Recap for Tuesday, August 26th by Kevin Corrigan
Did you miss Tuesday’s TradeKing Midday Market Call? Here’s a quick recap. Don’t miss another session, register here today!
Analysis of S&P 500 from QuickTakesPro’s Michael Kahn -
S&P 500 (SPX) – At the time of this broadcast, SPX was around 2,002.36 up 4.44 today. The upward trendline going back to November 2012 is still intact. The shorter term accelerated trendline going back to April is now back in play as a possible resistance area. The chart suggests this is in a short-term bull market for August. “There are plenty of reasons why it shouldn’t be this high, but it is,” according to Michael.
It is above its 50 day moving average of 1963.52 and its 200 day moving average of 1875.39.
The Chart of the Day is Schlumberger LTD (SLB) - At the time of this broadcast, SLB was at 111.32 up 1.10 today. It had a breakout yesterday and is now back near its 50 day moving average at 111.25. “The energy sector seems to making a comeback.” Michael said.
It is well above its 200 day moving average of 98.44
Analysis of SLB Volatility Chart and Dividends from TradeKing’s Brian Overby -
After recent jumps in volatility, the 30-day implied is now just below the 30-day historical level.
The 30-day historical is about 17.5%, while the 30-day implied is near 16%.
It does have a significant dividend (40 cents/share) and is due to go ex-dividend on August 29th. This will affect option contract prices that expire after that date. Earnings are next expected to be reported on October 16th.
Technical Tools Used:
Brian Overby’s paper trade strategies based on Michael’s analysis -
Michael's analysis is bullish. Brian discusses two strategies, a shorter term Long Call that will avoid the earnings announcement on October 16th, and a longer term Fig Leaf trade that will have the long call expiring in January. Both paper trades will be affected by the dividend, and in the case of the Fig Leaf paper trade, there is an additional element of dividend risk.
“Dividend risk” arises from the possibility that a short call holder may be assigned the day before the ex-dividend date, causing the trader to be short the stock going into the ex-date. When that occurs, the trader actually owes the dividend when it gets paid. At TradeKing, you would see the Dividend amount deducted from your cash at the time it’s paid.
It’s a real risk that is often misunderstood, and Brian indicated that he only considered a position with dividend risk in this case, because the factors are not optimal for early assignment (i.e. With the short option currently out of the money, and with 23 days to expiration as of August 28th, the time premium is not likely to be less than the dividend amount.) You can learn more about this risk, and related concepts in Brian’s Blog on the topic here.
Brian’s Paper Trade - Fig Leaf
- Sell 1 Sep 20 2014 SLB 114 Call
- Buy 1 Jan 17 2014 SLB 97.50 Call
- 25 Days to expiration for the September 20th, 144 days for the January 17th.
- Net Bid 13.62, Mid 14.17, Ask 14.72 for the Spread
- Net Debit is $14.17, if we execute at the Mid (might not be possible).
- Maximum potential loss: $14.17
- Maximum potential gain is limited to the premium received for the sale of the September call plus the performance of the January call.
*NOTE: You can’t precisely calculate potential profit at initiation of this strategy, because it depends on how the January call performs at the expiration of the September contract.
Total commission to enter this trade is $6.25
Brian’s Paper Trade - Long Call
- Buy 1 Sep 20 2014 SLB 109.00
- 25 Days to expiration
- Bid 2.96, Ask 3.10 for the call
- Debit is $3.10
- Maximum potential loss: $3.10
- Maximum potential gain is unlimited if the stock goes to infinity (not likely to happen)
Total commission to enter this trade is $5.60
**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 Options Pricing Calculator
- TradeKing P&L Calculator
Get solid market analysis and potential trading ideas. Take 15 minutes of your lunch with our team, as they analyze the market during this live online session. As an added bonus, a stock chart will be covered in detail each session accompanied by a potential option trade. This might be the most valuable thing you do all week! Every Tuesday midday from 12:00 - 12:15pm ET.
Don’t miss the next TradeKing Midday Market Call. Register here: https://www.tradeking.com/education/live-events
Regards,Kevin Corrigan, PMPVP Content and Social Mediawww.tradeking.com
Options involve risks and are not suitable for all investors. Prior to buying or selling options, an investor must receive a copy of Characteristics and Risks of Standardized Options, sent to you in previous communication. Additional copies may be obtained by calling TRADEKING at 877-495-KING or by visiting www.TradeKing.com/ODD.
Multiple leg options strategies involve additional risks and multiple commissions, and may result in complex tax treatments. Please consult a tax advisor.
At the time of publication and in the preceding month, TradeKing and/or Michael Kahn did not have ownership greater than 1% in any stocks mentioned; did not have any other actual, material conflict of interest known at the time of publication; have not received compensation from a public offering nor from investment banking services related to any companies mentioned within the past 12 months, nor expect to receive any in the next 3 months; nor engaged in market making in the securities mentioned.
System response and access times may vary due to market conditions, system performance, and other factors.
Michael Kahn maintains a business relationship with TradeKing.
Any strategies discussed and examples using actual securities and price data are strictly for illustrative and educational purposes only and are not to be construed as an endorsement, recommendation, or solicitation to buy or sell securities. Past performance is not a guarantee of future results. Consider the following when making an investment decision: your financial situation, your risk profile and transaction costs.
Market timing is a complex investment strategy which involves risk and may incur additional commission costs.
While implied volatility represents the consensus of the marketplace as to the future level of stock price volatility, there is no guarantee that this forecast will be correct.
TradeKing charges $4.95 for online equity and option trades, add 65 cents per option contract. TradeKing charges an additional $0.35 per contract on certain index products where the exchange charges fees. See our FAQ for details. TradeKing adds $0.01 per share on the entire order for stocks priced less than $2.00. See our Commissions + Fees page for commissions on broker-assisted trades, low-priced stocks, option spreads, and other securities.
The projections or other information generated by TradeKing's tools regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. The calculations do not take into consideration all costs, such as commissions and margin interest which may impact the results shown. It is the user's sole responsibility to select the criteria to enter in the TradeKing's tools, or to choose among the pre-defined screens, and to evaluate the merits and risks associated with the use of the tools before making any investment decisions. TradeKing is not responsible for any losses that occur from such investment decisions.
TradeKing Webinars and All-Star Blogs are provided for educational and informational purposes only.
All investments involve risk, losses may exceed the principal invested, and the past performance of a security, industry, sector, market, or financial product does not guarantee future results or returns. TradeKing provides self-directed investors with discount brokerage services, and does not make recommendations or offer investment, financial, legal or tax advice. You alone are responsible for evaluating the merits and risks associated with the use of TradeKing's systems, services or products.
TradeKing selects and defines as All-Stars certain independent market commentators who are recognized industry personalities and experienced traders and who provide timely market commentary via the TradeKing All-Star Blog and/or TradeKing Webinars. Each All-Star commentator's bio, related qualifications and disclosure as to their relationship with TradeKing can be found on the All-Star Roster. The selection of All-Star commentators is solely based on the quality and style of the content provided. TradeKing does not measure, endorse, or monitor the performance or correctness of any statement or recommendation made by independent All-Stars commentators. Supporting documentation for any claims made by TradeKing All-Stars will be supplied upon request by the author of the post, who is solely responsible for the views expressed. Contact TradeKing All-Stars by sending an email message to TKallstars@tradeking.com.
(c) 2014 TradeKing Group, Inc. All rights reserved.