Options Action –
The guys started out discussing the overall market and the bearish sentiment on Wall Street and the focus on Europe and how things will work out for Greece. The guys continue to compare the action this year to what happened in 2011. I always like to follow the Ronald Reagan mantra when I hear numbers and scenarios thrown around like this. Verifying in this case involves making a chart. The chart below shows the daily closing prices for the S&P 500 for 2011 versus where we are this year. Time will tell if we have a repeat performance of 2011 in 2012.
The first stock specific recommendation was a bullish one on IBM (IBM – 194.30). Technically the stock may be ready to break out and the fundamentals are strong. Finally the stock has pulled back 7% from highs which may be an opportunity to take a long position. A direct scenario here is buying the IBM Jul 205 Call for 2.15. If the stock is above 207.15 at expiration the trade will result in a profit. Between 205.00 and 207.15 there is a partial loss in this trade and below 205.00 the result would be a loss of 2.15.
The second trade is based on a stock that is in the news these days, Chesapeake Energy (CHK – 15.81). Carl Icahn has taken a large position in CHK and is pushing for measures to enhance shareholder value (get the stock price up). Taking the other side of the efforts to get the stock price up the recommendation is a bear put spread using July option contracts. The trade buys the CHK Jul 14 Put at 1.05 and sells the CHK Jul 12 Put at 0.55 for a net cost of 0.50. The maximum potential profit from this trade is 1.50 if the stock is down at 12.00 at July expiration – the ultimate goal for this trade.
Investor’s Business Daily – Monday (Tuesday this time) Edition
The Options Institute is teaming up with IBD in June for a very special class dubbed the Investor Training Camp which is going to be held June 13 – 14. In addition to valuable and trading education, there’s going to be an outing to historic Wrigley Field! More information may be found at www.cboe.com/camp.
Page B2 has a column with a list of companies that may be forming ‘but set-ups’ based on IBD metrics. Alexion Pharmaceuticals (ALXN – 92.42), Texas Capital Bancshares (TCBI – 38.42), Cirrus Logic (CRUS – 27.45), Tractor Supply (TSCO – 99.62), and Under Armour (UA – 98.19) are stocks that appear to be putting in bases before the next move higher.
Since Facebook (FB – 39.91) is on everyone’s minds these days I guess I have to go with the crowd and at least have one mention of the social networking company in my blog. It’s tough since the options are not trading yet (will be on Tuesday) but there was an interesting analysis offered on the long term potential returns from the stock. Alan Abelson’s column at the front of Barron’s starts out talking about the macroeconomic outlook. The second half of the column spends time discussing FB valuation and using Google (GOOG – 591.93) as a side by side comparison.
The Striking Price column spends a little time on the anticipated roll out of FB options that will occur Tuesday morning. The feeling is due to the performance of the IPO along with various news stories floating around the implied volatility of the options (and the bid – ask spread) will be pretty high. Time will tell and the market will adjust until implied volatility finds equilibrium.