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Analysis of S&P 500 from QuickTakesPro’s Michael Kahn:
S&P 500 (SPX) – At the time of this broadcast, SPX was around 1466.84, down about 3.84 from Monday’s close. The SPX is still hanging around its 5-year high. It has leveled off a bit since last week. The level of 1475 reached last September, might be a level of resistance. It has stalled recently but continues to trade quite a bit higher than both the 50 and 200 day moving averages of 1418.27 and 1393.07, respectively.
Analysis of Volatility Index from TradeKing’s Brian Overby:
S&P 500 Volatility (VIX) - is around 13.67, up about .35 today. The VIX recently had one of its largest collapses on a percentage basis in its history. It dropped from its pre-fiscal-cliff high of about 24 and is now trading near 5 year lows. It is also below the 50 and 100 day moving averages of 16.83 and 16.19, respectively.
The February VIX future contracts is around 16 and March is 17.25. Therefore, the market could be looking for higher volatility going forward now that we enter earnings season and a new debt ceiling fight in Washington.
To learn more about trading VIX option contracts, check out Brian’s blog here.
Stock for the day is Hewlett Packard (HPQ)
Discussion from Nicole Wachs and Brian Overby - At the time of this broadcast, HPQ was $16.41 down about .54 on the day. It appears to have a resistance level around the 18.30, caused by the gap down last August. It is between its 50 day, 200 day moving averages of around 13.99 and 18.33. The RSI level of 76.83 was just broken through on the upside, which may suggest it is becoming overbought.
Technical tools used:
- Moving Averages
Brian Overby’s less speculative strategy based on Michael’s Analysis – Long Butterfly Spread with Puts
Since Hewlett Packard (HPQ) could be reaching an overbought situation, we will discuss a bearish Long Butterfly Spread with Puts. HPQ has been prone to wild swings in the historical and implied volatility levels and a butterfly helps tame the risk that comes along with these swings. Worth noting that HPQ announced earnings back in November, but Apple is expected to announce on the 23rd of January.
Possible Trade - Long Butterfly Spread with Puts
- Buy 1 Feb HPQ 13 Put
- Sell 2 Feb HPQ 15 Put
- Buy 1 Feb HPQ 17 Put
- 32 days to expiration
- Net Bid .60, Ask .64, Mid .62
- Total net debit is .62 if we can get filled at the Mid.
- Maximum potential loss is $0.62
- Maximum potential gain is $1.36
- Total commission to enter this trade is $7.55
Possible adjustment - Leg into - Short Put Spread
If HPQ turns bullish an adjustment to the position may be:
- Buy to open 1 Feb HPQ 13 Put
- Sell to close 1 Feb HPQ 17 Put
This will leave you with this neutral to bullish position:
- Long 2 Feb HPQ 13 Put
- Short 2 Feb HPQ 15 Put
- Days to expiration depends on when the adjustment is made.
- Total net credit to the account depends on when the adjustment is made.
- Maximum potential loss is $2.00 x 2 contracts or $4.00
- Maximum potential gain depends on when the adjustment is made.
- Total commission to enter this trade is $6.25
To learn more about Butterflies and Adjustments, watch Brian’s Webinar here!
**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 Butterfly Spread with Puts
- TradeKing Long Put Spread
- TradeKing Volatility Charts
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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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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.
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