Russell’s Roundup – Weekend Review

I’m happy to be back after a week at the Magic Kingdom. The weather was less than desirable, but the princess makeovers were well worth the trip…

Options Action:

Friday night’s episode of Options Action on CNBC started out with an overview of the bullish stock market along with a mention of the VIX in the high teens. Brian Stutland of the VIX pit was a guest panelist. Something he noted was the VIX index traded below 17 during the day on Friday. He mentions the VIX in the 16 area may be a good level to consider buying calls on the VIX as the range seems to be 16 to 28 and that is his outlook through this summer. 

Along the same theme, the panel noted the CBOE NASDAQ-100 Volatility Index (VXN) below 20 may indicate a bullish outlook for technology related stocks.

There was a bullish recommendation on Coca Cola (KO) using May options. The specific recommendation was to buy the May 65-70 Call spread. This involves buying a May 65 Call and selling a May 70 Call with the outlook for KO to rise to 70.00 from Friday’s closing price of 67.22.

A short term trading recommendation was made on Monsanto (MON) which releases earnings this week. The market is expecting a 3% move on earnings and with a bullish outlook based on earnings buying an April 75 Call into the announcement this week was recommended. The stock closed Friday at 73.17 and with the price of the contract at 0.90 a move of 2.73 to the upside is needed to break even. Also, note this contract in two weeks so there is very little time left to realize the price move.

There was a review of a bullish recommendation made the previous week on Apollo Group (APOL) that has not worked out too well with the stock losing about two points last week after releasing earnings. Sticking with a bullish outlook was recommended here. 

There was also a review of a bearish recommendation on Red Hat (RHT) that did not work out at all. The recommendation was to initiate a bearish put spread and the stock rallied tremendously. In this case, the feeling is the bearish recommendation was wrong, and it is time to take any loss and close the trade out.

Barron’s:

The cover story is on General Electric (GE) which accompanies a longer term bullish article. The stock is trading just over 20.00, which has been the high end of the 52 week range over the past few years. If you agree with the long term bullishness and a recovery of GE’s stock considering LEAPS calls that expire in January 2012 or 2013 may be a way to play the price appreciation. Keep in mind, when you own these contracts you may participate in upside stock appreciation, but not receive dividends. With GE paying just under a 3% dividend this should be taken into account.

A good friend of the Options Institute, Larry McMillan, was the guest author of the Striking Price column this week. He discusses the option market on individual stocks that are subject to takeover rumors. This is pretty timely as merger and take over activity is pretty heavy these days. His discussion is a good education in how options are used to speculate on a company you believe may be taken over at a premium in the near future.

As for me, I’m sporting my mint new Donald Duck watch from my trip to Orlando. As for the small members of my household, they have more loot than they can carry from our Florida adventure. This being the result of a couple of rainy days that pushed us into the dry confines of Disney retail establishments.