Trade:  Buying the $DAL Jan 2014 20 Calls for $.30

Risk: $30 per 1 lot

Reward: Unlimited

Notes: Good risk vs reward and Paper bought 18,531 $DAL Jan 2014 20 Calls for $.30

UPDATE 9.21.2012  These Calls are now trading $.27, but this is a long term lottery ticket, not a short term one.

1. The market will continue higher throughout the rest of the year.   
2. Obama will win the Presidency.
3. The government will print money till the cows come home, driving up the price of gold with inflation bound to happen.

The stock market is being bought on any dip and I think it will continue until next year. I expect a huge sell off in 2013.  The word “recession” is thrown around way too often, there is a slowdown in China, and troubles in Europe are still looming overhead. However, now is not the time to get short, price action and price momentum is too strong to play against. There has been a slew of upside call buyers in 2014 in gold and silver miners indicating these stock will continue to go up as long as QE infinity goes on.  You can’t fight the Fed..  .

   It is interesting to point out and remember that one man’s floor is another man’s panic point; this is essentially at the core of volume related technical studies.   The individual perception of what seems to be logical during panic, euphoria, or complacency all makes a market at a price. The question becomes how do we get to theses prices or large round numbers? Maybe a certain amount of rounding must be done… it is interesting to note that of 11 of the 15 biggest analysts on the street have large round numbers as price targets on AAPL (ie ending in a 0), but this is not breaking news…what is the trade on this and what may cause these large round numbers? The answer is pin risk in the derivatives market.     

As of the close on Tuesday (09/18/12) AAPL was trading at $701.95. Last year at this time, the same question could have been asked, for AAPL was a mere 1% away from a new all time high. Lone behold on that expiration Friday AAPL pinned right on $400 (see Sep. 2011 quote below). The following Monday AAPL made a new all time high…raging to $411.         

September is traditionally a slow month, so open interest can be powerful tool during this month. Hedgers and speculators square up their positions, for they do not know if they will be assigned or expire ITM. Open interest at the $400 line was roughly 30,000 on the calls and 21,000 on the puts. Exhibit 2 below visualizes the open interest of the September 2011 options on both sides.

In September of 2010 (exhibit 3) AAPL pins directly equidistant from the $270 and $280 strike. Then in 2009 AAPL pinned right on $185. And finally in 2008 AAPL went out at $140.91, not as strong as the other months, but still noteworthy.

E-mail the author with any comments or inquiry…

mark@keeneonthemarket.com

Data courtesy of Thinkorswim

Gold and copper futures are up around five points to 1776.60 and one one-hundredth of a point at 3.7990 respectively. Silver, platinum and palladium are down slightly. Crude oil futures are down less than a point to 94.43. The USD has gained $0.11 cents on the Yen after the Bank of Japan’s announcement overnight.

Apple (AAPL | 701.91) tipped over the $700 mark yesterday after teasing with the resistance point on Monday. The explosiveness of the stock has slowed slightly at its current level, gaining only $2.13 yesterday and losing almost a point overnight and in pre-market trading. There has been nothing but praises for the new iPhone 5, pointing the stock towards continued strength as it has made another new all-time high.

Google (GOOG| 718.28) exploded yesterday, up another $8.30 and continued growth overnight gaining about a dollar to 719.00. Google is nowhere near its all-time high of $741, but it is at a 52-week high and continues to break through this level. Mozilla, the builders of the Firefox web browser, plans to compete with Google in the mobile operating area and is currently working with ZTE Corp to implement the software in their phones.

Ascena Retail Group Inc. (ASNA| 21.01) released a positive earnings report this morning, the stock is down a point and a half overnight.

Housing starts report comes out today at 8:30am EST. Housing starts are registrations of new construction generally in residential buildings. Existing home sales report will follow two hours later.

Alex Kalish has a master’s degree in economics from Suffolk U.

Questions, comments and suggestions welcome: alexk@keeneonthemarket.com

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