Stock futures are posting gains this morning as S&P futures trade higher by 7 points to 1,030. NASDAQ futures are also in the green with a 17 point gain to 1,165 and Dow futures are higher by 61 points to 8,745. Fair value for the S&P 500 today is $3.02. HL Camp & Company has their computers set for programs buying at $4.21 and set for selling at $1.24.
Stronger U.S. Dollar sign that markets are calming
Yesterday the US$ showed some strong gains versus most major foreign currencies and this has us believing that market participants are beginning to "calm down" after the terrorist attacks on September 11th. This morning, the US$ is mixed versus most of the major foreign currencies, but continue to show some strength versus the Swiss Franc. The December Swiss Franc futures show the Franc is weak against the US$ this morning (sf01z) and it is this currency that we originally wanted to be watching to get a pulse on investor psychology and perception of the U.S. and its financial markets.
Good stock for a straddle or strangle
Options traders that like to play straddles (buying both the put and call option with same strike and expiration) or strangle (buying out of the money call and put, same expiration different strikes) may want to take a look at shares of WebEx Communications (NASDAQ:WEBX). The stock was mentioned briefly on September 17th in the 01:30 EST Update, as Teleconferencing stocks were all trading significantly higher. This group traded wild early last week and has now had some time to settle in and it could be time for a significant move.
Three of the five stocks discussed in that update (WEBX, MCSI and PCTL) currently trade with some lofty bullish price objectives. Shares of Polycom (NASDAQ:PLCM) trade with a bearish price objective, but they're busy trying to complete the acquisition of PictureTel (NASDAQ:PCTL).
We'd avoid trying to figure out just how the merger between PLCM and PCTL is going to affect things at this point. The stock that looks most interesting for a trade is WebEx Communications (NASDAQ:WEBX). Here's what to look for and why this might be an attractive play for a straddle trader.
WebEx Communications - last nine months
Right now there looks to be BIG disagreement on where this ones headed. Big volume of 6.13 million shares on September 17th from $19.63-$23.41 gives hint that there's some stock underwater right now at the $18.50 level. What's interesting is the 200-day MA at $16.80, upward trend at $18 and 50% retracement at $16.34. In early September, the stock held its 50% retracement and the terrorist attacks brought traders into WebEx (WEBX) at that time as investors felt the group may benefit from growing teleconferencing activity. The BIG disagreement on recent trading is a good scenario for a straddle trade. Should the stock break down, there's a lot of stock now at higher levels that could call it quits. A break back to the upside could have a lot of supply taken off the streets and the stock could move sharply higher. How high? Here's some analysis from the point and figure charts
WebEx Point/figure chart - $1 and $0.50 box
Shares of WEBX recently tested bullish support at $15.50 then shot higher to $25. It's now been 9 trading session since WEBX exploded to the upside at $20 and the stock has pulled right back in where things left off prior to the terrorist attacks. By using a past BEARISH price objective (prior to terrorist attacks) the p/f chart indicated a bearish price objective of $12. Since the attacks, the upward move gave us the current BULLISH price objective of $42.50! Now there's some disagreement! We've noted several levels of support in the $16.50 to $18 range so right now I'd have to lean to the BULLISH camp.
The relative strength chart vs. the S&P 500 is on a "buy signal" but yesterday's pullback now has relative strength in a column of O's.
There's about as much "indecision" in this stock as you can find anywhere and this is perhaps what makes it an interesting straddle play. Play both sides of the fence and let the stock determine the outcome. We will note that the Market Volatility Index (VIX.X) is rather high right now, so option premiums are going to be pricey. That's the one bit of downside to this type of trade right now.
However, those that have been practicing their "inside day" trading technique (Bailey's Basics for premierinvestor.net or Traders Corner for OptionInvestor.com or yesterday's 03:00 EST Update on IndexSkybox.com) may want to wait for this pattern to potentially present itself. Either way, I think this stock may be poised for a BIG move (up or down) in coming sessions. There's just too much disagreement! When everyone does come to agreement, then the stock should move in the direction of the break.
As of last night the OCT $17.50 calls (UWBJW) were offered at $2.75 and the OCT $17.50 puts (UWBVW) were offered at $2.35 ($5.10 total debit). For November expiration, the November $20 calls (UWBKD) were offered at $2.15 and the November $20 puts (UWBWD) were offered at $4.20 ($6.35 total debit).
OCT $20 calls (UWBJD) offered $1.20 and OCT $17.50 puts (UWBVW) offered $2.35 ($3.55 total debit). Currently, only NOV $20, $22.50 strikes are offered, thus a November strangle is not available.