Weekend Review

Options Action –

The beginning section of the show is usually dedicated to the overall market, but this week the focus was on Apple (AAPL – 572.98). One of the panelists called the NASDAQ the NASDAPPLE due to the influence that stock has on the index. The first trade also relates to this stock. I don’t keep track, there have to have been more AAPL recommendations than any other stock on Options Action.

The trade is an earnings play based on numbers coming out next Tuesday after the close and the first time I can recall this structure being recommended on Options Action. Into earnings the trade would be putting on iron condor. This involves selling a put and a call with strike prices close to where the stock is trading while buying an out of the money put and out of the money call. The trade works if the stock stays within a certain range at expiration. The motivation behind the AAPL trade is that the options are currently implying a move of 7% this quarter while the average move over the last eight quarters has been 4.25%.

This trade uses the weekly options that expire this coming Friday. On the put side the 535 Put is purchased and 545 Put is sold while on the call side of the trade the 610 Call would be sold and the 620 Call is purchased with the net income being 5.00. The trades show up below –

Buy 1 535 Put @ 6.50

Sell 1 545 Put @ 9.00

Sell 1 610 Call @ 8.50

Buy 1 620 Call @ 6.00

This trade makes the 5.00 credit received as long as AAPL is between 540 and 615 this coming Friday. On the flip side if the stock is below 535 or above 620 at expiration the trade result would be a loss of 5.00. It was noted that AAPL‘s stock price is very volatile these days. Due to this, the idea is to put this trade on just before earnings Tuesday. If the stock is at a different price (and it probably will be) then the strikes will move. I plan on following up Tuesday afternoon with what strikes would match up to this idea based on AAPL’s price at that time.

The next trade recommendation is on a stock that I do not recall the guys talking about in the past. According to their analysis Ford (F – 11.41) appears ready for a breakout to around 14.00 and reports earnings this coming Thursday. Even though the earnings report is pending, this trade looks out to July. The trade here is a bullish risk reversal selling the F Jul 11 Put at 0.40 and buying the F Jul 13 Call at 0.20 for a net credit of 0.20. The outcome in July would be long the stock at a net cost of 10.80 if the stock is below 11.00, between 11.00 and 13.00 the result would be pocketing the income of 0.20 and then over 13.00 the result would be a long position in F with a net effective cost of 12.80. This is definitely an interesting bullish alternative to owning shares of F at current prices.

Barron’s –

The Striking Price column talks about selling put options on stocks you want to own for the long term. This is a good strategy to get paid to be obligated to buy a stock at a certain price in the future. Two stocks were discussed in this context. AAPL (again) was mentioned as Michael Schwartz from Oppenheimer recommended selling an AAPL Jan 535 Put at 52.00 to clients this past week. This was suggested when the stock was trading a bit higher so the opportunity still exists (at least as of Friday’s close). Another put selling idea (again only if you are long term bullish on the stock) was on my favorite beverage depot Starbucks (SBUX – 59.16). The specific idea was to sell the SBUX Jul 57.50 Put taking is 2.51 and assuming the obligation of buying shares at 57.50 between now and the third Friday. 

Investor’s Business Daily – Monday Edition

IBD’s Monday paper hits the newsstand on Saturday morning and is a good source for trading and investing ideas. One of the fun things (at least for me) about perusing the pages of IBD is that I often am introduced to a stock or two I have not heard of or traded in the past. This weekend, on page B8 there is a bullish article about two stocks that may be at support levels and poised for a bullish move in the future. Shuffle Master (SHFL – 16.91) is a maker of casino gaming products and Francesca’s Holdings (FRAN – 29.99) is operates retail stores that sell apparel, jewelry, and other items focused on female customers. Although their businesses do not have too much in common, both stocks have retraced to support and the companies are in a growth phase. A new leg to the upside may be on the horizon and a bullish option strategy may be worth consideration on either of these names.