Weekend Review – 8/18/2013

Options Action –

I’ve watched every episode of Options Action since the show debuted.  This past Friday was the first time I recall the discussion starting with a discussion of the bond market.  It was noted that the rate on the US 10 Year T-Note has moved up to about 2.9% from 1.6% in just two months.  The result has been weakness in stocks that are interest rate sensitive such at utilities, telecom, and homebuilders.  These sectors may be worth looking at on a valuation basis and may be even more attractive if investors are not too concerned about the impact of Fed tapering.

The first trading suggestion was on AT&T (T – 34.18) which has a yield of 5.3% based on Friday’s close.  The stock is down 10% and is close to a support level of 34.00.  Near term resistance is 36.00 and that is actually the price target that results in this trade.  Looking out to October the trade is to buy 1 T Oct 34 Call at 0.80.   If T has a quick move to the upside an idea was to sell a higher strike call to lower the breakeven price on the trade.

T PO

The second trade was on a market I have been focused on most of this year, gold.  One of the best ways for individuals to get exposure to the gold market is through the SPDR Gold Shares ETF (GLD – 132.58).  The belief is that the rebound in GLD is not over and the trade is a bull call spread.  Looking out to November to spread buys a GLD Nov 135 Call at 4.50 and sells a GLD Nov 145 Call at 1.70 for a net cost of 2.80.  This is a pretty bullish outlook from current prices, but pays off 7.20 if GLD climbs to 145.00 at November expiration.

GLD PO

Barron’s –

The Striking Price column discusses a potentially lower stock market in the near future and points traders to www.cboe.com to find tools to help determine how to hedge a portfolio.

Another suggestion in the column was bullish in nature and specific to MasterCard (MA – 618.21).  The idea is to get ahead of a pending event through buying calls.  MA has an analyst day on September 11 and MA shares have traded higher in anticipation of their last six analyst days.  As a bonus it was also noted that the implied volatility of MA options are at a low level but would be expected to rise in anticipation of the analyst meeting.

No Comments
Russell Rhoads, CFA

CBOE Options Institute

Russell Rhoads, CFA, is a Senior Instructor with the Options Institute at the Chicago Board Options Exchange. He joined the Institute in 2008 after a career as an investment analyst and trader with a variety of firms including Highland Capital Management, Caldwell & Orkin Investment Counsel, TradeLink Securities and…

Tags

, ,