Option Investor
Play Updates

A Sideways Session

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Play Editor's Note: The markets were relatively calm as the world waits for the U.S. elections to take place tomorrow. I am expecting another sideways day as investors wait to see who wins the White House. I would be focused on finding candidates for "buy the dip" strategies.


CALL Play Updates

Apple Inc. - AAPL - close: 106.96 change: +0.63 stop: 94.45

AAPL marked a third day in a row that investors were buying dips in the $105.00 region. Volume was light but it was light for the whole market. We are still expecting a dip toward $100 so we're sticking to our plan. Our suggested entry point to buy calls is the $101.00-95.00 zone although I don't expect AAPL to trade under $100-99.00. We are starting the play with a stop loss at $94.45. More conservative traders could try a tighter stop but these remain volatile markets. If we are triggered at $101.00 our first target is $111.00. Our second target is $118.50. The $120.00 level looks like it could be significant resistance.

Picked on November xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           10/21/08 (confirmed)
Average Daily Volume =      48.3 million  


Burlington Northern - BNI - cls: 87.44 chg: -1.62 stop: 82.45

With a lackluster market on Monday it is not a surprise to see BNI struggle with resistance near $90.00. At this time I would look for another dip near $85.00 as a new entry point to buy calls. We're going to leave our stop loss at $82.45 for now but more conservative traders may want to tighten their stop a little toward $84.00. Our target is $94.00.

Picked on October 30 at $ 86.59
Change since picked:     + 0.85
Earnings Date          10/23/08 (confirmed)
Average Daily Volume =      5.1 million  


CSX Corp. - CSX - close: 45.01 chg: -0.71 stop: 43.45

Right on cue shares of CSX dipped toward the $44.00 level. The intraday low was $44.15. Over the weekend we suggested readers buy calls on a pull back into the $44.25-43.75 zone. Our target remains unchanged at $49.90.

FYI: CSX is due to present at a Goldman Sachs Industrials conference on November 5th.

Position #1
Picked on October 23 at $ 40.41 /gap down entry
Change since picked: + 4.60 /originally listed at $43.74

Position #2
Picked on November 03 at $ 44.25
Change since picked: + 0.76

Earnings Date          10/14/08 (confirmed)
Average Daily Volume =      6.5 million  


Lockheed Martin - LMT - close: 83.98 change: -1.07 stop: 77.45

LMT drifted sideways on Monday. We are waiting on a dip toward the $81.00-80.00 zone. If triggered at $81.00 Our target is the $89.00 mark.

Picked on November xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           10/21/08 (confirmed)
Average Daily Volume =       3.8 million  


Energy SPDR - XLE - close: 49.81 chg: -1.59 stop: 44.75

Energy stocks were drug lower by a sharp decline in crude oil on Monday. The XLE lost about 3% on low volume. Over the weekend we suggested buying calls on a dip in the $48.00-47.00 zone. More conservative traders might want to tighten their stops toward the $47 region. We're going to give XLE extra room and leave the stop at $44.75. Our target is the $56.50 mark.

Picked on October 30 at $ 50.35
Change since picked:     + 1.05
Earnings Date          00/00/00
Average Daily Volume =     47.7 million  


PUT Play Updates

Volatility Index - VIX - cls: 53.68 chg: - 6.21 stop: n/a

Volatility continues to decrease and the VIX saw a 10% drop today. If this was a stock we would look for a bounce from "support" near the 50% volatility level. Alas, it's not a stock but markets might be due for a dip soon that could produce a spike in the VIX.

We have just under two and a half weeks left before November VIX options expire.

We're still not suggesting readers buy VIX puts. Instead look for a spike toward 63 or 70 as an opportunity to sell November calls.

If the VIX is under your call's strike price at expiration (11/19/08) they'll expire at zero ($0.00) and you keep all the premium you sold it for.

Note: The VIX options, which are European style options, have a unique expiration date. 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:       +23.38
Picked again Sept. 29 at =  46.72 second position
Changed since picked:      + 6.96
Picked again Octo. 08 at =  57.53 third position
Changed since picked:      - 3.85
Earnings Date            00/00/00
Average Daily Volume =        --- million  


Strangle & Spread Play Updates

CBOE Volatility Index - VIX - cls: 53.68 chg: - 6.21 stop: n/a

The VIX is contracting quickly but nothing really moves in a straight line for very long. I would expect another spike into the 60s. The real question is how low will the VIX fall by November VIX option expiration.

We don't see any changes from our weekend comments.

Readers could use another intraday spike as another opportunity to open positions but if you do I would use a pair of higher strikes than the ones we have listed below. How about selling the November 50s and buying the 65s or 70s on a spike?

Update: We'll make that VIX spread #4. If the VIX "trades" over 62.50 we want to sell the November 50 calls and buy the November 65 calls as a hedge.

We don't see any changes from our prior comments on the VIX spread plays listed below.

Summary:

Please see the CBOE website or our Sunday, October 12th play description for details on margin requirements for selling VIX options. Link:
http://www.cboe.com/Products/indexopts/vixoptions_spec.aspx

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

VIX spread #1 has been completed.

VIX spread #2 with November options (date Oct. 12th):

We wanted to SELL the November 30 calls (opening price 10/13/08 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 
Update 10/16/08 open 13.70, high 16.20, closed 13.25
Update 10/17/08 open 15.55, high 17.70, closed 17.50bid
Update 10/20/08 open 16.30, high 17.20, closed 15.00bid
Update 10/21/08 open -----, high 15.50, closed 14.40bid
Update 10/22/08 open 16.40, high 19.20, closed 18.10bid
Update 10/23/08 open 17.50, high 21.40, closed 20.30bid
Update 10/24/08 open 25.00, high 26.50, closed 25.80bid
Update 10/27/08 open 26.32, high 26.45, closed 29.30bid<-high
Update 10/28/08 open 29.00, high 29.00, closed 23.70bid
Update 10/29/08 open 25.60, high 25.60, closed 26.20bid
Update 10/30/08 open 24.06, high 27.32, closed 25.20bid
Update 10/31/08 open 25.20, high 25.20, closed 24.30bid
Update 11/03/08 open 24.50, high 24.50, closed 21.50bid

-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 
Update 10/16/08 open 3.70, high 5.50, closed 3.65
Update 10/17/08 open 4.50, high 5.30, closed 5.50ask
Update 10/20/08 open 3.90, high 5.30, closed 4.40ask
Update 10/21/08 open ----, high 4.70, closed 3.80ask
Update 10/22/08 open 4.30, high 6.60, closed 6.40ask
Update 10/23/08 open 5.70, high 7.70, closed 7.30ask
Update 10/24/08 open 10.10, high 11.00, closed 11.00ask
Update 10/27/08 open 11.43, high 13.80, closed 14.20ask<-high
Update 10/28/08 open 11.00, high 13.30, closed  9.40ask
Update 10/29/08 open  9.23, high 10.70, closed 11.00ask
Update 10/30/08 open  8.69, high 10.90, closed 10.00ask
Update 10/31/08 open 10.30, high 10.30, closed  9.00ask
Update 11/03/08 open  8.34, high 8.34, closed 7.00ask

Picked on October 12 at $ 69.95
Change since picked:     -16.27 
 

-

VIX spread #3 with November options (published 10/22/08):

We wanted to SELL the November 35 calls (10/23/08 opening price was $ 14.00) and BUY the November 60 (10/23/08 opening price was $3.00) as a hedge against the VIX remaining elevated. We'll fill in the prices Thursday morning. Our account will be credited with the amount for selling the November 35 calls, while it the price paid for the 60 calls will be deducted.

In a different format the play is:

SELL CALL NOV 35.00 VIX-KI
Wednesday 10/22/08 closed at 14.00 bid
Update 10/23/08 open 14.00, high 17.00, closed 15.30bid
Update 10/24/08 open 19.40, high 21.50, closed 20.60bid
Update 10/27/08 open 23.00, high 23.00, closed 23.90bid <-high
Update 10/28/08 open 22.93, high 24.70, closed 18.60bid
Update 10/29/08 open 19.59, high 21.13, closed 20.90bid
Update 10/30/08 open 18.50, high 22.00, closed 20.30bid
Update 10/31/08 open 21.10, high 21.10, closed 19.20bid
Update 11/03/08 open 19.31, high 19.31, closed 19.10bid
-and-

BUY CALL NOV 60.00 VIX-KN
Wednesday 10/22/08 closed at 3.70 ask
Update 10/23/08 open 3.00, high 4.50, closed 4.10ask
Update 10/24/08 open 7.00, high 7.00, closed 6.90ask
Update 10/27/08 open 6.91, high 8.80, closed 9.00ask <-high
Update 10/28/08 open 7.60, high 8.60, closed 5.50ask
Update 10/29/08 open 5.40, high 6.30, closed 6.50ask
Update 10/30/08 open 4.90, high 6.20, closed 5.80ask
Update 10/31/08 open 5.90, high 6.10, closed 4.90ask
Update 11/03/08 open 4.60, high 4.81, closed 3.50ask

Picked on October 12 at $ 69.65
Change since picked:     -15.97 


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