Recap for Tuesday, July 24 by Kevin Corrigan

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Analysis from Candlechart.com’s Dave Forster:

S&P 500 (SPX) – at the time of this broadcast, SPX was around 1,338.80 down about 11.72 from Monday (intraday chart below). It ran into resistance at 1380 and has headed lower since. It is still above both the 50 and 200-day moving averages of 1333.10 and 1314.36 respectively. Could see some support around 1325, but if it breaks below that, we could see next support level around 1310. With the SPX down 3 days in a row, and sitting near its 50 day SMA, the risk-reward of taking a bearish trade here does not make sense right now.
 



Discussion from TradeKing Options Analyst Brian Overby:

VIX – at the time of this broadcast, VIX was about 19.20, up about 0.58 from yesterday (intraday chart below). It’s still low compared to where it has been especially with many stocks (Yahoo, JNJ, Google) announcing earnings soon. It is currently trading below its 200-day and 50-day moving averages of 22.05 and 20.33 respectively.

There was high volume upside call buying in the 22 and 23 strikes, hinting at the market’s opinion the VIX may trade higher. Going out further, the VIX futures contracts are higher; August is around 21.07 with October trading around 23.90. The market longer term continues to expect higher volatility.
 


Dave Forster’s Chart of the Day is Google – symbol GOOG

Google symbol GOOG - At the time of this broadcast, GOOG was 611.16, down about 4.35 from yesterday (intraday chart below). Looks like it hit its resistance level around 619 on Monday and got close again this morning. It seems to have run its course after the earnings announcement. Support level seems to be around 598-599 using the lows of the last two trading sessions as support. Google has been stronger than the rest of the market as of late. However, if the market continues to drop, it could bring Google down as well.
Technical tools used:

- Support / resistance
- Trendlines
- Moving Averages
 


Brian Overby’s potential strategy based on Dave’s chart – GOOG – Long Put Spread

GOOG – The implied volatility is almost level with the historical volatility - around 20%, and near the lows of the year. The implied volatility was up near 35% before earnings, but has dropped sharply since. Because Google is a high-dollar stock, buying a single-leg put option will be a high-dollar trade as well. To create a lower-cost trade, let’s consider the Long Put Spread. We are selling a lower strike put to offset the cost of buying the higher strike put.


GOOG – Bearish Strategy - Long Put Spread

Use this strategy if you expect a moderate to strong bearish move by August expiration.

- Buy 1 GOOG Aug 610 Put
- Sell 1 GOOG Aug 595 Put
- Long put spread market was Bid 5.50, Mid 5.80, Ask 6.10

- At the time of this spread market GOOG was trading 608.50
- 25 days until expiration
- Total net debit is $5.80 if we pay the mid point.

- Maximum potential loss is $5.80 if we pay the mid point and GOOG is above 610 at August expiration.
- Maximum potential gain is $9.20 if GOOG is at 595 or lower by August expiration (calculated by the difference between the strikes less the debit paid  [610-595-5.8]

- Multi-leg commission to enter this trade is $6.25
- There is no margin requirement for this trade after the debit is paid in full.


GOOG - Bearish Strategy – Out-of-the-money (OTM) Put Butterfly

Use this strategy if you expect a slight to moderate bearish move by August expiration, not lower than 582.50.

- Buy 1 GOOG Aug 610 Put
- Sell 2 GOOG Aug 595 Put
- Buy 1 GOOG Aug 580 Put
- OTM Put Butterfly market was Bid 1.80, Mid 2.50, Ask 3.10
At the time of this spread market GOOG was trading 608.00

- 25 days until expiration
- Total net debit is $2.50 if we pay the mid point.

- Maximum potential loss is $2.50 if we pay the mid point and GOOG is below 582.50, or above 607.50 at August expiration (calculated by adding the debit paid to the lower strike and subtracting it from the higher strike).
- Maximum potential gain is $12.50 if GOOG is exactly 595 on August expiration (calculated by the difference between the symmetrical strikes less the debit paid [610 – 585 – 2.50].

- Multi-leg commission to enter this trade is $7.55
- There is no margin requirement for this trade after the debit is paid in full.

GOOG – Neutral Strategy – OTM Short Call Spread (from Dave Forster)

Use this strategy if you are somewhat neutral to bearish on GOOG and you think it will stay below 625 between now and August expiration.

- Buy 1 GOOG Aug 630 Call
- Sell 1 GOOG Aug 625 Call
OTM Short Call Spread market was Bid 1.00, Mid 1.25, Ask 1.50.

- 25 days until expiration
- Total net credit received is about $1.25 if we receive the mid point when selling

- Maximum potential loss is $3.75 if we receive the mid point and GOOG is above 630 at August expiration (calculated by the difference between the strikes less the credit received [630 – 625 – 1.25]
- Maximum potential gain is $1.25 and is equal to the credit received.

- Multi-leg commission to enter this trade is $6.25
- The margin requirement for this trade is equal to the maximum potential loss of 3.75.

**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. No additional calculations are needed to determine commission costs.

TradeKing Options Tools used:

- TradeKing Live
- Detailed Quote / Earnings Calendar
- TradeKing Long Put Spread
- TradeKing Short Call Spread
- TradeKing Long Butterfly with Puts
- TradeKing Volatility Charts

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Regards,
Kevin Corrigan
VP Content and Social Media
www.tradeking.com

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