Weekend Review

Options Action –

The guys started talking about the overall market starting with a great quote, “No more bad news is good news”. Another factor that was cited for the bullish market this past week is that stocks are at low valuations and not many investors want to be sellers when stocks appear cheap. 

The first recommendation was on the other side of the business spectrum on Caterpillar (CAT – 87.60). On a long term chart the stock is at a significant support level and the valuation appears to be cheap which results in a bullish outlook. The trade is a pretty direct one for a rebound in CAT over the summer – buy a CAT Aug 90 Call at 3.65 which results in a profit if CAT is over 93.65 in mid-August. 

The first recommendation was on LinkedIn (LNKD – 96.26) and is a bearish one based on the stock having a pretty high valuation. The specific trade buys a LNKD Aug 80 Put for 4.95 and sells the LNKD Aug 70 Put for 2.60 for a net cost of 2.35. If LNKD drops dramatically over the summer and is at 70.00 or below the result is a profit of 7.65 in order to break even on this trade the stock needs to be below 77.65.

Investor’s Business Daily – Monday Edition

On Page B5 of the Monday edition there is a nice article talking about how to dig through IBD to find stocks that are in “pre-sprint” mode. The article talks about digging below the composite ratings before putting money to work in stocks poised to make a move to the upside. Biotech stocks are discussed with four being highlighted – Alexion Pharmaceuticals (ALXN – 92.43), SciClone Pharmaceuticals (SCLN – 6.94) , Anika Therapeutics (ANIK – 14.41), and Vertex Pharmaceuticals(VRTX – 56.98) are all names worth looking at on the long side. For those that take things a step further and may consider buying LEAPS as a stock substitute – ALXN and VRTX have January 2014 contracts.

The Options Institute is teaming up with IBD next 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! There are still a few seats available along with the ability to watch online. More information may be found at www.cboe.com/camp.

Barron’s –

The Striking Price column starts out discussing a new invention that was introduced by Corning (GLW – 13.13). For those that have not read the Steve Jobs book yet, Corning is the producer of the strong glass used in iPhones. The new product that came out this past week is called Willow Glass and is a flexible glass that may find uses in the next generation of smart devices. The idea on the option end of things here is to sell a put to enter the stock for the long term as the story of Willow Glass may take some time to play out. The example given was to sell a 12.50 Put that expires next January and take in 1.31 in premium.