Bullish Options Strategist Tunes Into TiVo
by Option Review - March 8th, 2011 4:40 pm
Today’s tickers: TIVO, PCX, JDSU & ACN
TIVO - TiVo, Inc. – A sizable speculative bullish position was initiated in TiVo options today, though shares in the provider of digital video recording services fell as much as 5.85% at the start of the session to hit an intraday low of $8.53. The large four-legged transaction may be the work of an investor positioning for shares in the name to spike higher should the firm prevail in its legal battle regarding DVR technology against EchoStar and Dish Network. Results of the case are expected in the next couple of months. It looks like three of the four legs of the transaction were sold in order to offset the cost of getting long in-the-money calls expiring in August. The optimistic options player sold 10,000 puts at the August $7.0 strike for a premium of $1.01 each, shed 10,000 calls up at the August $15 strike at a premium of $0.52 apiece, and sold 10,000 calls at the May $20 strike for a premium of $0.06 per contract. The short legs of the trade were marked against the purchase of 10,000 in-the-money calls at the August $8.0 strike for a premium of $2.53 a-pop. Net premium paid to initiate the spread amounts to $0.94 per contract, and prepares the trader to profit should shares in TiVo rally 4.8% over today’s low point of $8.53 to surpass the breakeven price of $8.94 by August expiration. The investor could walk away with hefty maximum potential profits of $6.06 per contract in the event that TIVO’s shares jump 75.85% to trade above $15.00 in the time remaining to expiration. One observation worth mentioning is that the August contract call and put options represent fresh positioning given the tiny levels of previously existing open interest at each strike. But, the fourth leg of the trade, the May $20 strike calls, have more than 41,000 open positions. The trader could be rolling the calls out to the August contract, or closing…
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DiggTrading with Elliott Waves
by Chart School - March 8th, 2011 12:15 pm
Big Advantages of Trading with the Wave Principle
Plus: Discover Where to Place "Protective Stops"
By Elliott Wave International
What advantages does the Wave Principle offer to traders?
Here’s one of the big advantages of using the Wave Principle when trading: you can increase your understanding of how current price action relates to the market’s larger trend.
Other tools fall short in this regard. Several trend-following indicators such as oscillators and sentiment measures have their strong points, yet they generally fail to reveal the maturity of a trend. Moreover, these technical approaches to trading are not as useful in establishing price targets as the Wave Principle.
Here’s another big advantage of using the Wave Principle in your trading, which comes directly from the free eBook "How the Wave Principle Can Improve Your Trading" -
"Technical studies can pick out many trading opportunities, but the Wave Principle helps traders discern which ones have the highest probability of being successful."
Indeed, this valuable free eBook shows you how to identify and exploit the market’s price pattern, as shown in the Elliott wave structure below:
The Wave Principle also helps you to identify price levels where you may want to place protective stops.
"…although the Wave Principle is highly regarded as an analytical tool, many traders abandon it when they trade in real-time — mainly because they don’t think it provides the defined rules and guidelines of a typical trading system.
But not so fast — although the Wave Principle isn’t a trading "system," its built-in rules do show you where to place protective stops in real-time trading."
"How the Wave Principle Can Improve Your Trading"
Before you attempt to identify price levels for protective or trailing stops, you should first become familiar with these three rules of the Wave Principle:
- Wave 2 can never retrace more than 100 percent of wave 1
- Wave 4 may never end in the price territory of wave 1
- Wave 3 may never be the shortest impulse wave of waves 1, 3, and 5
The details and specific instructions for placing protective and trailing stops are in the BONUS section of the free eBook, "How the Wave Principle Can Improve Your Trading."
- How the Wave Principle provides you with price targets
- How it gives you specific "points of ruin": At what point does a trade fail?
- What specific trading opportunities the
…
Crashiverary Week Continues – Testy Tuesday
by Phil - March 8th, 2011 7:58 am
Wheeeee – this is fun!
I do so love it when a plan comes together and our plan in yesterday’s Morning Alert to Members at 9:55 was to pick up the DIA March $120.75 puts for .90 into the silly and very fake-looking "rally" and, as you can see, we had a very easy time getting in below our target and those puts took off like a rocket, giving us a huge win by lunch.
That gave us a very nice start to our trading week and we took trades on both sides of the aisle during the rest of the day including a short play on oil at $106 as I decided $105 was going to be tough to hold due to a combination of "fear exhaustion" and the fact that our crack team of overseas analysts have determined that Qaddafi can’t last and the only people who don’t know that are Qaddafi and the idiots pumping oil on CNBC.
Still, for the most part, it was a watching and waiting kind of day although we did take the opportunity to adjust our $25,000 virtual Portfolio, trying to lock down our $29,961 cash position by getting our unrealized gains and losses to cancel each other out. We did hold on to our EDZ hedges as they are for April and Fitch did just say that China faces a 60% risk of a bank crisis by 2013. "Fitch sees a risk of “holes in bank balance sheets” should a property bubble burst," according to Director Richard Fox. This same indicator used by Fitch correctly predicted both Iceland and Ireland’s crises well in advance (but nobody ever listens).
Bloomberg reports that events on the streets of Beijing offer a timely reality check. There, economists can find ample evidence that China may be approaching the limits of its ability to grow sustainably. Inflation is among the forces unnerving the masses, a phenomenon not unlike the one inspiring uprisings in the Middle East. The economy may be at a dangerous turning point, one where jumps in asset and consumer prices derail an impressive run. It doesn’t mean China is about to crash. It does mean that the time for taking its boom for granted is over.
So China is clearly at the breaking point and our play is that either oil fails to hold $105 or China begins…
Stocks-Crude Inverse Correlation Passes 2008 Levels, Just Off All Time Highs: Major Correction Ahead?
by Chart School - March 7th, 2011 7:19 pm
Courtesy of Tyler Durden
A week ago we presented the suddenly surprising inverse correlation between stocks and crude, commenting that: "the last time WTI to Stocks hit a correlation of -0.5 is just after the market peaked in late 2007, early 2008, as the market had started its decline which culminated with the global sell off of everything not nailed down, bringing the S&P to 666. The correlation between the two assets is again -0.5. If Brent confirms the WTI correlation, it may be time to run." Subsequently every chartist jumped on this observation, yet it is today’s update that is material significance: as of a few hours ago, the inverse correlation between the Brent front month has just passed the lows recorded in 2008, just before the market tumbled, when increases in oil prices no longer produced increasing stock prices (i.e., market topping). In other words, "it is now time to run" as we have just surpassed that level. And in fact, a longer term chart shows that we are just off the all time lows in the MSCI-Brent correlation. If this series continues dropping a correction is virtually assured.
Put Player Positions for a Pullback in Lorillard Shares
by Option Review - March 7th, 2011 4:43 pm
Today’s tickers: LO, HMA, AMR & USO
LO - Lorillard Inc. – A three-legged spread involving April contract put options on the cigarette manufacturer appears to be the work of an investor positioning for the price of the underlying stock to slip ahead of expiration. Shares in Lorillard, the maker of Newport cigarettes, the number one menthol brand, are currently up 0.33% to stand at $78.00 as of 12:50pm. The stock rallied as much as 5.7% one week ago to trade as high as $81.18 after the FDA said the risk of lung cancer for smokers of menthol cigarettes does not differ significantly from that of non-menthol cigarettes. But, last week’s sharp run up in LO’s shares was fairly short-lived given other portions of the FDA report that were not quite as positive for big tobacco. One trader expecting Lorillard’s shares to fall in the near-term seems to have established a bearish butterfly spread. The investor picked up 5,000 puts at the April $75 strike for a premium of $4.40 each, sold 10,000 puts at the April $65 strike for a premium of $1.50 apiece, and purchased 5,000 puts at the April $55 strike for a premium of $0.35 a-pop. Net premium paid to initiate the put ‘fly amounts to $1.75 per contract. The trader profits if LO’s shares decline 6.1% from the current price of $78.00 to breach the effective breakeven point at $73.25 by April expiration. Maximum potential profits of $8.25 per contract pad the investor’s wallet in the event that shares plummet 16.7% to settle at $65.00 at expiration. Options implied volatility on the cigarette-stock is up 3.4% at 54.92% just after 1:00pm in New York.
HMA - Health Management Associates, Inc. – Shares in the health care services provider are down 1.4% in early afternoon trade to…
“Crashiversary” Week Begins – Just Another Manic Monday
by Phil - March 7th, 2011 8:05 am
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Happy Crashiversary!
Just 2 years ago this week, on March 6th, we spiked down to a low of 666.79 on the S&P 500. That move was capping off a relentless drop down from 950 as they year opened and was dashing most people’s hopes of a recovery. I say most, because certainly not ours as out Members were BUYBUYBUYing that F’ing dip. I happened to be on TV the afternoon of the crash doing a 3-hour special on Tim Syke’s LiveStock show where I not only made 13 REALLY good picks that made 469% over the next 6 months, but I also explained my logic for buying on that particular dip so it’s worth watching if you have time to kill.
That same afternoon, my friendbuddypal Jim Cramer was on TV throwing 5,320 around as a target for the Dow (it was at 6,626 that day so another 20% down) although you wouldn’t know it now because CNBC has redacted the video and changed the text on the link to his show that day. Fortunately, it’s hard to get rid of video once it hits the web so now you can decide if the new CNBC summary matches the actual tone of segment they are hiding. MSNBC’s summary of the segment remains: "Mad Money’s Jim Cramer makes the call that the Dow will bottom at no less than 5,320. Listen to why Cramer says the key index could still drop another 1,300 with CNBC’s Melissa Francis."
The Fast Money crew had a chance to watch my broadcast but still chose to go on with a unanimously bearish show that day and this one you still can catch part of on the official site. "A lot of people are calling bottoms," said Guy Adami. "But I still don’t think we’re there, yet. It has to feel like the end of the world before the market can bottom."
"The data that I’d watch to signal a bottom is the rate of decline slowing," adds Karen Finerman. "But I don’t see that, yet." "We won’t be at the bottom until the financials participate in the market’s broader moves," adds Pete Najarian. "I don’t think we’ll get a bottom until we get policy going forward that doesn’t seem like it’s just attacking Wall Street," adds Jon Najarian.
Crashes tend to make investors fearful and Mr. Buffett says…
Long In The Tooth Rally
by markettamer - March 7th, 2011 1:41 am
Asia down overnight, futures down, euro rate hike…. rather than rehash it all, let’s get to the bottom of line of picks and performance!
Three-Legged Bull Prepares for a PNC Rally
by Option Review - March 4th, 2011 6:30 pm
Today’s tickers: PNC, CEDC, SPLS & GILD
PNC - PNC Financial Services Group, Inc. – Shares in the financial services firm are down 1.00% at $60.34 in early-afternoon trade, but activity in May contract call and put options suggests one strategist sees shares in PNC rising sharply in the next few months. The three-legged bullish player appears to have sold 5,000 puts at the May $55 strike for a premium of 1.39 each, purchased the same number of calls at the May $62.5 strike for a premium of $2.15 per contract, and shed 5,000 calls up at the May $67.5 strike at a premium of $0.68 a-pop. The options trader paid a net premium of $0.08 per contract for the transaction, and stands ready to profit should PNC’s shares reverse course and rally 3.7% over the current price of $60.34 to exceed the average breakeven price of $62.58 by expiration day in May. The investor responsible for the trade could accumulate maximum potential profits of $4.92 per contract if the firm’s shares jump 11.9% to trade above $67.50 before the options expire. PNC’s shares last traded above $67.50 back in May 2010. The financial services provider reports first-quarter earnings before the opening bell on April 21, 2011.
CEDC - Central European Distribution Corp. – Near-term options activity on the vodka producer this morning suggests some investors expect the pain of Central European Distribution Corp.’s post-earnings hangover to stick around through March expiration. Shares in CEDC lost 11.2% today to trade at $12.38, the lowest recorded price for the stock since April 2009. The alcohol beverage provider’s shares dropped 45.8% during the trading week, from a closing price of $22.85 on Monday, to today’s low of $12.38. Put buyers in the March contract, however, do not seem to think CEDC has hit…
Friday’s Market Blow – Jobs or No Jobs?
by Phil - March 4th, 2011 6:57 am
Why are we bearish?
For one thing, we like to go bearish when the market is testing the top of it’s channel as there is generally a higher percentage probability that we drop than we pop back over. Secondly, as I mentioned yesterday, it’s not just the Federal Reserve that is in denial but the commodity speculators, the equity investors and even the bond investors as the ALL believe they are going to get paid while MATH says that’s not even remotely possible.
What is math? I know – thanks to cutbacks in our education budgets over the past 30 years, that is a question that vexes many Americans and it also creates a perfect environment for the people who CAN do math, those in the Financial sector perhaps, to design endless levels of complex instruments that are all designed to con people who have lower math skills than they do.
Complexity is good. Just like the legal scam, complexity forces you to seek assistance with your finances – the more money you have, the more complex your finances become and the more you need help and this allows swarms of leeches or, to be kind, remoras to attach themselves to you and feed endlessly off your earnings and savings (they don’t care which as they will happily destroy the host and simply move on to the next big fish).
Personally, I prefer simplicity. My Grandpa Max was a Depression kid who built a business from scratch and invested his money well and had a nice life for himself. He taught me how to invest when I was a little kid and, as you can imagine, he did not ask a "financial adviser" what to do with his money as he had seen where that had gotten his parents generation when he was young (he was 24 when the Global markets collapsed).
Our investing days would begin by reading the papers (not just one – they all say different things, don’t they) together and pointing out things that looked interesting. Not just the Business Section but whatever seemed like an important World event or a trend worth watching that would help us get ahead of the curve with our stock selections. This is pretty much what I do now isn’t it (thanks Grandpa!)? So, I will share with you what I consider the most…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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