Weekend Review

Options Action –

The initial focus was the rally Friday and the feeling was it should be discounted as it was on light volume and that results from JP Morgan (JPM – 36.07) should not be taken as an overall bullish indicator for the financial markets. Great quote – “smart investors do not view this as a healthy rally” – the point was that the leading stocks performance wise are the defensive names. Time will tell if the guy’s disbelief of the rally is correct. It may not take too long as 20% of the S&P 500 component companies report earnings next week…

The first stock specific recommendation was on Morgan Stanley (MS – 14.05) in the form of a put spread. The trade is based on MS having high European exposure, which would be considered a negative. The trade is pretty aggressive buying a MS Aug 13 Put at 0.40 and selling a MS Aug 11 Put 0.10. A drop to 12.70 is needed to break even and profits would be capped at 1.70 if the stock drops below 11.00 at August expiration.

The next trade is on a favorite earnings play, Google (GOOG – 576.52). The company reports earnings after the close on Thursday. The options are currently pricing in a 6% move on the earnings report. Both fundamentally and technically the guys like the stock and recommend buying a call option with September expiration. The GOOG Sep 575 Call can be bought for 29.50 which results in a breakeven of 604.50 which is a nice rally from current levels, but a cheaper way to get long GOOG than paying 576.52 a share.

Finally, last week there was a bearish recommendation on JPM selling the JPM Aug 35 Call at 1.15 and buying a JPM Aug 37 Call at 0.50 based on a lower price expectation for JPM. With the rally on Friday the trade was reviewed. The maximum potential loss on this trade is 1.40 if the stock is at or above 37.00 and the trade is held to August expiration. As of Friday the trade can be closed out at a loss of 0.40. Even though the trade is under water at the moment – the guys are going to stick with this one with the feeling JPM may still trade below 35.00 over the near term.

Barron’s –

Steven Sears writes about the importance of earnings season in the Striking Price column. An interesting stat that got thrown out there came from the derivatives strategists at Goldman Sachs. Apparently about 1/3rd of a stock’s annual performance comes from the seven days around their quarterly earnings reports. I believe that makes earnings season important.

Also there’s a bullish recommendation into Chipotle (it’s 7 am and now I want a burrito) Mexican Grill (CMG – 392.37). Based on the stock around 391 the CMG Jul 395 Call could be bought for 4.75. This option expires on Friday, but earnings come out on Thursday. I’ll do my best to follow up on this mid-week.

VIX Reviews –

Starting last week I began sharing how I track activity in the volatility trading arena. For some time I’ve been keeping a diary and data on weekly activity in VIX related futures and options. This weekend I posted them by ticker check them all out at the links below –

S&P 500 Volatility – VIX –


Nadsaq Volatility – VXN –


Emerging Markets – VXEEM & VXEWZ –


Gold and Oil – GVZ & OVX –


VIX Options and ETP’s –