Options Action –
The focus at the beginning of the show was on stocks like Tesla (TSLA – 165.54), Zillow (Z – 95.59), and Netflix (NFLX – 305.65) which have all appeared to have stalled out after a heck of a run. The momentum may have run out of these stocks and at least one of the commentators was questioning whether valuations can push shares higher. Of course my seven and nine year old daughters believe that you should always invest with people that pal around with Justin Bieber.
The first trade is a bearish call on one of these flyers – NFLX. The trade is a butterfly using October put options. The trade buys 1 NFLX Oct 230 Put at 0.75, sells 2 NFLX Oct 255 Puts at 2.30 each (4.60 total), and buys 1 NFLX Oct 280 Put at 6.85 and a total cost of 3.00. 3.00 is the maximum potential loss here while the best outcome would have NFLX at 255.00 and a profit of 22.00.
After some discussion of the Mayweather – Alvarez fight there was a bullish recommendation on Comcast (CMCSA – 43.97) which should benefit from a huge pay per view demand for the fight. The trade is a long term one looking out to April of 2014 and purchasing a CMCSA Apr 45.00 Call at 2.50.
Steven Sears discusses economic expansion and notes a handful of exchange traded funds that will benefit from growth. The Select Sector SPDR-Industrial (XLI –46.21) and Select Sector SPDR-Energy (XLE – 83.95) funds which would both be expected to trade higher in sync with an economic expansion. Also, he returned to discussing my favorite topic the CBOE Volatility Index (VIX – 14.16) which has been trending lower lately. It was noted that option selling strategies around long market positions may be contributing to lower volatility. Such as calls sold against long positions or puts being sold when volatility creeps higher in order to get paid to sell higher or buy lower.