TradeKing Midday Market Call Recap 7.23.13

Analysis of S&P 500 from QuickTakesPro’s Michael Kahn:

S&P 500 (SPX) – At the time of this broadcast, SPX was around 1,693.48 down 2.05 from Monday’s close. It is well above its 50 and 200 day moving averages of 1642.17 and 1527.34. It looks like we’ve had the same story for the past couple of weeks. The breakout from the correction is still intact. It met a bit of a struggle around its previous high on May 22nd, which was acting as resistance, but continued to move up. However, it still could be extended and we could see some sideways movement, according to Michael. Part of that reasoning could be that these highs are on lower than average volume. The market is struggling to make new highs, but it is still making them, and until the charts says otherwise, it signals that we appear to be still in a bull market.

Analysis of Volatility Index from TradeKing’s Brian Overby:

S&P 500 Volatility Index (VIX) – The VIX is around 12.73, up .44 from yesterday. It has dropped right through its 50, 100 and 200 day moving averages of around 15.32, 14.38 and 14.98, respectively. These low levels still look to be driven by complacency in the market over the past couple weeks.

The Chart of the Day is Rio Tinto (RIO) – At the time of this broadcast, RIO was at $45.98, up about 1.29 on the day. It has been been in a downward trend going back to February. It looks to be in a short term breakout over the past couple weeks and is now above its 50 day moving average of 43.07 on decent volume. It is still below its 200 day average of 49.19. It gapped up today on the market open.

Brian Overby’s strategy based on Michael’s analysis – With earnings due on August 8th and the next expiration August 17th, we could see an already volatile stock (compared the rest of the market) become more volatile. The historical volatility is about 34.50% and the implied is just below 33%. With a possible increase in the implied volatility as the earnings announcement approaches, Brian discusses a Long Call with an exit strategy before earnings or a Long Call Spread if a trader were to plan to keep the position open past the earnings date.

Brian’s Potential Trade Strategy – Long Call

– Buy 1 Aug 17 2013 RIO 42.50 Call

– 25 days to expiration

– Bid 3.80, Ask 3.90, Mid 3.85

– Total debit is $3.90 if we get filled at the Ask.  Breakeven is $20.90 if held until expiration.

– Maximum potential loss is $3.90

– Maximum potential gain is theoretically unlimited if RIO goes to infinity (not likely to happen).

– Total commission to enter this trade is $5.60

 

Brian’s Alternative Trade StrategyLong Call Spread

– Buy 1 Aug 17 2013 RIO 42.50 Call

– Sell 1 Aug 17 2013 RIO 47.50 Call

– 25 days to expiration

– Net Bid 3.05, Ask 3.20, Mid 3.13

– Total net debit is $3.20 if we get filled at the Ask.  Breakeven if held until expiration is $45.70.

– Maximum potential loss is $3.20

– Maximum potential gain $1.80

– Total commission to enter this trade is $6.25
**NOTE: option prices are given as a per contract amount. Multiply loss and gain figures by 100 shares and by the number of contracts traded to determine the amount of the full potential loss or full potential gain. No additional calculations are needed to determine commission costs.

Get solid market analysis and potential trading ideas. Take 15 minutes of your lunch with our team, as they analyze the market during this live online session. Every Tuesday mid-day from 12:00 – 12:15pm ET.   Don’t miss the next TradeKing Midday Market Call. Register here: www.tradeking.com/events