Russell’s Round-Up – Weekend Review

Options Action –

The show kicks off very bearish regarding the overall market. Although not one of the specific trade recommendations, the guys are pretty negative on the financial sector. The feeling is third quarter earnings will be pretty weak, although this may be discounted in stock prices already. The majority of major financials (BAC, MS, C, JPM) appear to report their earnings in a couple of weeks (Week of Oct 17 – 21) which is also standard expiration for October option contracts.

The first recommendation is on Green Mountain Coffee (GRMC – 92.94). The general thought here is that there are many “high flier stocks” that have broken trend and fallen quickly. GRMC is close to the uptrend line and poised to break this trend. A put spread is suggested, buying the high strike option and selling a lower strike put. The goal of this trade is always for the stock to trade down to the lower strike. The trade goes out to January expiration, through buying the GRMC Jan 105 Put for 20.50 and Selling a GRMC Jan 80 Put at 8.50. The net cost is 12.00 which results in a breakeven level price of 93.00. From 93.00 down to 80.00 there are partial profits and at any price from 80.00 and below there is a maximum profit of 13.00.

The next trading idea relates to Apple (AAPL – 381.32) and the release of the iPhone 5 coming this week. The feeling is getting short in front of this week’s announcement for a very short term trade which will utilize Weeklys®. This idea also uses a put spread, buying an AAPL October 7th 375 Put at 5.20 and selling an AAPL October 7th 365 Put at 2.70 for a net cost of 2.50. If the stock is down at 365 or lower on the close this Friday the result is a profit of 7.50.


Barron’s –

The Striking Price column hits on a topic I always find interesting, trader psychology. Steven Sears discusses Michael Martin’s book The Inner Voice of Trading which I have on order and will share thoughts on after I tear through it.

The Current Yield column talks about the credit markets on a weekly basis. This week this section may be a good educational read for traders that spend more time focusing on the stock market. Randall Forsyth talks about how the credit markets are indicating another recession is sneaking up on us according to price action in this area of the markets. 

The Commodities Corner column talks about Copper which dropped 25% in September. A China supported rebound is suggested. If you agree with this thesis and are not a commodity trader you may want to take a look at buying Freeport-McMoRan Copper and Gold (FCX – 30.45) or Ivanhoe Mines (IVN – 13.70). Both of these stocks would benefit from a rebound in the price of copper and are down almost 50% from their highs in 2011. One other thought for the equity world would be the iPath Dow Jones-UBS Copper ETN (JJC – 40.21).