CBOE sponsored a half day of options education today at the NY Trader’s Expo. The final session was a roundtable hosted by Mike Turner of CycleProphet and CycleProphet.com. Mike used his software to analyze the future direction of stocks and ETF’s. The panel then took those stock projections and turned them into option trading ideas.
The panel consisted of Jim Bittman from the Options Institute at the CBOE, Joe Kinahan from TD Ameritrade, Nina Milovac from optionsXpress, and Dan Sheridan of Sheridan Options Mentoring. The discussion was fast and furious and I did my best to keep up with the flow of trading ideas.
The first stock discussed was Apple (AAPL – 460.16) and Mike Turner’s outlook is for the near term is that the stock should trade higher to about 500.00. Dan Sheridan started out the discussion and stuck with his bread and butter – taking in premium. His idea was to sell Iron Butterflies with near dated options to take advantage of time decay taking a look at where AAPL is trading each Monday and basing his trade on that price using weekly options. Joe Kinahan suggested selling a AAPL Mar 440 Put at 5.40 he noted that the low of the recent move in AAPL was 435 and if assigned on this short put he would be comfortable being long AAPL from that price. Nina Milovac took a look at near dated options that expire on March 8th and Buy the AAPL 475 480 Call Spread for 1.40 which would pay off with a 3.60 profit if the stock trades to 480.00 by expiration. This is a nice buffer for AAPL to fall short of 500.00 and still make a nice return. Jim BIttman had a pretty unique idea. He suggested selling a AAPL Mar 435 Put, buying a AAPL Mar 415 Put, buying a AAPL Mar 485 Call and finally selling a AAPL Mar 500 Call. The proceeds from the put spread match up closely with the cost of the call spread. If the stock hits 500.00 or higher at March expiration the return is 15.00. If the stock analysis is dead wrong and the stock is below 415.00 at expiration that trade would result in a 20.00 loser.
The next stock American International Group (AIG – 38.35) the projection was for the stock to trade higher over next ten days up to 42.00, then trade off. Joe Kinahan suggested selling an Apr 36 Put and using that premium to pay for April 41 Call which could be done for a credit of 0.05. He was comfortable buying AIG down at 36.00 but felt the 41 Call was where the profit would probably come from. Nina liked purchasing an in the money call spread, specifically the AIG Mar 38 / 40 call spread at 0.80. Although the price projection of 42.00 is to occur before expiration, Nina felt the spread would trade up to 1.80 for a nice 1.00 profit.
Bank America (BAC – 12.03) was next and the outlook was for the stock to grind up to 12.50 before a move below 10.00 over the next few weeks. Dan Sheridan felt with move higher he would consider scaling into short trade as the stock move to 12.50. He liked buying the April 12 / 11 Put spread which gives time for trade to work out. Joe was actually bullish on financials and does not agree with the outlook. Because volatility is cheap the BAC Apr 10 / 14 Call spread looks attractive at 2.00. He noted that there was no time value in this spread and it was basically a proxy for being long up to 14.00 Nina – likes JJ’s spread, if you are bullish, but she also agrees with Dan Sheridan on the bearish side and looking out to April. She would just purchase the Apr 12 Put on strength in the stock. Bittman also likes the long put trade with such a low premium. Jim said he is somewhat bullish on the market so for a bearish trade he likes the limited risk that goes with buying a put.
Research in Motion (BBRY – 14.16) was next and there is a bearish outlook until February 25th then an expectation that the stock will trade higher. Dan Sheridan liked doing a short term bearish trade. He noted that the implied volatility for BBRY options was in the 80’s so he favored a spread trade. Using the Weekly options expiring on March 1 he liked buying a BBRY 14 / 13 Put spread for 0.40. Joe wanted to take advantage of high volatility and suggested selling a BBRY Mar 13 / 11 put spread for 0.80 income which results in a potential loss of 1.20. He noted that he had an 8.5% cushion beteween the current price and the higher strike price of 13.00 on the spread. Jim suggested a ratio put spread Buying 1 Mar 14 Put and selling 2 Mar 13 puts for a 0.36 credit.
An audience suggestion was Market Vectors Gold Miners ETF (GDX – 39.89) the outlook is fairly bearish over the next month, but then bottoming out. Joe stepped up and noted that this ETF is near the 6 month low. Based on this he would sell the GDX Mar 39 Puts at 0.75 and be willing to own it there.
Another audience suggestion was LinkedIn Corporation (LNKD – 162.66). Mike’s reading was for a bullish outlook with stock going to 175.00 in middle of May. Joe Kinanhan was bearish as the stock has gapped to the upside. He liked selling a LNKD Apr 165 / 175 Call Spread for 3.50 with the risk being 6.50. DS was going along with the bullish outlook to 175.00 he would like to try a directional butterfly. In this case he would LNKD Apr 170 / 175 / 180 Butterfly for 0.36 which would return 4.64 if the stock lands right at that 175.00 target price.
A final stock discussed was the recent high flyer Netflix (NFLX – 189.51) the near term expectation sees a dip to the 150 – 155 range in the next couple of weeks. Jim Bittman suggested buying a near dated 180 Put for 1.80. A quick drop to the 150’s would result in a generous profit. He also noted that this is a risk capital trade.