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Call Updates

Apple Inc. - AAPL - close: 101.89 change: +3.94 stop: 91.45

So we didn't get a retest of AAPL's lows near $85. It is still a possibility. Yet today's 800-point bounce off the DJIA's lows today was pretty amazing. More conservative traders will want to wait for that retest of the October lows and stick with the entry point in the 85.50-85.00 zone. I'm going to suggest more aggressive traders go ahead and buy some November calls on AAPL right now. We'll use a stop loss under today's low (91.74) and we'll target the 119.50 mark since the $120 level could be short-term resistance.

Here are some alternatives:

Alternative #1) Covered Call on AAPL. You could buy AAPL stock here around $102. Sell the January $100 call for $17.90. That puts your cost basis in AAPL in the $85-84 zone. Granted you'll probably get called out but you have a lot of room to see AAPL move. You could use a stop loss under $84.00 to buy back the call much cheaper and then get out of the stock if things go against you.

Alternative #2) Sell an out-of-the-money covered call. This means buying AAPL now at $102 and selling something like the January 120 calls, which are about $9.50. This puts your cost basis in AAPL down around $93 and if AAPL goes over $120 and you get called out then you captured almost 20 points in the stock on top of collecting the covered call premium. Again, you'll need to play with stops and be ready to buy back the call if you want to get out.

Alternative #3) If you are willing to own AAPL stock then sell the November $90 puts for around $7.25. You collect the money now and if AAPL goes under $90 again you will probably get put the stock but your cost basis will be around $82.75. If you want to collect even more premium then sell the January $90 puts for almost $11.

Today's aggressive play is to buy out of the money November calls. I'd use the November $115s around $7 or the November $120s around $5.50.

Picked on October 16 at $101.89
Change since picked: + 0.00
Earnings Date 10/22/08 (unconfirmed)
Average Daily Volume = 10.6 million

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DIAMONDS - DIA - close: 89.87 change: +5.00 stop: 74.40

We were expecting a retest of the lows near $80.00 and our suggested entry point to buy calls was $80.25. The DIA only hit $82.08. If you were nimble enough to catch the bounce then congratulations. After an 800-point bounce I don't feel like chasing it here. The optimistic investor in me wants to believe that today's "higher low" is another sign the bottom is in but there is still a good chance that the DJIA will eventually retest its lows. I could easily see this bounce carry toward the $95 region (9,500 for the DJIA) before it begins to run low on steam). We're going to stick to our $80.25 entry point for now.

Picked on October xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 00/00/00
Average Daily Volume = 30 million

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Hansen Natural - HANS - close: 23.00 change: -1.16 stop: 19.45

HANS came relatively close to hitting its lows. We were aiming for a dip toward $20.50ish and HANS slipped to $21.47 before bouncing. More aggressive traders might want to buy this dip with a tight stop under today's low. The stock closed lower today so it didn't fully participate in the rebound. We're going to stick to our plan and wait for an entry point in the $20.65-20.00 zone. If triggered at $20.65 our first target is $24.50. Our second target is $27.50. If triggered we're suggesting the November calls.

If you like the covered call alternative then consider buying HANS stock and selling the March 2009 $25.00 calls, which are trading around $5.00-6.00. That gives you a lot of room for HANS to move around and effectively puts your cost basis in the stock around $18.00. If HANS trades over $25 and you get called out then you collected the $5.00 premium and the $2.00 appreciation in the stock.

Another alternative strategy would be wait for the drop toward $21-20 and then sell the November $20 puts as long as you don't mind owning HANS at $20.00. If HANS dips toward $20 the November $20 puts could spike to $4.50-5.00ish. That offers a lot of room to protect yourself. See my Play Editor's note on 10/14/08 for more details.

Picked on October xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 11/06/08 (unconfirmed)
Average Daily Volume = 10.6 million

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MasterCard - MA - close: 156.68 chg: + 3.13 stop: 118.99

Shares of MA dipped under $144 before bouncing back this afternoon. Moves like this suggest the $140 zone might be stronger support than previously thought. I'm not 100% convinced that the market won't go lower but more aggressive traders may want to consider some alternatives. Currently the plan is to buy calls on MA on a dip into the $130-120 zone. If triggered our first target is $149.50. Our second target is $167.50. This is a very volatile stock and options are extremely expensive. This play is not for everyone due to volatility and the price of options.

As I look at record high volatility I would like to suggest a better plan. Consider covered calls on MA. You could buy shares of MA at $157.00 now and sell the November $155 calls for almost $16.40. MA could dip to about $141 before you lose any money. Essentially that's a quick 10% profit in five weeks and MA would have to breakdown to new lows to really lose much. You could always use a mental stop that if MA traded under $140 you buy back the call for much less and sell the stock.

Or you could sell the January 2009 $155 calls for $23.00, which gives you a lower cost basis (about $135) in the stock if the stock went down. Plus, you'd have a really good chance of being called out (while you keep the premium). The question is where will MA be in January 2009. If it's trading over $180 then you're going to wish you hadn't sold those calls. Of course you'd have to endure a lot of volatility over the next three months to find out.

Picked on October xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 11/03/08 (confirmed)
Average Daily Volume = 3.8 million
 

Put Updates

Volatility Index - VIX - cls: 67.61 chg: - 1.64 stop: n/a

The volatility index spiked to yet another new all-time record high of 81.17 when the market was at its lows this morning. As stocks rebounded the VIX pulled back sharply falling about 16% from its intraday peak. Yesterday in our VIX spread section I suggested readers consider new positions on a move in the VIX near or past its highs. If you were considering new put positions on the VIX this is a good spot but the problem is that VIX options are so expensive and even if the VIX falls the option premiums will deflate.

Note: The VIX options, which are European style options, have a unique expiration date. October VIX options expire on October 22nd, 2008. November VIX options expire on November 19th, 2008. The last day of trading for these options is the Tuesday before expiration. For more information check this link:
http://www.cboe.com/Products/indexopts/vixoptions_spec.aspx

Our September 16th put position (suggested entry at 30.30) has a 25.50 target. In all honesty this position may be dead. We still have plenty of time with these next two. The September 29th position (suggested entry at 46.72) has two targets at 36.00 and 31.00. Our October 8th position (entry 57.53) has two targets at 40.00 and 35.00.

Picked on September 16 at = 30.30 first position
Change since picked: +37.31
Picked again Sept. 29 at = 46.72 second position
Changed since picked: +20.89
Picked again Octo. 08 at = 57.53 third position
Changed since picked: +10.08
Earnings Date 00/00/00
Average Daily Volume = --- million
 

Strangle Updates

(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.)

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CBOE Volatility Index - VIX - cls: 67.61 chg: - 1.64 stop: n/a

This morning's market sell-off and spike to new highs in the VIX was another great opportunity to sell some VIX options. We don't see any changes from our previous comments. I will point out that you can see by the higher-priced October options over Novembers that the market expects volatility to decline into November.

Please see the CBOE website or our Sunday play description for details on margin requires for selling VIX options.

Note: VIX options are European style options that settle for cash at expiration. Furthermore VIX options have unique expiration dates. October options expire on Wednesday, October 22, 2008 and will stop trading on Tuesday, Oct. 21. November options expire on Wednesday, November 19, 2008 and will stop trading on Tuesday, November 18th.

We have listed two different plays. The strategy was to sell an deep in-the-money call to collect the premium while buying a much higher call as a partial hedge should the VIX remain extremely elevated.

VIX spread #1 with October options:

We wanted to SELL the October 40 calls (the opening price Monday morning was $13.00) and BUY the October 60 (open was $2.90) as a hedge against the VIX remaining elevated.

Here is the strategy in another format:
SELL CALL OCT 40.00 VIX-JH.
Monday 10/13/08 open 13.00, high 15.16, closed 11.00
Update 10/15/08 open 11.00, high 17.00, closed 17.00 (2nd chance)
Update 10/16/08 .........., high 29.60, closed 23.75

-and-
BUY CALL OCT 60.00 VIX-JN.
Monday 10/13/08 open 2.90, high 3.70, closed 1.80
Update 10/15/08 open 1.35, high 5.00, closed 4.40 (2nd chance)
Update 10/16/08 open 4.10, high 12.20, closed 7.90
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VIX spread #2 with November options:

We wanted to SELL the November 30 calls (opening price was $ 8.60) and BUY the November 50 (opening price was $1.61) as a hedge against the VIX remaining elevated.

In a different format the play is:

SELL CALL NOV 30.00 VIX-KF.
Monday 10/13/08 open 8.60, high 9.80, closed 8.40
Update 10/15/08 open 10.00, high 13.00, closed 13.00 (2nd chance)
Update 10/16/08 open 13.70, high 16.20, closed 13.25

-and-
BUY CALL NOV 50.00 VIX-KJ.
Monday 10/13/08 open 1.61, high 2.10, closed 1.50
Update 10/15/08 open 2.00, high 3.60, closed 3.60 (2nd chance)
Update 10/16/08 open 3.70, high 5.50, closed 3.65

Picked on October 12 at $ 69.95
Change since picked: - 2.34
Earnings Date 00/00/00
Average Daily Volume = ---
 

Dropped Calls

None
 

Dropped Puts

None
 

Dropped Strangles

None
 

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