Mid-Day Market Call 4.1.14

Recap for Tuesday, April 1st

Analysis of S&P 500 from QuickTakesPro’s Michael Kahn:

S&P 500 (SPX) – At the time of this broadcast, SPX was around 1,877.20 up 4.86 from yesterday’s close. It appears to be in a sideways trading range roughly between 1841 and about 1882. It did hit a new high yesterday. The upwards trendline going back to November in 2012 is still intact, but the dominant feature on the chart right now is the “sideways trading range,” according to Michael.  It is above its 50 and 200 day moving averages of 1,835.50 and 1,751.41, respectively.

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The Chart of the Day is Baidu Inc. (BIDU)

At the time of this broadcast, BIDU was at 158.65 up 6.38 from yesterday. It appears to have a support level at around 149. Last week, it had a false breakdown below that support level and recovered by the end of the day. This resulted in what is close to a “hammer-candle” pattern for the day, which is a bullish sign according to Michael. The next level of resistance looks to be just below 170. If it breaks from there, the next level could be near the highs around 180.  It is currently trading between its 50 and 200 day moving averages of $165.14 and $149.49.
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Analysis of BIDU Volatility Chart and Dividends from TradeKing’s Brian Overby:

The 30-day implied volatility is near 49% and the 30-day historical is about 36%.There has been a spike up in the 30-day implied volatility recently, which is most likely because earnings are expected to be announced within 30 days, on April 24th. It may go even higher as we get closer to the announcement. Attempting to avoid the earnings announcement, Brian takes a look at option contracts that expire April 19th.  BIDU does not currently pay a dividend.
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           Brian Overby’s strategy based on Michael’s analysis –

The April 19th Monthly expiration does not have single point strike prices, which limits the amount of choices, but Brian discusses a Short Put Spread 5 points wide and a Long Call Spread 10 points wide.

Brian’s Potential Trade – Short Put Spread

– Sell 1 April 19 2014 BIDU 150 Put

– Buy 1 April 19 2014 BIDU 145 Put      – 18 Days to Expiration

– Net Bid 0.82, Mid 0.90, Ask 0.98 for the strategy

– Net credit is 0.82, if we execute at the Bid

– Maximum potential loss is $4.18

– Maximum potential gain is $0.82      Breakeven is at $149.18

– Total commission to enter this trade is $6.25

Brian’s Potential Trade #2 – Long Call Spread

– Buy 1 April 19 2014 BIDU 160 Call

– Sell 1 April 19 2014 BIDU 170 Call    – 18 Days to Expiration

– Net Bid 2.96, Mid 3.08, Ask 3.19 for the strategy

– Net debit is $3.19, if we execute at the Ask.

– Maximum potential loss is $3.19

– Maximum potential gain is $6.81  Breakeven at $163.19

**NOTE: option prices are given as a per contract amount.

Get solid market analysis & potential trading ideas, Tuesday midday from 12:00 – 12:15pm ET.   Brian Overby TradeKing Options Guy & Senior Option Analyst  www.tradeking.com