Analysis of S&P 500 from QuickTakesPro’s Michael Kahn:
S&P 500 (SPX) – At the time of this broadcast, SPX was around 1,790.26 down 1.27 from Monday’s close. It is still well above its upward trendline going back a year. It is just off of its all time high. Technically, it is still in a rally, according to Michael. With that said, there are still plenty of reasons to be cautious. It could be in a hold period until the market moves in one direction or another.
It is above its 50 day moving average of 1728.35 and the 200 day moving average of 1640.34.
Analysis of Volatility Index from TradeKing’s Brian Overby:
S&P 500 Volatility Index (VIX) – The VIX is around 13.40 up .30 from yesterday. The VIX has been kind of boring to talk about lately. Not much is going on here, but as it has been for the past couple weeks, it is still above its yearly lows even with SPX hitting new highs.
The marketplace still does not appear to be expecting very volatile markets this holiday season. It is not until we look at the January contract (VIXJAN) that we finally see an implied volatility number above 16 with possible concerns over the next debt ceiling fight. The Jan contract is trading at 16.27 up 0.15. Its 50, 100 and 200 day moving averages are converging in around 14.36.
To learn more about trading VIX option contracts, check out Brian Overby’s blog here.
The Chart of the Day is Trina Solar Limited (TSL) – At the time of this broadcast, TSL was at 16.67 up 0.43 from yesterday. Solar was a “hot” industry at the beginning of the year. It then proceeded to fall apart, however, but recently bounced back to yearly highs. This solar stock recently had a breakout on earnings and tested a resistance level near 18, but could not break though. This could be a warning sign of weakening. The trendline going back to August may provide some support around the 16 level, but if we do see a break though of that support level the next support Michael sees on the chart is down around 13.50.
Brian Overby’s strategy based on Michael’s analysis: TSL has been a volatile stock over the past year. Yesterday the 30-day historical was near 65% and implied volatility (IV) was about 82%.
This morning TSL announced earnings and the IV dropped off dramatically. After the open the implied volatility on the December at-the-money option contracts was around 72, which is pretty close to the yearly lows in IV for Trina Solar. With a bearish outlook and the recent decline in IV, Brian first takes a look at a Long Put. Even though IV is at yearly lows for TSL (72%), this is still considered a high IV in general for most stocks. Because of this, Brian also considers a Short Call Spread as an alternative.
– Buy 1 Dec 21 2013 TSL 19 Put – 32 days to expiration
– Bid 3.00, Ask 3.10 – Debit is $3.10 if we take the Ask.
– Maximum potential loss is $3.10. Breakeven $15.90
– Maximum potential gain is $15.90 if the stock goes to zero (not likely to happen)
– Total commission to enter this trade is $5.60
Brian’s Potential Trade Strategy # 2 – Short Call Spread
– Buy 1 Dec 21 2013 TSL 20 Call
– Sell 1 Dec 21 2013 TSL 18 Call
– 32 days to expiration
– Bid 0.40, Ask 0.47, Mid 0.43 – Net Credit is $0.40 if we take the bid.
– Maximum potential loss is $1.60 Breakeven is $18.40
– Maximum potential gain is $0.40
– Total commission to enter this trade is $6.25
**NOTE: Multiple leg options strategies involve additional risks and multiple commissions, and may result in complex tax treatments. Please consult a tax advisor.
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