Let me begin by introducing myself. My name is Robert Ogilvie. I first began writing for OptionInvestor.com in 1998 and continued until about 2002. The commentary usually consisted of strategy discussions, risk management techniques and general investment concepts. As a Registered Options Principal, my entire financial services career has been focused around option trading, strategy development/integration and option education. In 2000, I developed a short option strategy that primarily focused on selling puts. The most important part of the strategy was the cash allocation methods. The techniques developed from that process will be lagely implemented going forward. I plan on getting into the methods a little each week. I had planned on starting a small hedge fund to trade the strategy when, in 2003, I was hired as a portfolio manager. Unfortunately, I entered into that position with many promises and no delivery. I am currently am institutional broker with thinkorswim, Inc. and a contributing writer for their in house newsletter, RedOption. Finally, I recently began SkyboxTrading, LLC to offer investment advisory services, Autotrade newsletters and commodity trading advisory (CTA).
With only two weeks left in the February Option cycle we are going to get an early start on March. On Monday, there will be 46 days until March expiration and 11 days until February expiration. My style is to present the trade, discuss the costs, calculate the initial return, and establish risk management parameters. You all may see the same names from time to time. My goal is to provide approximately ten option trades per month. Many of the candidates may be higher priced stocks that require higher margin requirements. I use a hands approach to fundamental research. I like to be personally familiar with each company I present. There is a reason we have watch lists and FOCUS lists. A normal person only has the capacity to follow a few names at once. With all of that said (pet peeve: wrote) each position's allocation will be weighted according to risk capital and/or return potential.
WYNN - Wynn Resorts, Limited, together with its subsidiaries, engages in the development, ownership, and operation of destination casino resorts in the
We are selling the 95 strike due to the recent low of 95.34 holding and the price advancing from the 95 – 100 consolidation. The price is also above both the 50 and 200 day moving average. Risk management is set to close half the trade if the price breaks below the 1/31/2008 low of 106. The remaining half is set to close if the price declines below the 95 strike.
YHOO - Yahoo! Inc. provides Internet services to users and businesses worldwide. It offers online properties and services to users; and various tools and marketing solutions to businesses. The company's search products include Yahoo! Search, Yahoo! Toolbar, and Yahoo! Search on Mobile, Yahoo! Local, Yahoo! Yellow Pages, and Yahoo! Maps that allow user to navigate the Internet and search for information from their computer or mobile device. Microsoft bid $31 for the company and the stock sits at 28.38 at the Friday close. The $2.62 difference is most likely due to the risk of EU approval and the time frame in which it will take to actually merge. Looking at the chart, a clear support level was established on Friday at 27.33. That level corresponds with a double top formed in the later part of November. Old resistance becomes new support and vice versa. Another support level exists just below $25 from the November low and the January 10th high.
We are selling the 25 strike just in case the market falls out of love with the deal. Risk Management is set at closing the trade if the price breaks below the 200 DMA (currently at 26).
NYX –NYSE Euronext, the holding company for NYSE Group, Inc. and Euronext N.V., operates an exchange group and offers a diverse array of financial products and services. It brings together six cash equities exchanges in five countries and six derivatives exchanges offering listings, trading in cash equities, equity and interest rate derivatives, bonds, and distribution of market data. NYSE Group operates two securities exchanges, the New York Stock Exchange LLC (NYSE) and NYSE Arca, Inc. It provides securities listing, trading, and market data products and services. The NYSE is an equities exchange and provides an orderly, liquid marketplace where investors buy and sell listed companies' common stock and other securities. The NYSE executes equity, debt, options and commodities trades. The company just announced that it is acquiring the AMEX and prior to that the Philly Stock exchange. While its commodity coverage isn’t quite the level of the CME’s (Chicago Mercantile Exchange), it does offer some. The most interesting part of this investment is its increasing exposure to options transactional revenues. Option transaction growth, second to commodities, has been phenomenal over the past few years.
The stock closed at 81.28 on Friday just above the 200 day moving average (80.71). It looks like it has resistance near 85 and good support at 75. For now we will sell half if the price breaks below 75 and the whole trade below 70. We could give the stock a little more room and set the stop below 66.87 (1/22 low) or the cost basis if assigned (70 – 1.74 = 68.26) but this market is too temperamental to risk any additional capital.
SWIM – INVESTools, Inc. provides investor education, and brokerage and related financial products and services for self-directed investors in the
This stock has been hammered since December’s high of 18.23. The recent low is 12.84 and the 200 DMA is at 13.31. I like selling the 12.5 here because if the stock breaks the 12.84 low we will just get out of the trade and lick our wounds. If the price breaks below 12.8, in my opinion, the position would continue down to 11.5.
CMG – Chipotle Mexican Grill, Inc. engages in the development and operation of fast-casual, Mexican food restaurants in the
The chart shows some momentum from the bounce last week. But A coincidence level of resistance is at the 128.59 gap established on 1/28 and the down trend line. The support level and the 200 DMA is at 108. Therefore, risk management will be a close below 108.
AAPL – Apple Inc. designs, manufactures, and sells personal computers, portable digital music players, and mobile communication devices, as well as related software, services, peripherals, and networking solutions worldwide. The company's products include desktop and notebook computers, server and storage products, and related devices and peripherals. According to the recent EPS report, the iPod and iBook sales are good. The market didn’t like that the MacAir wasn’t more revolutionary or that there wasn’t a lot of hype at this year MacWorld event. I just learned you can use PC based programs on a Mac. Where have I been? Did you all know that? I tell you what, I want a Mac to replace my Dell. Plus my wife and I both got iPods. However, Apple needs to create something new or tell everyone they can use most PC programs on an Apple or else it is dead in the water.
Risk management is tight on AAPL. A break below 126 is a close of half. A break of 115 is a close of the rest.
SBUX – Starbucks Corporation engages in the purchase, roasting, and sale of whole bean coffees worldwide. It offers brewed coffees, Italian-style espresso beverages, cold blended beverages, various complementary food items, coffee-related accessories and equipment, a selection of premium teas, and a line of compact discs, through its retail stores. The company also sells and licenses its trademark through other channels
Starbucks is probably one of those stocks that could get hammered to oblivion in a slow economy. Sometimes it is hard to justify a $4 coffee. But it is one of those guilty pleasures like alcohol, cigars or gambling. I heard someone say “how can a company that sells a legal drug be a bad investment.” The company just announced it isn’t going to be opening new stores. I think that is a good idea. Let’s see how they grow without artificially adding revenues from spending money to open stores. The trade is for the next 46 days, not indefinitely.
The Risk Management parameters are currently set at a breach of the 17.5 strike price. Nothing too extravagant.
TIF - Tiffany & Co., through its subsidiaries, engages in the design, manufacture, and retail of fine jewelry. Its jewelry products include gemstone jewelry and gemstone band rings, diamond rings and wedding bands for brides and grooms, and non-gemstone, gold, or platinum jewelry, as well as non-gemstone, sterling silver jewelry. It sells its products through retail sales and business-to-business direct selling operations in the
We aren’t going to give this trade too much room before exiting it. Risk management is at a breach of 36.4. Resistance currently appears to be near 42.80.
We will add a couple more ideas to the newsletter in the coming week. Some of the ideas will include short calls on equities and short options on ETFs such as the SPY, DIA, IWM, QQQQ, TLT, and OIH. Some of the current positions will be converted to short strangles by selling a call against an existing short put position or vice versa. My goal with the current list is to provide a list of liquid options with a belief that they are good candidates. The allocation is determined on an average of $5,000 of initial margin per trade. Those trades that require less margin than $5,000 either possess greater risk of being stopped, have a higher risk of the margin call increasing faster or provide enough return for the initial investment. However, I also believe the S&P is near a short term high from its bounce two weeks ago and may retest the recent low of 1325. Good luck with the fills. I’ll keep you all updated.