PXD has been in a horizontal range since the better part of September. Earnings hasn’t even moved the stock out of its barcode-type pattern. If nothing is going to move this stock, one might as well play along with the trend. The upside to this range has been $110 and the downside, again, has been $101. There are many potential ways to trade this range.

One could simply flip long and short equity deltas around, selling the top and buying the bottom, but trading the stock ties up a lot of cash. Another way one could trade this range could be from getting long theta. This would put the probabilities into the favor of the option seller, for it is estimated that nearly 80% of all options expire ‘out of the money.”

Selling an iron condor would be a way to play this range. The short strikes could be around the aforementioned price levels. One could wait until the stock is equidistant from the two levels or leg into the trade, however being net short vega may not be a good idea going into the fiscal cliff. These support levels will get thrown out of the window if Washington does not get their act together.

A little fundamental analysis never killed anyone. PXD is an oil and gas E&P (exploration and production) firm. They are vertically integrated, meaning they enjoy cost savings from overlapping operating efficiencies These include, but are not limited to service equipment and people. Citi recently initiated coverage with a ‘buy’ rating and issued a $120 price target. The $120 level is vey significant, for it represents the all time high in the stock. PXD is 17% away from the all time high. PXD’s 100-day moving average recently crossed over the 200-day moving average too. This horizontal action may be setting up PXD for its next big move, up or down, but until then, one may employ a plethora of strategies to take advantage of the choppy action.

Feel free to e-mail any comments, feedback, suggestions, or general inquiries to…

Author: salernoma@mx.lakeforest.edu

One can thus scan for average ranges outside the one-sigma range. This strategy is looking a gamma scalps or just straddle swings; depending on if traders want to lock in short term profits. The edge here is from statistics. This scan yielded many stocks, but some stocks of note included DE, XOM, TBT, X, SNDK, UNP, IBM, FMCN, NVDA, PCS and AAPL. So according to the rationale outlined above, because these stocks have been experiencing average ranges outside one standard deviation (over the last 21 (Fibonacci) periods) long volatility and long gamma trades could be suggested. There are many ways to estimate the implied move with options. Expected moves can be estimated by taking the event’s ATM (at the money) straddle and multiplying it by 0.85 to estimate 50% probability ranges, ATM times 1.25 for one sigma probability, and finally ATM straddle times 2.50 for the two sigma probability ranges. It also may not hurt to be long Vega going into the political incompetence event known as the ‘fiscal cliff.’

Feel free to e-mail any comments, feedback, suggestions, or general inquiries to… Author salernoma@mx.lakeforest.edu

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Lets first get one thing out of the way, when dealing with the financial sector today I hate to use fundamental analysis because they’re not reliable. Everyone’s books are poisoned… end of story. What I do want to look for is a solid wave count with volume and aligning technicals. When looking at AIG’s daily chart, dating back to December 2010, you can see the quick drop that brought it all the way from $62.38 to the lows at $19.18 on October 4, 2011. From the lows at $19.18, there are a clear 5 waves up, but everything since then looks very corrective, and is failing to give us a sense of direction. I decided to add Fibonacci retracements to see if it will give us a better understanding of the larger picture. The price action is failing at the 38.2 extension and the 23.6 extension is acting as support. This tells me that this is a simple consolidation period for AIG…. but to help me confirm that it’s a consolidation period and nothing else, I added Bollinger Bands. When Bollinger Bands become squeezed together it means that the price action isn’t having big swings, and indicates there’s a big move coming. We just can’t say for certain right now, which way that is.

Peter Nitso

pnitso@yahoo.com