Tuesday, January 14th
Analysis of S&P 500 from QuickTakesPro’s Michael Kahn:
S&P 500 (SPX) – At the time of this broadcast, SPX was around 1,832.75 up 13.55 from Monday’s close. The long term upwards trend from November of 2012 is still the dominant trendline. There also appears to be in an accelerated upwards trend going back to October of 2013. Yesterday’s sell off tested this support level, but did not break through to the downside so both trends are still in effect.
It is above its 50 day moving average of 1802.63 and the 200 day moving average of 1691.67.
The Chart of the Day is United Parcel Service (UPS) – At the time of this broadcast, UPS was at 100.24 up 0.01 from yesterday. It appears to be in a head and shoulders pattern and broke below the 50 day moving average of 101.75. The overall upwards trend appears to be broken and the next level of support could be about 97. If it breaks past that, the next Fibonnaci retracement level is around 92.50, which could be a possible lower support level. It is above its 200 day moving average of 91.26.
Analysis of UPS’s Volatility Chart from TradeKing’s Brian Overby:
Overall, UPS historically has not been a very volatile stock. The one year range for the 30-day historical is from 8.36% to 23.17%. However, the next earnings announcement is scheduled for January 30th and as we get closer to earnings, implied volatility levels should creep up from the 16.71% level that they are at now. Also worth noting, UPS will be going ex-dividend in mid February. There are no weekly expirations for UPS, so the two nearest term option contract expirations are January 18th and February 22nd. January is too close, so we will look out to February. Both the earnings announcement and the ex-dividend date are before the expiration of the February contract and will have some bearing on the option prices.
Brian Overby’s strategy based on Michael’s analysis:
Brian’s Potential Trade Strategy #1 – Long Put
- Buy 1 Feb 22 2014 UPS 100.00 Strike Put
- 39 days to expiration
- Bid 2.26, Ask 2.29 – Debit is $2.29 if we pay the Ask.
- Maximum potential loss is $2.29 Break-even is $97.71
- Maximum potential gain is $97.71 if the stock goes to zero (not likely to happen). – Total commission to enter this trade is $5.60
Brian’s Potential Trade #2 – Back Spread with Puts
- Sell 1 Feb 22 2014 UPS 100.00
- Buy 2 Feb 22 2014 UPS 97.50 Put
- 39 days to expiration
- Bid 0.17, Mid .20, Ask 0.22 – Debit is $0.22 if we pay the Ask.
- Maximum potential loss is $2.72 (if UPS at $97.50).
- Maximum potential gain and break-even) is $94.78 if the stock goes to zero (not likely to happen). – Total commission to enter this trade is $6.80
Don’t miss the next TradeKing Midday Market Call. Every Tuesday midday from 12:00 – 12:15pm ET.
Regards, Brian Overby TradeKing Options Guy and Senior Option Analyst