Options Trading Blog
Options Trading Tips and Strategies
Chart Glance: MCP passed a major downtrend channel and after confirming a higher-low double bottom, we believe the slowdown in rare earth metals due to the Chinese New Year has finally bottomed. It appears this could be a complex inverted head and shoulders pattern.
50 DMA- $27.67 100 DMA- $30.85 200 DMA- 41.78
Support 1: $24.5 Support 2: $23.05 Support 3: $20.8
Reasons: MCP got flushed from $29-$24 on better than expected earnings. In my opinion, the only negative was their earnings power was going to be in Q1 2013 instead of Q4 2012. As of February 15th, MCP float was 56.9 Million shares, 18.3 Million reported short shares. Any positive news flow and the shorts could be in real trouble. MCP options are extremely liquid as we saw a customer bought 1700 Mar 27 weekly Calls. Implied Vol was up 3% to $54. Also, Morgan Stanley reaffirmed its “overweight” rating on MCP. With MCP near its 52-week lows, and MCP is projecting to increase revenues at more than 50% this year and more than 75% in 2013. Finally, In my opinion, I would start building a position at these levels. I would use hedge-income strategies and start selling a portion of your long position prior to the next earnings report.
Keep an eye out for todays Service ISM number and factory orders.
Monday before the Bell:
ARCO- Quarterly Earnings and Estimates (Q4E)- $.23 and Quarterly Revenue Estimates (Q4E)- $984 Million. Arco is trading in a tight 52 week range between $17.62-$29.5. In my opinion, Arco is still expensive but if they report double digit growth again and provide a positive outlook then the PE will adjust accordingly. However, with the currency related implications, Arco could potentially miss in earnings.
By Greg Zimny
Goldman did an interesting report earlier today that warm weather did boost the economy in the short term. I Wonder what Goldman thinks about high gas prices and potential wage inflation?
WYNN SHARES HALTED! Wynn filed an 8-K report by mistake this morning. Wynn announced details of a second Macau Land contract (reached an agreement on a new 51-acre property.) Shares open up 7 pts or 6%. Day range of $123-$132.59. 52wk range of $101.02-$172.58. In my opinion, traders were caught short and had to cover on the open. Support level 1 looks to be around $120.4 & support level 2 $117. $125 is a critical support level for the Wynn to hold.
Heavy upside OTM call buying in names WFT and Anadarko.
By Greg Zimny
Euro is trading near session lows at the $1.321 level as Spain forecasts 24% unemployment in 2012. China reportedly was buying Gold a few days ago when a large US fund started dumping during Bernanke’s speech. Dow Jones crossed the 13,000 mark over 50 times in 3 days. Also, Bank of America cut its Q1 GDP forecast from 2.2%-1.8%. Maybe high Gasoline prices are really cramping the consumer. IMF reports that the threat of a major global slowdown has ended as macro numbers are getting better. Big Lots, CTIC, and Overstock are set to report earnings today.
Eur/USD being in a clear downtrend, the old adage of sell the rips and buy the dips comes to mind. Trying to read the charts in a more conservative fashion requireds catalysts for entry in trades. EUR/USD is setting up for a text book short possiblilty.
ADX reading 15.41 with a new high in DMI- means that the next leg down has poential to extend strongly in price and in time duration to the downside.
After a snap back rally one could have see the over bought RSI crossover a few days ago a good time to test the waters with a small short position. But having been a little off in a couple trades lately Im really trying to extert more patience and just follow my systems as they signal to me.
The next chart I labeled the clear favored wave count to me, remembering that wave 3 is most of the time the longest wave and never the shortest wave. Forex markets have a beautiful symettry to there patterns so I use a basic measured move to project the possible end of wave 5.
What will be my catalysts.
1. A break of the yellow trend line would signal a initial first position. with a stop loss being slightly above the minor high of 1.33.
2. A compounding 2nd positon would be triggered s the EURUSD breaks cloud support. I really like to see a trade setup really close to where the cloud
gets noticably thin. This tells me that it wont take much push to fall through the ice at this point. Curiously, also I have found that areas on the chart where the cloud “flips”
are sometimes very good entry zones as far as timing.
Targets: a minimum target is labeled with the blue line and 5 notation (1.22). I think the Eur/USD will find a consolidation down here considering it is a major primary support zone and if it broke this zone with conviction, parity would be the next stop.
I also wanted to update you guys on my AUD_JPY trade (which we actually used the FXA etf as a proxy)
Summary of Previous post: I saw a coil triangle pattern forming and I knew the next move out of this zone was going to be quite big.
I drew all these targets of this type of trade. a Straddle or Strangle is what I thought would be the most prudent. Turns out the calls, even though being profitable withered away from volatility decay and the puts wont perform until the trend reverses. But my analysis was accurate we just should have been outright long instead of using options. Since we are nearing the inital upside target on this trade I expect to see a minor reversal within the next month.
S&P 500 Emini Pivot Points – 49.99 USD
Options Activity Report – 69.99 USD
However, with the unpleasantries out of the way, there seems to be nothing stopping this market and I don’t see that changing in the near future. I think we are on a march towards 1500.
I hate to call it a prediction rather it’s more of a gut feeling. The bears continue to give all the reasons why we are too high but none of that really seems to matter right now. The market just wants to go up.
It really wouldn’t surprise me to see the S&P take out its all time closing high of around 1565 that was set back in October of 2007. That’s not to say we don’t have some pullbacks along the way or maybe some consolidation periods but it’s beginning to look more and more like this is where we are heading.
If this seems like a stretch just realize that from the current 1370’s level it would only take about a 15% move to get us there. That kind of move isn’t unreasonable especially if the economic news continues to surprise.
There are a lot of things out there for us to be wary of including Iran, a still high unemployment rate, an election, and high food/energy prices. But at this moment in time you can find ways to discount all of these. Iran has been and always will be a saber rattler. Nothing is new here. Unemployment is high but it seems to be trending downwards. Oil is a concern but all we have to do is formulate a discussion on natural gas or a release from the SPR and we can see oil come down. And as far as the election goes, does it really matter which of these clowns is in charge? We will most likely have a gridlocked government and another four years of more of the same.
As long as all the economic data points continue to remain mostly positive, the general consensus will continue to be that based on these numbers the market is undervalued and at the worst fairly valued. This makes taking out 1500 a reality and taking out the all time highs well within reach.
I’ve been cautious and have held at least 30% in cash during this rally. I will continue to do so but I’m feeling more comfortable owning stocks through all of this. I definitely think there are darker days ahead for the markets and the economy, just not right now.