9:00am (EST)
The S&P 500 soared 19 points, or 1.3%, to finish at 1,515.99. The index easily cleared 1,495 and 1,500 after trading to a peak of 1,520. The S&P still fell short of triggering 1,525 and a close above this level would get 1,550-1,575 back in play. The bears would like to get the action back under 1,510 and then 1,500.
The Nasdaq rocketed 32 points, or 1%, to end at 3,162. Tech made a strong move past 3,150 and cleared 3,175 after peaking at 3,177. Resistance is still at 3,200 and a close above this level gets 3,250 in the mix. The bears will be gunning for at least 3,150 today while trying to hold 3,175 today.
The Russell 2000 popped 10 points, 1.1%, to close at 910.92. The small-caps opended at 900.01 and that was the clue the bulls were going to push higher prices. The index made a run at 920 before pulling back off its high of 913.51. A close back above 920 would be bullish for another run at all-time highs (932) while a dip back below 900 would make the bears happy.
The S&P Volatility Index ($VIX, 14.73, down 2.14) closed back below 15 and 14.75 which had been our warning signs there was a dip coming. A continued rally would get the VIX back into the 12-13 range but the bears will be eager to trip 15 and 17.50 again.
The triple-digit point swings we’re seeing in the Dow and the 1% pops or drops in the other indexes have been with us for 4 trading sessions which is making a lot of traders nervous. Some feel as if they will miss the last bull train before 15,000 is here while others feel a selloff is imminent.
In these types of environments, its best to have a mixture of both calls and puts and lowered expectations. While we love to hit the triple-digit homeruns, we are happy to take double-digit gains any day of the week. With volatility here to stay, it can be nerve racking trying to figure out the market on a DAILY basis and where it is headed over the short-term but the important things is to stay calm and trust your charts. We had a few of our call options left over from our last batch of trades do really well yesterday and we are hoping we can cash a few more out for profits.
We have also stated a few put positions with April options and these options have nearly 2 months before they expire. We are 23-7 for the year for a 77% win rate and an option trade isn’t over until it expires or we close the position. Options that trade for $1 or less will have wild price swings and we have seen trades that are down 80% or more come back on the last day to hand us a gain. On options over $1-$1.25 we try to use 50% stop losses in most cases but this is how WE trade.
We have moved up some of the calls options that we had on hold but we aren’t oput of the woods, yet. We will likely lose 2 or 3 of these trades but we are looking for 2 or 3 of them to make us a profit. And remember, these are CHEAP options so a trade that has a $0.40 entry price that falls to $0.20 is down 50% even though its only down $0.20. On an options that is at $2, a $0.20 is only 10%.
With our current put plays, we are now building out our next batch of trades for April, May and June. We have missed some big winners that could have made our YEAR already – we missed the Netflix rocket ship when we shouldn’t have and we also lost focus on LinkedIn as we were watching call options on the stock before it zoomed. We are close to bagging an elephant, we can feel it.
So, as the volatility plays out, keep this in mind and stay calm as these traits will make you a better trader. Also, don’t bet the house on any one trade and try to take ALL of our recommendations to spread the risk.
As we head to press, futures look like this: Dow (-3); S&P 500 (*1); Nasdaq 100 (+2).
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 “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. Closed Trades for 2013: 23-7, for a 77% win rate, including the Weekly Wrap that is 6-1).
iShares Dow Jones Transportation Average (IYT, $106.64, up $3.05)
April 100 puts (IYT130420P00100000, $0.90, down $0.78)
Entry Price: $0.90 (2/27/13)
Exit Target: $1.80
Return: 0%
Stop Target: None
Action: The iShares nearly reached their 52-week peak of $107.16 that was set last Wednesday. There is risk to $110+ on a continued breakout but we are looking for a drop below $100 by mid-April.
Potash (POT, $39.78, up $0.85)
March 38 puts (POT130316P00038000, $0.20, down $0.25)
Entry Price: $0.50 (2/26/13)
Exit Target: $1.00
Return: -60%
Stop Target: None
Action: We are looking for resistance to hold at $40. Yesterday’s high was $39.97. These are March options so we really need this level to hold this week.
Cyberonics (CYBX, $46.30, up $0.06)
April 40 puts (CYBX130420P00040000, $0.85, down $0.05)
Entry Price: $0.75 (2/26/13)
Exit Target: $1.50
Return: 13%
Stop Target: None
Action: We have a near-term target of $40 for the stock with a shot at the mid-$30’s coming into play. We like how shares were nearly flat when the market had an outstanding day. Resistance is at $48.
Allstate (ALL, $46.05, up $0.49)
April 43 puts (ALL130420P00043000, $0.45, down $0.15)
Entry Price: $0.60 (2/26/13)
Exit Target: $1.20
Return: -25%
Stop Target: None
Action: We have a near-term target of $42 for shares which should get us a double on the put options. There is risk up to $47.
Cree (CREE, $45.29, up $0.89)
March 42 puts (CREE130316P00042000, $0.45, down $0.15)
Entry Price: $0.85 (2/21/13)
Exit Target: $1.70
Return: -47%
Stop Target: None
Action: Shares close outside of $45 and there is risk to $47. We would like to see a close back below $43.50 by Friday.
Keryx Biopharmaceuticals (KERX, $6.53, down $0.07)
June 10 calls (KERX130622C00010000, $0.35, down $0.05)
Entry Price: $0.70 (2/12/13)
Exit Target: $1.50
Return: -50%
Stop Target: None
Action: Earnings were due out last night but we didn’t see a press release covering the event. Perhaps the date has changed and we will see what we can find out this morning.
ADT (ADT, $47.99, up $1.42)
March 50 calls (ADT130316C00050000, $0.25, up $0.20)
Entry Price: $0.90 (1/28/13)
Exit Target: $1.80, lower to $0.90 or better
Return: -62%
Stop Target: None
Action: Shares traded up to $48.30 yesterday and the 52-week high is just north of $49. We will need shares to crack $50 over the next few weeks and our breakeven point is $51. We have set an exit target of 90 cents as we would be happy to get out of this trade for a scratch so let’s see how it plays out. The options will expire in a little over 2 weeks so we are also racing against the clock.
Taiwan Semiconductor (TSM $18.18, up $0.37)
April 20 calls (TSM130420C00020000, $0.15, up $0.05)
Entry Price: $0.25 (1/3/13)
Exit Target: $0.50
Return: -40%
Stop Target: None
Action: Shares made a nice push back above $18 yesterday after jumping 2%. We would like to see this level at least hold today and a close above $18.50 would be sweet. Yesterday’s peak was $18.37 and the 52-week high is at $19.25.
MGM Resorts International (MGM, $12.48, up $0.37)
June 15 calls (MGM130622C00015000, $0.25, up $0.05)
Entry Price: $0.40 (1/2/13)
Exit Target: $0.80
Return: -38%
Stop Target: None
Action: New Jersey is the latest state to approve online gambling along with Nevada and Delaware. We would like to see a close above $12.75 today.
Other 2013 Portfolio OPEN positions (2): 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 2013Portfolio link in the Members Area to view ALL open/ closed trades.
Vivus March 17 calls (from January 2013)
Apache March 90 calls (from February 2013)
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.
Baidu (BIDU, $89.35, down $0.38)
March 82.50 puts (BIDU130316P00082500, $0.50, down $0.10)
April 75 puts (BIDU130420P00075000, $0.55, down $0.05)
Thoughts: We would like to see a push to $90-$91 then another back test to possible new lows. Yesterday’s peak was $90.28.
Powershares QQQ (QQQ, $67.24, up $0.68)
April 65 puts (QQQ130420P00065000, $0.85, down $0.35)
Thoughts: These were the option we recently closed for $1.10.
Spider S&P 500 (SPY, $151.91, up $1.89)
April 142 puts (SPY130420P00142000, $0.80, down $0.60)
Thoughts: Watch for now.
iShares Russell 2000 (IWM, $90.31, up $0.94)
March 89 puts (IWM130328P00089000, $1.00, down $0.80)
March 87 puts (IWM130322P00087000, $0.60, down $0.30)
Thoughts: Watch for now.
Mellanox Technologies (MLNX, $51.64, down $0.04)
March 47 puts (MLNX130316P00047000, $0.50, down $0.10)
Thoughts: A break below $50 would be bearish for a trip to the mid to low $40’s.
DeVry (DV, $30.01, up $0.05)
March 30 puts (DV130316P00030000, $0.70, down $0.10)
Thoughts: These options got a nice pop on the close below $30. The open interest in the March 30 puts has exploded over the past few weeks as they are above 10,000 contracts.
Caterpillar (CAT, $92.25, up $2.30)
March 87.50 puts (CAT130316P00087500, $0.40, down $0.55)
April 85 puts (CAT130420P00080000, $0.90, down $0.60)
Thoughts: Shares could test $95 again on continued strength.
Ironwood Pharmaceuticals (IRWD, $14.73, up $0.17)
May 15 calls (IRWD130518C00015000, $1.20, up $0.15)
Thoughts: We have been mentioning shares could retest resistance at $15 and a break above this level could lead to $20 down the road.