released. We do not have a Stop Limit listed.
Other 2014 Portfolio OPEN positions (6): 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 mkh jb√ accordingly, when we close them or if the options expire. Click on the 2013Portfolio link in the Members Area to view ALL open/ closed trades.
Sony April 20 calls (from January 2014) – continue to HOLD
General Electric March 28 calls (from January 2014) – continue to HOLD
Ariad Pharmaceuticals March 10 calls (from January 3014)
May 11 calls (from January 3014)
Caterpillar March 85 puts (from January 2014) – continue to HOLD
McDonald’s March 90 puts (from February 2014) – continue to HOLD
Apollo Education Group March 29 puts (from February 2014) – continue to HOLD
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 and why we have 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.
WE will update this section in the morning.