Posts Tagged: Options

Investment Strategy / Options — 2 Comments
2
Feb 10

Trading Indicators for Newmont Mining

The basic Trading Indicators for Newmont Mining (NYSE: NEM) are giving signals of a downturn in the stock price. Then, of course, there are fundamental reasons for gold and gold mining stocks to be languishing for a bit at this time due to the recent strength of the US Dollar.

NEM_MACD

We are looking at the NEM chart with the plot for the 10-day and the 50-day moving averages. We see that around middle of December 2009, the 10-day moving average went down and crossed the 50-day moving day average on the way down. That typically is a bearish signal for traders and tells us that the stock price is headed down in the near term.

These are small duration moving averages that we are using. So, typically we wait for the indicators to show proof that it will continue with the trend which NEM has in this case. So, our near-term outlook on NEM is that it will stay under $45 for a few weeks at the least.

Accordingly, we are buying the NEM March 2010 $45 put option contracts to make some gains. Our buy-in price is at a premium of $245 per contract and we hope to reap some rewards soon on this trade.

This is our second trade in NEM. Readers may remember that we made some good gains in NEM put options last October. Lets hope this trade is a profitable one as well.

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FOREX / Options — 14 Comments
25
Jan 10

Trading Contracts against the Australian Dollar this time

trading contracts in AUD optionsWe are trading contracts in the Australian Dollar (XDA) put options. This is the AUD (Australian Dollar) against USD (US Dollar) FOREX instrument that is traded in the Philadelphia stock exchange. We are buying put options which means we expect the AUD to fall against the USD.

The AUD has been moving up nicely over the last few months and we have collected our trading gains on the currency. But we do believe the tide is turning a bit especially with the “cooling” plan that China has indicated recently. Our expectation is for the AUD/USD FOREX pair to fall to around 0.8730 first and then potentially go all the way down to 0.8360.

We are buying the March 90.50 puts at a premium of $234 per contract. We expect this trade to be closed sometime in February 2010 for a nice gain in the premium.

Note: Options traders should note that the new options contract naming has gone into effect and every broker may have their own naming convention. My broker’s naming convention is quite easy. For this trade it is XDA100320P90.5 which can be translated to SYMByymmddP90.5 (where P stands for put and 90.5 stands for the strike price).

We will provide update here on how we did with this trade.

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Investment Strategy — Comments Off
20
Jan 10

Why are Traders trading on the Apple Tablet vs. Amazon Kindle?

We fail to understand this phenomenon. Search the web on the Apple tablet (presumably going to be announced on January 27, 2010), and at least half the articles will discuss how it is a competitor to the Amazon Kindle. Yesterday I watched the “Fast Money” gang on CNBC discuss the same thing.

If, as traders, we should have learnt something about Apple, is that they do not compete with any existing product in the market. They change the game. When will traders start realizing that Apple has never been a “me too” company. They have been a “top that” company. One has to be bold when predicting or forecasting what Apple is going to do. Only then will one come close to the truth.

Make no mistake about it. We are long on Apple stock as well as options. But we will sell when the bump-up from the news dies down. And we also think our expectations of AAPL stock price moving over $250 after the Tablet announcement is a reasonable expectation. And it will ave nothing to do with the Amazon Kindle.

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Options / Stocks — Comments Off
14
Jan 10

Trading Contracts in Apple again

aapl call option contractsWe are trading call option contracts in Apple (NASDAQ: AAPL) again. Yes, we know there are those that are saying AAPL is overvalued. Yes, we know there are those that say AAPL has gone up too much too fast. But we are skeptical of these experts. We think Apple is still very much a compelling story and cannot be ignored.

First of all, if one looks at AAPL from March 2009, then yes, it has gone up dramatically (over 100%). But if one looks at the recent bull run over the last several weeks, it has been the Financials that have made the run. Apple stock price has languished. We are looking at three catalysts here:

1.   The impending announcement around the tablet PC. This is a well discussed event, but we feel Apple still has the ability to surprise at this event.

2.  Earnings are coming up and we are again betting for upside to the same and an immediate pop in the stock price.

3.  The rumor mills around the change in their accounting system and policy which in turn is expected to lower their P/E ratio. The accounting folks are still working their pencils on this one but we expect them to come to some consensus soon. And when that happens we expect it to be positive for the stock price.

Accordingly we are buying the AAPL April 2010 $250 call option contracts at a premium of $280 per contract. This is a far out of the money contract. But we have time on our hand. And time will tell.

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Options / Stocks — Comments Off
5
Jan 10

Trading Google call options

Google call options tradeWe are making a Google (NASDAQ: GOOG) call option play on a couple of news items. One is their announcement on Nexus One phone based on their Android OS. The other is our anticipation of good 4th quarter earnings they will announce middle of January. Granted, the Nexus One announcement is probably already baked into the stock price. But we think there is still some room for the stock to run.

There are some good things happening for Google as well. The stock price target recently got upgraded to $810 by FBR. That is quite big given that the stock price has been on a run lately. In the last 1 month the price has gone from around $585 to $625 which is close to a 7% rise.

There is still speculation in the market as to whether the Google phone will cause any dent in the Apple iPhone sales. We agree with the market that it will not. However, the smart-phone market itself is expanding at a rapid pace and that fact alone provides some market to Google. And there are strong predictions for mobile search to take off in the next 1 – 3 years which again spells good for Google. The bottom-line for Google is that it is not a negative to have the phone. And their bread and butter business of search is intact.

We are entering into a short term out-of-the-money trade by buying the February 2010 $700 call options at a premium of $320 per contract. This means that we would need the stock price to go up over 10% to be on-the-money. However, our expectations are for a modest gain of around 50% in the contract premium at which point we will sell the call options and get out of the trade. Our expected holding period on this trade is under 4 weeks.

 

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FOREX / Investment Strategy / Options — Comments Off
4
Jan 10

First 10 weeks of Options and FOREX trading performance

Our strategy of posting our options and FOREX trades and investments in this blog is working out well. We have had strong gains trading in Options without getting into too many complex trades. We will not go into details of the winning trades again, but they have been listed in the “Tracking” page.

Going forward we intend to track our performance through a monthly article instead of a running record within the Tracking section. We will post the summary performance under the tracking page.

We are also in the process of tightening our trading plan. This will be more of a collective trading plan designed by our editors and we hope to build in a “best practices” guide from this exercise. The trading plan is also going to include lessons learnt from the past. For instance, while we feel our options trading has gone well, our FOREX trading plan still lacks enough discipline and risk management. More on these topics coming soon.

 

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Options / Stocks — Comments Off
29
Dec 09

Sold half portion of Disney Call Options for 67% gain

disney call options soldWe are selling half of our Walt Disney Co. (NYSE: DIS) call options for a gain of 67% in just over 2 months. These are our January 2010 DIS $30 call options that we had purchased at a premium of $150 per contract. We are selling half of our portions to manage risk here. On one hand the Disney stock price has been on a bit of a roll lately. On the other hand, we are getting close to the call options expiration and do not want to carry too much risk coming close to that date.

Disney has been in the news lately with their Marvel acquisition among other positive signs. We still think that the stock has legs. It is hovering at around its 52-week at this time and has gone up over 20% in the last 3 months. It has a forward P/E of under 15 which makes it an attractive buy. We will be revisiting Disney for future trades.

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Investment Strategy / Options / Stocks — Comments Off
24
Dec 09

Taking 100-percent gain on half of Netflix call options on same day

netflix call options trading profitOur immediate target for Netflix (NASDAQ: NFLX) call options was reached late yesterday. We decided to take profits on half of our holdings for a gain of 100% within the same day of purchase. That means the balance holding is free of cost to us as we have already recovered our total cost by selling half the portion.

Our entry price on the January 2010 $60 call options was $45 per contract. We sold half of the contracts at a premium of $90 per contract giving us our 100% gain. In the last 5 trading days, the stock price has gone up nicely from around $53.5 to trade at around $57 at the time of this writing. We usually do not tend to hold on to a trade after it has reached our target. But this time we see good momentum in the stock price and feel we can let it run for a little while longer. Plus the chatter on a takeover is increasing.

Reed Hastings is smiling and so are we.

 

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Investment Strategy / Options / Stocks — Comments Off
24
Dec 09

MGM Mirage short term Call Option trade

We are making a short  term call option move on MGM Mirage (NYSE: MGM). The stock price has been tremendously depressed and, looking at the call option buying action, seems like it is on a bounce back. The fundamentals of this casino company are not great and with a recession behind us the company has suffered. But just as all good things come to an end, all bad things also come to an end. The stock is down from its 52-week high of over $16 to around $9 at the time of this writing. A comparative chart analysis of the last 3 months with the S&P500 is given below.

MGMcart

But the biggest catalyst for our move is the fact that call option volumes went through the roof yesterday. One thing we have learnt from te market is to follow its trend. Do not fight it. For trading and making short term plays, that can be very profitable.

So, we are buying the February 2010 $11 call options at a premium of $55 per contract. Why did we select this call option? It gives us a little extra time for the trade to play out. The open interest on this call option is quite high (around 8,000 contracts) and that means we are assured of some trading in the option. Thirdly, the stock price is hovering around the $9.5 range. Even though, from a percentage perspective, we are expecting a stock price increase of over 10% in around 6 weeks, it seems like a reasonable figure.

Our expectation, as usual, is to generate a gain of 100% on the contract premium.

 

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Investment Strategy / Options / Stocks — Comments Off
23
Dec 09

Trading call options on some Netflix Amazon rumors

netflix call options rumorsThere is considerable chatter in the options market about Netflix (NASDAQ: NFLX), the online DVD rental company. The traders are looking at a uptick on NFLX as seen in the options activity. Huge trading volume was seen in the January $60 call options which are still around $6 out-of-the-money. So NFLX would have to go up by around 10% between now and January 16, 2010 for these traders to be in the positive with their options.

However we do not, for a moment, think that traders are looking to keep the trade till the expiration. There is some speculation that Amazon (NASDAQ: AMZN) may make a bid for Netflix. That surely is a huge catalyst for a quick uptick in the stock price. The question is whether something will happen before January expiration. We are going to bet that it will. We are buying the NFLX January 2010 $60 call options at a premium of $45 per contract. Our target is for the premium to double and we will be out of the trade.

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