(What is a strangle? It's when a trader buys an out-of-the-money (OTM) call and an OTM put on the same stock. The strategy is neutral. You do not care what direction the stock moves as long as the move is big enough to make your investment profitable.)
Google Inc. - GOOG - cls: 644.71 chg: + 5.09 stop: n/a
In spite of all the hype ahead of GOOG's earnings announcement there was no sell-the-news reaction that the stock typically sees following its report. Instead the stock gapped higher above resistance at the $640 level. Shares hit $658 before paring its gains. Boosting shares were a couple of new analyst price targets. One firm raised their price target on GOOG to $775 and another over $800. Nothing goes up in a straight line forever and we're going to stay with this bearish play a few more days to see if the rally will fade or not. More conservative traders will want to strongly consider just exiting early right here to avoid further losses. We're not suggesting new positions.
Our second strategy was the speculative put spread. We suggested buying the November $580 put (GOO-WP) and selling the November $530 put (GOP-WW).
*This isn't a strangle play but given the spread in strategy number two we decided to stick it in the strangles section of the newsletter.
Picked on October 16 at $616.00
Intl. Bus. Mach. - IBM - cls: 112.28 chg: -2.52 stop: n/a
IBM continued to sell-off and shares broke down under support near $115 and its 50-dma. However, the post-earnings weakness was not big enough to help our aggressive, October strangle which has now expired. Our estimated cost on the October play was $1.20. We still have a November strangle. Our November strangle suggested the November $125 call (IBM-KE) and the November $110 put (IBM-WB). Our estimated cost was $3.00. We wanted to sell if either option hits $6.00.
Picked on October 15 at $118.03
Cummins Inc. - CMI - cls: 137.78 change: -0.16 stop: 135.85
It looks like shares of CMI were influenced by the earnings miss in Caterpillar (CAT). The combination of CAT's negative earnings news and a weak market pushed traders to lock in profits for CMI. The stock broke down under support and did so on rising volume. Shares hit our stop loss at $135.85 pretty early in the session.
Picked on October 11 at $140.85
NASDAQ 100 trust - QQQQ - cls: 52.44 chg: -1.34 stop: n/a
It turned out to be a volatile week for the markets but the QQQQ did not move enough for our strangle to become profitable. Our aggressive October strangle using the $54 calls and $53 puts would have expired. Our estimated cost was $0.76.
Picked on October 14 at $ 53.53