Weekend Review – 1/12/2014

Options Action –

The guys stared out talking about retailers and that the earnings reports we have already seen have been pretty weak.  It was noted that weakness for retailers may be an early indication that the overall economy isn’t quite breaking out yet.  The first trade is based on consumer weakness and picks on Nike (NKE – 76.29).  Looking out to February, buying a NKE Feb 77.50 Put for 1.95 and selling a NKE Feb 72.50 Put for 0.45 is recommended.  The net cost is 1.50 and the best outcome will occur if NKE is at 72.50 or lower at expiration which would result in a profit of 3.50.  Note that NKE closed Friday than the long put leg of this trade –

NKE PO

The description of the second trade discussed how interest rate sensitive stocks did well after the employment number on Friday with the exception of AT&T (T – 33.62).  Technically it appears the stock may be topping out as well so a bearish trade was recommended.  This one looks a little farther out than the NKE trade and uses April option contracts, but is another put spread.  The trade buys a T Apr 33 Put for 1.00 and then sells a T Apr 30 Put for 0.25 and a net cost of 0.75.  The trade makes a profit if T is below 32.25 at April expiration and the maximum potential profit is 2.25 if the stock is at 30.00 or lower.

Barron’s –

The Striking Price column starts out poking a little fun at how many forecasts are bantered around in January.   Steven Sears suggests taking January as just another month and focus on what is important such as looking out for known unknowns such at earnings and the mid-term elections.

He goes on the mention one of the handful of VIX option trades that came through the pit last week.  Noted in this column was a buyer of 40,000 of the VIX Feb 20 / Feb 25 Call Spreads and also a buyer of 10,000 of the VIX Feb 18 / Feb 23 Call Spreads.

Other stuff I came across –

Probably the best VIX related thing I read this weekend was from Bill Luby and in this space –

http://www.cboeoptionshub.com/2014/01/10/vix-low-2013/

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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…

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