Weekend Review

Options Action –

The guys started talking about the overall market and continue to point on similarities between the 2011 and 2012 markets. 

The first specific recommendation was on gold through trading the SPDR Gold Shares (GLD – 157.50). The feeling is there may be downside from here and the simple recommendation is purchasing a put option on the GLD. With time frame going out to July the trade involves buying a GLD Jul 153 Put at 3.25.

The second trade was on Facebook (FB – 27.72). An interesting structure is suggested to recover losses for those who already own shares. The trade is a 1 by 2 call spread going out to August expiration which should come after the first public earnings report for FB. The trade starts with a long position in FB, sells two FB Aug 34 Calls at 1.00 each (2.00 total) and purchases a FB Aug 30 Call at 2.10. The net cost of the option positions is 0.10. The idea here is to try to recover losses and exit shares if they rebound above 34.00. One short 34 Call is covered by the long 30 Call and the other 34 Call is covered by 100 shares of FB.

Investor’s Business Daily – Monday 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.

When the market is under pressure as it was on Friday, astute investors tend to look around for bargain stocks. The market influences stock prices and on days like Friday all ships seems to sink together. On page B2 of IBD there is a short article highlighting what they believe may be some buying opportunities. The list of stocks follows (in the order presented in the article) – Mellanox Technologies (MLNX – 57.70), SXC Health Solutions (SXCI – 88.56), Texas Capital Bancshares(TCBI – 37.49), and Under Armour (UA – 95.75).

Barron’s –

The Striking Price column addresses using in the money short dated puts (weekly options) as a hedge against short term risk in the overall market. The example Steven Sears discusses involves the SPDR S&P 500 (SPY – 128.16). The SPY Jun 1st 130 Put was up over 400% on Friday due to the dramatic drop in the overall stock market. The contract closed at 0.39 on Thursday and 1.83 on Friday for a nice gain if a trader had correctly anticipated the market reaction to the jobs number yesterday. 

When I hear SPY and short term gain I always cringe a little then point traders and investors in the direction of index options. The tax treatment on a short term gain may be a bit more favorable when using SPX options in place of SPY contracts. Also , recently the CBOE took actions to make sure there are always SPX expiration available for the next five weeks in a row. More information on this can be found through this link –