Trade King Mid-Day Market Call Recap 7.15.14 SPX & ESV

Recap for Tuesday, July 15th

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

S&P 500 (SPX) – At the time of this broadcast, SPX was around 1,967.06 down 10.04 today. The upward trendline going back to November 2012 is still intact. After hitting all-time highs that now seem to be acting as resistance, the rally may have stalled.

“Concerned, yes. Bearish, no. Not yet, anyway,” Michael said.  It is above its 50 day moving average of 1930.73 and above its 200 day moving average of 1839.71.

bo 7 15The Chart of the Day is Ensco, PLC. (ESV) –

At the time of this broadcast, ESV was at 53.88 up 0.20 today. It recently broke out of a previous range, and may be currently testing resistance in a possible bull flag pattern. Although oil hasn’t performed well lately, the oil services stocks have more generally held their ground. There are signs that this stock could be in a strong sector, but again, we’re also seeing fear in the oil market, so the point of view is somewhat contrarian.

It is right at its 200 day moving average and above its 50 day moving average of 52.77.

Analysis of ESV Volatility Chart and Dividends from TradeKing’s Brian Overby

The 30 day historical volatility is at yearly lows (about 16%), but the implied has been moving up. As we enter earnings season (ESV reports on July 31st), we could see a hike in 30-day implied volatility.

The last dividend was paid June 5th and was 75 cents. The current dividend yield is 5.53%. The next expected dividend should be at the beginning of September, which will affect options contract prices with expiration dates after the ex-dividend date in September.

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Brian Overby’s paper trade strategies based on Michael’s analysis -

Michael’s analysis is bullish. The 30-day implied volatility has been slowly increasing, and likely could continue to increase, because there is an anticipated earnings announcement looming (7/31). Brian discusses two Short Put Spread strategies that are both neutral to bullish with expirations that include the earnings announcement. These paper trade strategies are using options that expire after the earnings report, and the latter also may include an ex-dividend date. Ideally, the positions can be closed out before the announcement actually occurs if the breakout to the upside materializes.

Brian’s Paper Trade – Short Put Spread

– Sell 1 Aug 16 2014 ESV 52.50 Put

– Buy 1 Aug 16 2014 ESV 50 Put       32 Days to expiration

– Net Credit is Bid 0.40, Mid 0.50, Ask 0.60 for the strategy

– Net Credit is $0.50, if we execute at the Mid. (might not be possible)

– Maximum potential loss is $2.00

– Maximum potential gain is approximately $0.50

– Total commission to enter this trade is $6.25

 

Brian’s Paper Trade – Short Put Spread

– Sell 1 Sep 20 2014 ESV 52.50 Put

– Buy 1 Sep 20 2014 ESV 50 Put

– 67 Days to expiration

– Net Credit Bid 0.65, 0.78 , Ask 0.90 for the strategy

– Net Credit is $0.78, if we execute at the Mid (might not be possible).

– Maximum potential loss is $1.72

– Maximum potential gain is approximately $0.78

Total commission to enter this trade is $6.25

**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.

Don’t miss the next TradeKing Midday Market Call. Regards,

Brian Overby  TradeKing Options Guy and Senior Option Analyst

www.tradeking.com

 

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Brian Overby

As Senior Options Analyst for TradeKing, Brian Overby is a widely sought-after resource for his option trading knowledge and market insights. He has contributed to numerous articles for the Wall Street Journal, Reuters and Bloomberg and has had frequent appearances on CNBC Fast Money and Fox Business News. With nearly 20 years…

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