1:00pm (EST continued…
AOL (AOL, $36.68, up $0.84)
November 40 calls (AOL131116C00040000, $0.80, up $0.15)
November 34 puts (AOL131116P00034000, $0.90, down $0.15)
Thoughts: Our first choice would be to buy puts but shares could surge higher after earnings as they have matched or beat expectations 4-straight quarters. Shares have traded lower the past 2 reports but a few analysts have upgraded the stock over the past 2 months. There has also been a public firing and the Patch division closure that could lead to a one-time charge.
If the market looks like it ends higher on Monday, the call options could be worth a gamble but the best trade could be a strangle trade using these options. However, the premiums are rich and will likely keep us on the sidelines. (END)
The November 40 calls (AOL131116C00040000, $1.40, up $0.60) opened at $1.10 yesterday while the November 34 puts (AOL131116P00034000, $0.45, down $0.45) opened at 80 cents.
The call options have traded to a high of $2.09 while the puts have fallen 50%. Usually the put options would have fallen by a greater amount but the trade would have been slightly profitable if cashed put at current levels.
The overall cost of the trade would have been $1.90 on Monday’s open and if the calls were sold north of $2 and the puts sold at current levels the trade would be up 20-25%.
Although we had a good feeling shares would pop past $40, we didn’t trust the earnings. These types of strangle trades are also know as chicken trades because an investor is unsure of the direction a stock will go after the news.
We try to target stocks that will make a 10% move or more on an earnings announcement for profitable strangle option trades and although we missed this one, we wanted to show our mew subscribers how they work as we use these types of strategies in our Weekly Wrap.
As we head into the second half of trading, the Dow is down 8 points to 15,631 but has traded in positive territory while the S&P 500 is off 2 points to 1,765. The Nasdaq is higher by 3 points to 3,939. Play a Pick 4 on that one.
We have updated our current trades and we could have another new trade today by the close. We are still doing research but there are some trades on our Watch List that are popping. Note: Keryx Biopharmaceuticals (KERX, $13.55, up $2.45) is surging 22% as we head to press.
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 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. Closed Trades for 2013: 124-63 – the Weekly Wrap is 40-4 for 2013 (84-6 since 2011) and is designed for traders that want to use options with less risk.
Kodiak Oil & Gas (KOG, $12.88, down $0.16)
December 13 calls (KOG131221C00013000, $0.75, down $0.10)
Entry Price: $0.65 (11/4/13)
Exit Target: $1.30
Return: 15%
Stop Target: None
Action: There could be a back test to $12.75 and we would like to see shares hold $13 today. Resistance is at $13.50-$14.
Cliff’s Natural Resources (CLF, $28.43, down $0.27)
November 25 calls (CLF131116C00025000, $3.50, down $0.25)
Entry Price: $0.95 (10/21/13)
Exit Target: $5 (closed half @ $1.25 on 10/31/13)
Return: 150%
Stop Target: $3 (Stop Limit)
December 30 calls (CLF131221C00030000, $1.20, down $0.10)
Entry Price: $0.70 (11/1/13)
Exit Target: $1.40
Return: 71%
Stop Target: $0.75, raise to $0.90 (Stop Limit)
Action: The low on the November 25 calls has been $3.20 while the December 30’s have traded down to $1.06. We have raised the December stop limit to 90 cents. We still believe a run past $30 is coming once $29 clears but we want to protect profits in case it doesn’t.
H&R Block (HRB, $29.52, up $0.09)
December 30 calls (HRB131221C00030000, $0.90, uflat)
Entry Price: $0.60 (10/29/13)
Exit Target: $1.20
Return: 50%
Stop Target: None
Action: Resistance at $29 cleared and a close above this level should get the low $30’s in play. Support is at $28 but will now try to hold at $29.
Millennial Media (MM, $7.01, flat)
December 7.50 calls (MM131221C00007500, $0.75, flat)
Entry Price: $0.65 (10/25/13)
Exit Target: $1.30
Return: 15%
Stop Target: None
Action: Shares are hovering around the 50-day MA with resistance at $7.25. A close above this level could lead to a run to $8 and we have a longer-term target of 10+. Support is at $6.75-$6.50.
DuPont (DD, $60.17, down $0.14)
December 62.50 calls (DD131221C00062500, $0.35. down $0.10)
Entry Price: $0.60 (10/24/13)
Exit Target: $1.20
Return: -42%
Stop Target: 60 cents
Action: Support at $60 is being tested again. Resistance is at $62-$63.
Other 2013 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 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.
Boston Scientific November 12 calls (from October 2013) – HOLD
Aruba Networks November 20 calls (from October 2013) – HOLD
Catamaran November 52.50 calls (from October 2013) – 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 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.
We will update this section in the morning.