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Options Trading

TradeKing Midday Market Call Recap: SPX, VIX, PCLN

Options Trading TradeKing

Recap for Tuesday, November 27th  by Kevin Corrigan

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Analysis of S&P 500 and Nasdaq Composite from QuickTakesPro’s Michael Kahn:

S&P 500 (SPX) – At the time of this broadcast, SPX was around 1408.10 up about 1.89 from Monday’s close. It is between its 50 and 200 day moving averages of 1424.64 and 1383.80, respectively. The trendline from last October has broken to the downside. Even with the rally last week, the SPX is still remains a good amount below that trendline. This leads Michael to believe this phase of the bull market from 2009 seems to be over. The path of least resistance at this point looks to be down for the market.

Both the Dow and the Nasdaq also appear to have similar patterns on the downside.

Analysis of Volatility Index from TradeKing’s Brian Overby:

S&P 500 Volatility (VIX) - is around 15.03, down about .47. It is below both the 100 day and 200 day moving averages of about 16.32 and 17.63, respectively. There’s not a lot of activity going on with the VIX. If we look out to the coming months, they also look to be down from earlier. The January contracts are around 17.37 and the February contracts are about 18.55.

Even the CBOE VIX Volatility Index (VVIX) is at its lows. It is around 81.61, well below its 50 day moving average of 89.70. 

The market seems to be complacent. The VVIX near yearly lows could imply the market is not too worried about all the “fiscal cliff” talk.

Stock for the day is Priceline (PCLN):

Discussion from QuickTakesPro’s Michael Kahn -  At the time of this broadcast, PCLN was $640.66 up about .67 on the day. $550 is a level of support that was resistance last year. There was a little bit of a downward triangle forming, which could mean bad news for the stock, but PCLN recently broke through the trendline to the upside and seems be lingering at the 640 level waiting to make its next move. It is still between its 50 and 200 day moving averages of about $616.28 and $646 respectively. It also has a resistance level around $649, using round numbers. Michael sees resistance at the 649 line, and speculates a breakout above this price could spell upside potential.

Technical tools used:
- Moving Averages

Brian Overby’s strategy based on Michael’s Analysis – Short Put Spread

Since we are waiting to see if PCLN breaks out to the positive side, we will take a look at a neutral-bullish strategy. The Implied Volatility has recently dropped below the Historical Volatility to about 26%, the Historical is near 32-33%. Since the stock trades at a high price, we will see some premium built into the price of the options. 

Possible Trade - Short Put Spread

- Buy 1 Dec PCLN 610 Put
- Sell 1 Dec PCLN 615 Put
- 25 days to expiration
- Net Bid .70, Ask 1.60, Mid 1.15

- Total credit is 1.15 if we can get filled at the Mid.

- Maximum potential loss is $3.85

- Maximum potential gain is $1.15

- Total commission to enter this trade is $6.25

Possible Additional Trade - Buy Long Call 

- Buy a just out-of-the-money call if we do see the stock breakout

- Maximum potential loss is whatever the debit paid happens to be

- Maximum potential gain is unlimited if the stock goes to infinity (Not going 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 Short Put Spread
- TradeKing Long Call 
- TradeKing Volatility Charts

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Kevin Corrigan
VP Content and Social Media

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.

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