Russell’s Round-Up – Weekend Review

This weekend I head to Washington,DC with the kids for an educational vacation learning about our history and how our country works. There are so many things I could say at this point about how things work in DC, instead I’ll just focus on my area of expertise, how things work in Chicagoand review a couple of noteworthy pieces of news from the weekend.

Options Action –

The first comments touched on the big move out of the VIX Index this past Friday. The VIX rose 1.51 to 25.25 on Friday. This is the first VIX close above 25 since…

The first trade recommendation was to collar performance of the QQQ. This idea is specific to those that may be a bit worried about the stock market’s reaction to the continuing news out of Washington. The position would start a long position in the QQQ exchange traded fund which is trading at 58.01. The recommended collar involves a short position in the QQQ Sep 60 Call and a long position in the QQQ Sep 60 Put. Both options are quoted at 1.15 by selling the Call and taking in 1.15 the cost of the Put is offset by this income. The result is protection below 55.00 and paying for that protection through giving up any upside on the QQQ from 60.00 and higher. 

Brian Stutland makes a recommendation on trading the GLD exchange traded fund which is a great proxy for the price of gold. The GLD closed Friday at 161.10 and the trade is based on a move higher in the price of gold into August. The spread trade involves selling the GLD Aug 153 Put for 0.90, buying the GLD Aug 161 Call for 1.70, and selling the GLD Aug 165 Call for 0.70. This is known as a bullish risk reversal. The hope for this spread is that the GLD moves higher into August expiration. I plan to revisit bullishness on the GLD this week and see if there’s a spread that is appropriate for those that are not able to initiate spreads that have a naked short option position.

Barron’s

The Striking Price column starts out just like Options Action talking about the pending debt crisis. However what caught my eye was the last part of the column that addresses earnings and option strategies. Without much detail Steven Sears cites a recent Goldman Sachs study that states over the past 15 years call buying and straddle buying strategies around earnings have both resulted in positive returns. These returns would be earned through buying the call or straddle five days before the earnings announcement and holding the position until the day after the announcement. If it were not for my pending vacation I have a feeling this is a study that would have my utilizing my programming skills this coming week. 

 

As for me, I’m going to take in what our nation’s capital has to offer. Two of my traveling companions are five and seven year old girls and I’m sure there will some disputes between these two. Resolving those disputes probably qualifies me to help our politicians work out there issues. If they need any help with their spat, I’m more than happy to help out.