Posts Tagged ‘Bull Put Spread’
Tuesday, February 8th, 2011
A company’s fundamental backdrop, including anticipated news events like earnings, FDA meetings, or product announcements, typically plays a prominent role in any trader’s research. This tends to be true whether one is primarily investing in stocks or in options.
The excitement of event-based trading and the enduring importance of earnings results converge once every quarter as earnings season plays out. Earnings season has the potential to be especially exciting for those option traders looking to take advantage of implied-volatility shifts. One bullish options strategy traders might employ ahead of an earnings report is a bull put spread (selling a higher-strike put and buying a lower-strike put to collect a net credit).
If and when implied volatility is unusually high on the underlying’s options, traders might be tempted to sell put spreads in lieu of buying calls. High implieds mean that options are naturally pricier, making premium-selling strategies potentially more attractive than premium-buying ones. There are, of course, important differences between bullishly configured strategies such as long calls and short put spreads. (more…)
Tags: Bull Put Spread, Long Call, Options Strategies
Posted in blog, Trading on OptionsHouse | No Comments »
Thursday, July 15th, 2010
Option traders have many terms for what is essentially the same trade. Bull call spreads, for example, are also known as debit call spreads or call verticals. This is confusing enough when it is the just same trade verbalized three different ways. Furthermore, due to put/call parity rules, many entirely different strategies are essentially the same trade (at least from a risk point of view).
Let’s first look at the debit call spread (also known as a bull call spread). For illustrative purposes only, I have chosen to look at an IBM in-the-money 125/130 debit call spread.
We’ll construct the in-the-money (ITM) debit call spread using mid-market levels (as of July 13). The debit required to buy the 125 call and sell the 130 call is $3.40. The maximum gain at expiration is then $1.60 (the difference between the strikes minus the debit paid) and the maximum loss is the $3.40 initially paid. (more…)
Tags: Bull Call Spread, Bull Put Spread, IBM, Option Trading Strategies
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While Google (NASDAQ:GOOG) is not exactly known for a complete lack of volatility around earnings, its movements have not been all that violent (on a percentage basis). Thursday’s earnings report may be a pivotal one for Google, with the smartphone wars continuing to heat up.
The Blackberry, part of the Research in Motion (NASDAQ:RIMM) family, still leads the sector with a 41% market share in the U.S. and of course the iPhone craze powers on, but Google’s Android operating system is still growing at an exponential rate. I like to think of it as the 1980s Microsoft (NASDAQ:MSFT)/Apple (NASDAQ:AAPL) saga, redux. Back then, MSFT, like Google, offered its “window” operating system to multiple computer makers. In doing so, the company got folks across the world and on different hardware platforms addicted to its products.
Apple, in typical Jobs’ style, only sold its operating system software (and all software, for that matter) for Apple-made PCs. This strategy hurt Apple in the early days. Obviously, things have improved for the company and now the iPhone is like the Rubik’s Cube of the 2000s. Apple has done a good job at getting the public addicted to a cool (albeit flawed) product. Now that Consumer Reports won’t bless the iPhone 4 because of antenna issues, I’m looking forward to seeing how Apple spins it. (more…)
Tags: AAPL, Apple, Bear Call Spread, Bull Put Spread, Earnings, GOOG, Google, iPhone, Options Strategies
Posted in blog, What's Hot | No Comments »
For more than a year, I took Mad Money host Jim Cramer’s investing ideas and gave them a thumbs up or thumbs down according my own technical analysis and views. Here at OptionsHouse, it’s not about telling you what to do, but rather offering some strategies for you to explore based on your own individual opinions.
We all have a right to agree or disagree with Cramer and while I have great respect for the man, I can’t say that I am in full agreement with all of his recommendations. Furthermore, as options traders, we can take his thesis and augment it into acceptable risk for our individual personalities and risk tolerances.
Watching my DVR recording of Friday’s program, I actually liked what Cramer had to say about investing after the crash (I think this was taped earlier). He talked about the difference between trading and investing and how today’s market participants perhaps need to be an amalgam of the two. I happen to agree with Cramer’s suggestion that traders learn as much as they can about a company, although even with soup-to-nuts knowledge of a company and its business, you can still find yourself in a losing position. This is due to factors beyond the quality of a company’s product or their ability to sell that product or service to the public. Cramer noted this when he talked about a company’s stock price becoming “un-glued” from its fundamentals.
Frankly, while I agree that huge variances from typical price-to-earnings (p/e) ratios may be a reason to buy or sell a stock, it still doesn’t ensure success. It may, however, increase the probability of a longer-term trade coming into profitability because of the anticipated “reversion to the mean” an overbought or oversold stock may experience. (more…)
Tags: Amazon.com, AMZN, Bear Call Spread, Bull Put Spread, CNBC, Credit Spreads, HOT, Jim Cramer, Mad Money, Options Strategies, Starwood Hotels
Posted in blog, What's Hot | 3 Comments »
Wednesday, June 2nd, 2010
For the past month along with the overall market, priceline.com (NASDAQ: PCLN) has been in a downtrend that it can’t negotiate itself out of. Specifically, the stock has dropped from a recent high near 274 (reached on April 30) to its current last price near 185. That’s a 33% decline in four weeks. But the downtrend can’t go on forever (theoretically), and one analyst is trying to call the bottom.
Tuesday morning, priceline.com shares were upgraded to a “buy” at Keybanc from a “hold” rating, with a 12-month price target of $260. The accompanying statement noted that “investors have been afforded an opportunity to own a high quality, market share leading growth company … at an attractive valuation level.” While the stock initially moved slightly higher in early trading, fueled in part by this vote of confidence, the selling resumed late morning, sending PCLN into the red throughout Tuesday afternoon’s trading.
Even considering the stock’s recent decline, 100 shares of the stock will run nearly $19,000 (plus commissions) for those who believe in the Keybanc analyst’s thesis. Whether you are bullish or bearish on the stock, there may be option strategies that would be more affordable choices and could take advantage of leverage. Historical volatility on PCLN has recently surged to a new one-year high of 67%, inflating the price of PCLN options. For that reason, option traders may want to look into credit spreads, which involve premium selling (in lieu of premium buying).
Two hypothetical credit spreads on priceline – one bullish, one bearish – are outlined below. Remember these are merely examples, not recommendations. Consider your own risk/reward parameters and personal trading goals before executing any new trades.
(more…)
Tags: Bear Call Spread, Broker Upgrades, Bull Put Spread, Options Strategies, options trading, PCLN, priceline.com
Posted in blog, Bulls Vs. Bears | No Comments »
Wednesday, May 26th, 2010
While stock traders basically can only take a long or a short view on an underlying stock or ETF, options traders are given much more flexibility in the way they invest and assume risk. Headlines can be motivators for many investors to buy, sell, or hold, and they can also create, change, and/or exacerbate sentiments and manias, both bullish and bearish, which can add to volatility in the marketplace and consequently the profit/loss profiles of many investors.
Stock traders, whether long or short, will have one-to-one exposure to each dollar change in the stock itself. Because of this, stock traders may have to be more precise in their thesis and or timing of their trades. Options traders certainly need to be correct as well, but with some strategies, options traders can be only “partially correct” and still achieve success. Let me explain.
Let’s assume you were bullish on Goldman Sachs (NYSE: GS) as a stock trader, but you were a bit nervous about the sector, FINREG, and the company’s current legal situation. Of course, one option is to buy the stock at $139.00, which gives you unlimited upside and $139.00 of downside risk. For every dollar move in the stock, you will gain/lose $1.00 for every share you own. Therefore, if you decided to purchase 100 shares, you would gain/lose $100.00 for every dollar advance/decline in the stock. (more…)
Tags: Bear Call Spread, Bull Put Spread, Goldman Sachs, GS, Options Strategies, options trading
Posted in blog, What's Hot | No Comments »
Wednesday, May 26th, 2010
Tuesday morning, Argus upgraded Nike (NYSE: NKE) shares to a “buy” from a “hold” rating, setting a 12-month price target of $82. The firm believes the athletic apparel giant is well positioned to outperform its competitors and deliver solid earnings growth. Speaking of outperformance, the stock showed notable relative strength in Tuesday’s session, moving higher in a broader market that was sinking across the board.
For bullish investors who don’t want to simply buy shares, there are many alternatives from the world of options trading. The same holds true for those who don’t agree with Argus’ sunny disposition. Two hypothetical options trades on the stock – one bullish, one bearish – are outlined below. Remember these are merely examples, not recommendations. Consider your own risk/reward parameters and personal trading goals before executing any new trades. (more…)
Tags: Bull Put Spread, Nike, NKE, Options Strategies, options trading, Synthetic Short Stock
Posted in blog, Bulls Vs. Bears | No Comments »
During Thursday’s market meltdown, one analyst still had time for optimistic words on United Parcel Service (NYSE: UPS) and FedEx Corporation (NYSE: FDX). David Ross of Stifel Nicolaus boosted his rating on both names to “buy,” noting the shipping industry has room for upside as the global economy recovers. Ross was a bit more cautious on FDX, noting that it might have some near-term challenges to overcome.
Technically speaking, FDX has pulled back of late (along with the rest of the market) but is resting above its 50-week moving average. This trendline is sitting near the $80 level, which was also the site of the stock’s early February low. Stock traders who are interested in either side of the FDX trade but who don’t want to assume the risk of a short sale (or pay $8,000 for 100 shares) could consider option trading strategies. Two hypothetical options trades on the stock – one moderately bullish, one neutral – are described below. Remember these are merely examples, not recommendations. Consider your own risk/reward parameters and personal trading goals before executing any new trades. (more…)
Tags: Bull Put Spread, FDX, FedEx, Iron Butterfly, Options Strategies, options trading
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As the market melted down yesterday, Berkshire Hathaway (NYSE: BRK.B) slightly outperformed, losing 2.75% to $74.59 compared to the 3.2% drop in the S&P 500 and the Dow. Prior to all of this excitement, Jim Cramer had made bullish remarks about BRK on CNBC, noting that he still likes the stock despite its recent pullback. The shares rolled lower in early March and have slowly given back almost 10% during this time (including yesterday’s drop) and is approaching its 200-day moving average.
Whether you think BRK.B might rebound off this trendline or plunge through it, options strategies may be used in lieu of buying or shorting the stock outright. Two hypothetical options trades are outlined below. Remember, these are merely examples, not recommendations, and be cognizant of your personal risk/reward parameters before executing any new trades. (more…)
Tags: Berkshire Hathaway, BRK, Bull Put Spread, Options Strategies, options trading, Synthetic Long Stock
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MGM Mirage (NYSE: MGM) will release its first-quarter earnings ahead of the market open Thursday. Analysts are expecting the casino operator to post a loss of 27 cents per share, compared with a year-ago loss of six cents. Analysts are mixed heading into this report, with five “strong buy” ratings, nine “holds,” two “sells,” and one “strong sell,” according to the OptionsHouse Research tab. Technically speaking, MGM has rocketed 55% higher over the last two months or so but remains well below long-term moving averages, not to mention its October 2007 peak of $100.50. At the time of this report, MGM was trading for $16.41.
There are ways to play MGM in advance of earnings that don’t involve buying (or shorting) the stock. There are dozens of options strategies traders can use whether they are bullish, bearish, or neutral, or if they want to trade based on anticipated volatility (or lack thereof). Below are two hypothetical options trades for MGM ahead of earnings. Remember, these are merely examples, not buy-sell-hold recommendations, and be cognizant of your personal risk/reward parameters before executing any new trades. (more…)
Tags: Bull Put Spread, Long Straddle, MGM, MGM Mirage, Options Strategies, options trading
Posted in Bulls Vs. Bears | No Comments »
