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Options Trading

TradeKing Midday Market Call Recap: SPX, VIX, F

Options Trading TradeKing

Recap for Tuesday, December 4th 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 1407 down about 2.33 from Monday’s close. We’ve had a rally in the past couple weeks, but it still looks to be in a declining trend. It is still below the trendline from last October. Right now it seems to be between support of about 1405 and resistance of about 1423. The bright red trend-line on the chart is the close on the day of the election and we can see the market was not happy the next. This line is a strong resistance point for the market. It is also between its 50 and 200 day moving averages of 1419.53 and 1385.32, respectively. 

The Dow, Nasdaq and the Russell also appear to have similar patterns on the downside recently.

Analysis of Volatility Index from TradeKing’s Brian Overby:

S&P 500 Volatility (VIX) - is around 16.96, up about .32. It is between the 100 day and 200 day moving averages of about 16.24 and 17.54, respectively. This and the VVIX (VIX of the VIX) have bounced up recently. VVIX is around 85.18, but still well below its 100 day moving average of 91.07.

Interesting piece of activity happened recently. Someone bought 50,000 contracts of the December 5 call. Looks like someone is trying to buy a lottery ticket anticipating higher volatility based on the fiscal cliff situation.

Stock for the day is Ford (F):

Discussion from QuickTakesPro’s Michael Kahn -  At the time of this broadcast, F was $11.26 down about .15 on the day. It is still above its 50 day, 200 day moving averages and its trendline, all about $10.60. It came out with some good earnings yesterday. It jumped up, but had a reversal to the downside yesterday and looks like it continued through today. This can be a bad sign in the near term, possibly suggesting it was overbought recently. As the trendline moves forward, the support could move to be around $10.75.

Technical tools used:

- Moving Averages
- Trendlines

Brian Overby’s Short Term Strategy based on Michael’s Analysis – Long Put

The Implied Volatility is right around its year low, around 15%. The Historical is also close to 15%. Since Michael thinks there could be a short term bearish move, we are going to look at a Long Put. 

Possible Trade - Long Put

- Buy 1 Dec F 12 Put
- 18 days to expiration
- Net Bid .80, Ask .82

- Total debit is .82 if we can get filled at the Ask.

- Maximum potential loss is $.82

- Maximum potential gain is $11.18, if Ford goes to zero. (Not going to happen)

- Total commission to enter this trade is $5.60

Possible Additional Longer Term Trade - Buy Long Put

- Buy Jan F 12 Put
- 46 days to expiration
- Net Bid 1.33, Ask 1.35

- Total debit is 1.35 if we can get filled at the Ask.

- Maximum potential loss is $1.35

- Maximum potential gain is $10.65, if Ford goes to zero. (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 Long Put
- 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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