TradeKing Midday Market Call Recap – SPX, LOW for Tuesday, December 10th.
Analysis of S&P 500 from QuickTakesPro’s Michael Kahn:
S&P 500 (SPX) – At the time of this broadcast, SPX was around 1,803.31 down 5.06 from Monday’s close. There’s no real defining trend going on here. The overall long term trend is still up, but momentum has been going down. There may be a small head and shoulders pattern recently formed, but until it moves one way or the other, there is nothing definitive.
It is above its 50 day moving average of 1756.45 and the 200 day moving average of 1660.37.
The Chart of the Day is Lowe’s (LOW) – At the time of this broadcast, LOW was at 47.51 down 0.25 from yesterday. Its rising trendline was broken on a gap down and the gap area seems to now be acting as resistance to more upside around the 48.70 area. In last week’s discussion we reviewed a bearish trade on Home Depot, and this is a sector that continues to look weak to Michael. If the stock does continue lower the next level of support looks to be around 44.
Analysis of Lowe’s Volatility Chart from TradeKing’s Brian Overby:
Lowe’s announced earnings in Mid November, and after that announcement the implied volatility (IV) collapsed to yearly low levels of about 20%. The implied has stayed around this level of late and is right now at about 21%. Lowe’s does pay a dividend but the ex-date isn’t until 1/17/14, which should not affect December expiration.
Brian Overby’s strategy based on Michael’s analysis:
With Michael having a bearish outlook on LOW, implied volatility in the low end of the yearly range, and the stock not going ex-dividend until January with recently reported earnings, Brian discusses a Long Put strategy.
– Buy 1 Dec (21st, 2013) LOW 49 Strike Put 11 days to expiration
– Bid $1.62, Ask $1.66 – Debit is $1.66 if we take the Ask.
– Maximum potential loss is $1.66
– Breakeven is $47.34 (49 strike less $1.66 premium)
– Maximum potential gain is $47.34 if the stock goes to zero (not likely to happen). – Total commission to enter this trade is $5.60
Brian’s Potential Trade (More Speculative) Strategy # 2 – Long Put
– Buy 1 Jan (18th, 2014) LOW 46 Strike Put
– 39 days to expiration
– Bid 0.74, Ask 0.77 – Debit is $0.77 if we take the Ask.
– Maximum potential loss is $0.77
– Breakeven: $45.23 (46 strike less $0.77 premium paid)
– Maximum potential gain is $45.23 if the stock goes to zero (not likely to happen). – Total commission to enter this trade is $5.60
**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. Every Tuesday midday from 12:00 – 12:15pm ET. Regards, Brian Overby