Analysis from QuickTakesPro founder and Barron’s columnist Michael Kahn, CMT:
S&P 500 (SPX) – at the time of this broadcast, SPX was around 1315 up about 1 from Monday. A recent rally failed to break through its resistance level of around 1355 and has dropped down from there. It is a resistance level now because it used to be a support level earlier in the year and again was close to a resistance level about a year ago. It dipped below its 200-day moving average a couple weeks ago (1297.07) and is not too far from it now. It could be headed that way soon.
Russell 2000 Index (RUT) – at the time of the broadcast, RUT was near 761.00 down about .50 from Monday. The pattern is similar to the SPX one. The RUT is one of two major US Indexes trading below its 200 day moving average again. This is not a good sign. Looking bearish.
Discussion from TradeKing Options Guy, Brian Overby:
VIX – at the time of this broadcast, VIX was about 20, down about 0.25 from yesterday. We had anticipated it trading between its 100 and 200 day moving averages of 18.93 and 23.90 respectively. We did have a breakthrough on the downside last week, but bounced right back to current levels. Market is still anticipating these levels, or higher, throughout the summer. Just before we started the call, July futures were about 22.35, with September around 25.54 (above the 200 day). The expectation is this will continue in the range, but possibly tick up higher.
Quick Takes Pro “Chart of the Day” – Autodesk – symbol (ADSK)
Autodesk – At the time of this broadcast, ADSK was 32.87, up about .05 from yesterday. Autodesk had a breakdown through its support levels of about 35-35.50 in May. It had been rallying back to the 200 day moving average level. However, the rally was supported by very light volume suggesting it was a corrective one. If it does break down from its current bear flag pattern, we could see a drop of about 10%.
Brian Overby’s gives a potential strategy based on “Chart of the Day” – ADSK- Put Backspread (Pay Later Put)
ADSK – if we go by Michael’s possible target of about 29, we could go with a long put. However, we are going to try something a little different. Starting off with the Volatility Chart as we normally do, it looks like 30-day implied volatility has decreased some over the last few weeks. Since earnings will not be released until August 16, we will discuss the Put Backspread in July (also known as the ‘Pay Later Put’). We are looking at about a 7 to 10 day trade based on the movements in this stock. With this strategy, we are expecting the stock to drop about 10% in a short time period. We are not waiting 25 days until expiration in July and we are not affected by earnings in August.
ADSK- Put Backspread (AKA Pay Later Put)
– Buy 2 ADSK Jul 31 Put
– Sell 1 ADSK Jul 33 Put
– Put Backspread market was Bid .06, Mid .10, Ask .13
– At the time ADSK was 32.81, almost unchanged
– 25 days till expiration
– Max potential loss is $1.90 if we take in $0.10 credit (mid point) and if ADSK is at 31 on July expiration. (Calculated by Strike 33 less Strike 31 less credit of 10 cents received)
– Max potential gain is 29.10 if ADSK goes to zero by July expiration (Strike 31 less max loss of 1.90 )
– Other potential gain is $0.10 if ADSK is above $32.90 by July expiration (net credit when position is opened)
– Multi-leg commission to enter is $6.90. Margin requirement is equal to maximum potential loss of $1.90
Although the nickname is ‘Pay Later Put’ the margin requirement must be met upon establishing this position.
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