Option Investor
Play Updates

Our entry point may be a day or two away

HAVING TROUBLE PRINTING?
Printer friendly version
Play Editor's Note: The market delivered some surprising strength on election day. It is conceivable that stocks might see an post-election pop. If you're a nimble enough trader I'd consider shorting such a pop. My plan is to buy a dip. It may not be tomorrow but it should occur in the next few days.

FYI: Check out these stocks. WYNN delivered an interesting bounce this afternoon. This might be a bullish entry point but use a stop under today's low. FCX was a big winner today. I would not chase it. A dip back toward $30.00 would be a big entry point to buy calls. STRA has been screaming higher but today's session looks like a big bearish reversal. This looks like an aggressive entry point to buy puts.


CALL Play Updates

Apple Inc. - AAPL - close: 110.99 change: +4.03 stop: 99.45*new*

We do not want to chase the action in AAPL but we are going to adjust our entry point strategy. Our new entry point to buy calls on AAPL is a dip into the $106.00-104.00 zone. We'll up the stop loss to $99.45. If triggered at $106.00 our first target is $118.00 where we would exit the majority of our position. The $120 level and the 50-dma near $123 could be tough overhead resistance to break. We will tentatively set a secondary target at $124.00.

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: 91.60 chg: +4.16 stop: 86.65*new*

Railroad stocks delivered a strong session with the DJUSRR index up more than 5.4%. BNI almost kept pace with the sector adding 4.7% and closing above round-number resistance at $90.00. One potential negative was how the rally in BNI stalled right on the 50-dma near $91.50. We are not suggesting new bullish positions at this time. Instead we would strongly consider an early exit right here to take some money off the table. We're raising our stop loss to $86.65. Our target remains the $94.00 mark.

Picked on October 30 at $ 86.59
Change since picked:     + 5.01
Earnings Date          10/23/08 (confirmed)
Average Daily Volume =      5.1 million  


CSX Corp. - CSX - close: 46.90 chg: +1.89 stop: 43.45

CSX also under performed the railroad index with a meager 4.1% gain. Shares of CSX remain under short-term resistance at 47.50 but the trend is certainly bullish. Our target remains unchanged at $49.90. We would seriously consider taking some money off the table with our 1st position in CSX (+6.49).

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: + 6.49 /originally listed at $43.74

Position #2
Picked on November 03 at $ 44.25
Change since picked: + 2.65

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


Lockheed Martin - LMT - close: 85.91 change: +1.93 stop: 78.79*new*

We are going to remain patient and let LMT come to us. However, we will adjust our suggested entry point to buy calls from $81-80 to $82.75-82.00. We'll up our stop loss to $78.79, which is just under the Oct. 30th low. If triggered at $82.75 Our target is the $89.50 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: 53.02 chg: +3.21 stop: 47.25*new*

Crude oil prices rallied sharply and the XLE followed suit. The XLE surged 6.4% and set a new three-week high. We're adjusting our stop loss to $47.25. We're not suggesting new positions at this time. Our target is the $56.50 mark.

Picked on October 30 at $ 50.35
Change since picked:     + 4.26
Earnings Date          00/00/00
Average Daily Volume =     47.7 million  


PUT Play Updates

Volatility Index - VIX - cls: 47.73 chg: - 5.95 stop: n/a

Volatility in this market is still contracting and it's doing it very quickly. The VIX fell another 11% today. The low today was 44.25, which happened to be the 50-dma. The VIX is now down five out of the last six sessions.

Our October 8th position is now almost 10 points in the money. Readers may want to prepare for an exit soon.

We're not suggesting new positions in the VIX at this time but any significant spike higher could be used to sell November calls.

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

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:       +17.43
Picked again Sept. 29 at =  46.72 second position
Changed since picked:      + 1.01
Picked again Octo. 08 at =  57.53 third position
Changed since picked:      - 9.80
Earnings Date            00/00/00
Average Daily Volume =        --- million  


Strangle & Spread Play Updates

CBOE Volatility Index - VIX - cls: 47.73 chg: - 5.95 stop: n/a

No surprises here. The VIX is falling fast with an 11% decline on Tuesday. We're not suggesting new positions at this time.

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
Update 11/04/08 open 19.00, high 19.00, closed 16.80bid

-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/suggested sell
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
Update 11/04/08 open  3.50, high 3.70, closed 4.00ask

Picked on October 12 at $ 69.95
Change since picked:     -22.22 
 

-

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
Update 11/04/08 open 14.80, high 14.80, closed 11.80bid <-profitable
-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/suggested sell
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
Update 11/04/08 open 1.15, high 1.60, closed 1.75ask

Picked on October 12 at $ 69.65
Change since picked:     -21.92 


Play Update Archives