Weekend Review – 5/26/2013

The discussion starts out with a discussion of Google (GOOG – 873.32) which lost value each day last week.  It was noted that the stock may just be getting caught up in the same sort of emotional situation that started the push lower in Apple (AAPL – 445.15) a few months ago.  On a fundamental basis it was pointed out that GOOG has never had a down earnings year since going public, but that 2013 may be a down year for revenues which could be bringing some bears out.  Apparently there is an FTC investigation going on as well which resulted in the quote of the show – “When you get a letter from the government that’s never a good thing”.

Despite some headwind the feeling on a technical basis is that the pullback is a healthy one and the fundamental story is still pretty much intact.  If you agree this is a buying opportunity then they are suggesting a bull call spread.  Using the July options the trade idea is to buy 1 GOOG Jul 900 Call for 27.00 and sell 1 July 940 Call at 13.50 and a net cost of 13.50.  This is a pretty bullish idea, but if GOOG is at or above 940.00 at expiration the result is a profit of 26.50.  The stock needs to trade up to 913.50 just to get to break even.  Finally there was a suggestion for use mini options is the $1350 price is a bit too high for your pocket book.

GOOG PO

The second trade was based on the oil market which was under pressure based on concerns about the Chinese economy.  It was suggested to take a look at the Tesoro (TSO – 61.23) on the long side.  The belief is we may get a quick move to the upside out of TSO so buying a TSO Jun 60 Call at 3.20 was the trade recommendation.  This puts break even just a bit over two points higher and no cap on the potential profit.

TSO PO

A final trade suggestion was a bullish one on Dish Network (DISH – 39.33).  The belief is DISH will survive the shakeout in media where there seems to be a shift to mobile devices.  The trade suggestion is a naked short put or cash secured put expiring in July.  The idea sells the DISH Jul 38 Put for 1.50 which if held to expiration would result in owning shares of DISH for a net effective price of 36.50.  If the stock stays over 38.00 then the option will expire out of the money and the profit will be equal to the 1.50 premium received.

DISH PO

 

Barron’s

There were a couple of worthwhile option related articles in Barron’s this weekend.  First Jim Strugger, the derivatives strategist from MKM Partners, took over The Striking Price column this week.  He starts off highlighting the low volatility environment we seem to be entering this year and points to low VIX as an indication of what may be the norm for the next few years.  An interesting point he makes is that in this environment we may see stocks trading more on company fundamentals and less based on the overall stock market.  He states that economically sensitive stocks may be worth taking a look at and mentions ACE Limited (ACE – 89.78), Apple (AAPL – 445.15), Halliburton Company (HAL – 43.02), and The Mosaic Company (MOS – 59.78) as promising candidates for the second half of 2013.

The other Barron’s article was written by Steven Sears and is a recap of the Options Roundtable that was held at CBOE this past week.  He highlights a big portion of the discussion with VIX questions dominating the discussion.  Check out his recap in Barron’s of you can also find the full video session of the even at – www.cboetv.com