Options Action –
Quote of the weekend, “The only certainty this weekend is that central bankers are going to be chained to their desks.” This of course was mixed in the discussion about the Greek election occurring this weekend.
Getting stock specific the first trade was a bearish one on Nike (NKE – 101.75). 50% of NKE sales are from overseas so some of the influence on this idea comes from slowing international economies. The trade buys a put spread, buying the NKE Jul 97.50 Put at 2.60 and selling the NKE Jul 92.50 Put at 1.35 with the result being a cost of 1.25. Below 96.25 at expiration this trade makes money and profits are capped at 3.75 if the stock is at 92.50 or lower.
The other trade is on FedEx (FDX – 87.63) a stock that appears to be at an inflection point with earnings coming out next week. The stock is fairly cheap with a P/E at a 20 year historic low. Based on a bullish outlook the trade involves buying a FDX Aug 92.50 Call at 2.00. If the stock moves over 94.50 at expiration then this trade results in a profit. Of course if the stock moves higher over the near term, based on other pricing factors the trade could also be profitable and taken off early.
Investor’s Business Daily – Monday Edition
We had a busy week last week at the Options Institute with everyone running in all different directions. One of the best events involved combining educators from Investor’s Business Daily with the instructors from the Options Institute for a single day program on how to apply IBD’s stock rankings and market signals using option strategies. Stay tuned as we are planning on another event in the next few months.
On Page B2 of the Monday Edition runs through some stocks that closed above their buy point on Friday. Typically when the overall market is showing strength the result will be some leading IBD stocks reaching a new breakout point. The stocks in the column that closed above buy points were Questcor Pharmaceuticals (QCOR – 48.69), Perrigo (PRGO – 111.62), Ross Stores (ROST – 66.61 ), and SXC Health Solutions (SXCI – 94.73). As a side note – SXCI got a lot of bullish attention in our class last Thursday as well.
The Striking Price column addresses the election in Greece and what the potential aftermath may be. Attention will move on to Spain and Italy if fears subside. Also, it is noted that we get a two day fed meeting next week. The market strength may be in anticipation of some sort of quantitative easing coming out next week. Time will tell if this is already baked into the stock market’s performance or not. If so and the result is a drop in stock prices then a hedged market position may be in order. A couple of bearish oriented SPY option strategies are suggested. Do keep in mind SPX or SPXPM options work in those situations as well.
As a side note – I just started in on Steven Sears book – The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails. I have heard great things about this one and am looking forward to it!