Recap for Tuesday, October 9 by Kevin Corrigan
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Analysis on SPX:
S&P 500 (SPX) – at the time of this broadcast, SPX was around 1,443.69 down about 12.19 from Monday’s close. The longer term trendline going back to June is very close to the 50-day moving average of about 1424.94 for support. That should be the next support area in the short term. The more recent support trendline starting in mid July (around 1450) was just broken through today on the downside. This looks to be a negative sign for the SPX especially if it does close under that number today. It appears as though the recent QE3 easing did not retain its momentum. The market does not look “happy” at this time according to Michael.
Analysis on NDX:
NASDAQ 100 - At the time of this broadcast the NDX was at 2743.37. This index looks to have had a breakdown through the neckline of a head and shoulders pattern. It had a positive reversal two days ago, but broke down again below its 50 day moving average of around 2776.44. It could see the next level of support as low as around 2660.
Discussion from TradeKing Options Analyst Brian Overby:
VIX – at the time of this broadcast, CBOE Volatility Index (VIX) was about 16.24 up 1.13 from yesterday. We are finally seeing a bit of a run up in the index - it currently is above its 50-day moving average (15.56). We say “finally” because we usually see a bit more market volatility beginning in September but that didn’t happen. There seems to be a lot more call volume in the November contracts, Brian would guess it is because the October contracts expire before the European Union meetings on October 18-19th. Also worth noting that yesterday there were was a large lot of long straddles bought on the October 16 strike. It was an opening transaction and the trader paid between $1.65 and $1.70 per long straddle.
Brian recently blogged about what to know when trading VIX options here.
Quick Take Pro Chart of the Day is Qualcomm - (QCOM)
Discussion from QuickTakesPro’s Michael Kahn - At the time of this broadcast, QCOM was 60.53 down about .87 from yesterday. Its trendline from this summer’s run up has been broken through on the downside recently. There was a recent test to get back up to that trendline, but that failed and has headed down since. It has broken down below its 50 and 200 day moving averages of about 62.21 and about 60.70 respectively. It also had about a 1% drop off today. This could be a sign that it is oversold in the real short term. The next level of support looks to be about 60 if it continues heading south.
Technical tools used:
- Support / resistance
- Moving Averages
Brian Overby’s possible short term strategy based on Michael’s chart – QCOM – Bull Put Spread AKA Short Put Spread
Qualcomm - The historical volatility is about 19% while the implied has recently jumped up to about 28.41%. This is relatively high compared to the historical. This could be a sign the options are overpriced. The recent change in implied volatility could be related to the stock price movement more than earnings season because QCOM is not expected to release earnings until November.
Possible Speculative Short Term Trade - Bull Put Spread AKA Short Put Spread
- Sell 1 QCOM Oct 60 Put
- Buy 1 QCOM Oct 57.50 Put
- Bid 0.51, Mid 0.53, Ask 0.54
- 11 Days to Expiration
- Total net credit is .51 if we hit the bid
- Maximum potential loss is 2.50 - .51 = 1.99
- Maximum potential gain is the net credit received = .51
- Total commission to enter this trade is $6.25
Possible More Conservative Longer Term Trade - Bull Put Spread AKA Short Put Spread
- Sell 1 QCOM Nov 60 Put
- Buy 1 QCOM Nov 57.50 Put
- Bid 0.87, Mid 0.88, Ask 0.89
- 39 Days to Expiration
- Total net credit is .87 if we hit the bid
- Maximum potential loss is $1.63
- Maximum potential gain is the next credit received = .87
- 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. No additional calculations are needed to determine commission costs.
TradeKing Options Tools used:
- Detailed Quote
- TradeKing Bull Put Spread
- TradeKing Volatility Charts
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