Midday Market Call Recap for Tuesday, April 8th – SPX, V
Analysis of S&P 500 from QuickTakesPro’s Michael Kahn:
S&P 500 (SPX) – At the time of this broadcast, SPX was around 1,850.02 up 4.98 from yesterday’s close. Is still in a sideways trading range roughly between 1841 and about 1882 for the past couple months. It did breakthrough on the upside, but failed right after. 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 1,840.50 and 1,757.63, respectively.
The Chart of the Day is Visa, Inc. (V). At the time of this broadcast, V was at 204.70 up 1.29 from yesterday. It had a big drop off from recent highs near 230. It dropped below its 50 day moving average of 220.44. Right now it is hovering around its long term upward trendline support and the 200 day moving average at around 200 and 202. This could be a candidate for a small bounce back, but nothing to get all excited about, according to Michael.
Analysis of V Volatility Chart and Dividends from TradeKing’s Brian Overby:
Its next earnings announcement is due on April 24th. Brian is looking to avoid the event. The 30-day volatility levels have been creeping up in anticipation of earnings. The 30-day implied volatility is about 27.5% and the 30-day historical is at 20%. These may go even higher as we get closer to the announcement. Because Michael thinks a bounce off of support in the short term is possible, Brian looks at contracts that expiring before the earnings announcement.
This stock has paid a quarterly dividend, but it is not expected to go ex-dividend until sometime around May 12th. This expected dividend should not affect option contract prices that expire before the ex-date.
Brian Overby’s strategy based on Michael’s analysis –
Attempting to avoid the earnings announcement, Brian takes a look at option contracts that expire April 19th. Hoping that support holds after the recent drop down and a slightly bullish short term outlook,
Brian’s Potential Trade # 1 – Long Call Spread
– Buy 1 April 19 2014 V 200 Call
– Sell 1 April 19 2014 V 205 Call
– 11 Days to Expiration
– Net Bid 3.00, Mid 3.20, Ask 3.40 for the strategy
– Net debit is $3.40, if we execute at the Ask. Breakeven at $203.40
– Maximum potential loss is $3.40, Maximum potential gain is $1.60
– Total commission to enter this trade is $6.25
Brian’s Potential Trade # 2 – Short Put Spread
– Sell 1 April 19 2014 V 200 Put
– Buy 1 April 19 2014 V 195 Put
– 11 Days to Expiration
– Net Bid 0.74, Mid 0.80, Ask 0.85
– Net credit is 0.74, if we execute at the Bid. Breakeven at $199.26
– Maximum potential loss is $4.26, Maximum potential gain is $0.74
Get solid market analysis and potential trading ideas. Every Tuesday midday from 12:00 – 12:15pm ET Brian Overby TradeKing Options Guy and Senior Option Analyst