Continue Reading Below
Recap for Tuesday, September 30th 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 1980.01 up 2.21 today. The upward trendline going back to November 2012 is still intact, even though it’s been over a week since it has been at its high. The long-term trend for bigger companies still indicates it is in a bull market, but the small cap companies that are in the Russell 2000 index (RUT) are struggling. The RUT relative performance versus the SPX just hit a 52 week low. This is not a good sign for the market. Overall it is hard to see any trending action for this market, but one thing that’s very likely is that the volatility should be picking up. Indeed, this is shown by the VIX index now above 15.
It is above its 50 day moving average of 1976.77 and its 200 day moving average of 1899.66.
The Chart of the Day is AT&T Inc. (T) -
At the time of this broadcast, T was at 35.31 up 0.08 today. There isn’t a whole lot of trending in the T chart, remaining mostly flat. Michael noted that even its 200 day MA is flat. There are some smaller patterns looking at narrower time frames. Right now, T appears to be forming a bull flag pattern, from which it is attempting to breakout. If it does break out of the flag, using the “flagpole” as an upward gauge, the next level of resistance could be somewhere above 36. Michael actually turned toward a non-technical event, an upcoming relatively large dividend of 0.46 next week on ex-date October 8th. T currently has a 5.21% dividend yield, and even though the stock price will be reduced by 0.46 on October 8th, Michael believes the stock could see a small pop leading into this, potentially escaping the flag.
Continue Reading Below
Analysis of T Volatility Chart and Dividends from TradeKing’s Brian Overby -
Despite the upcoming dividend (Oct. 8th) and earnings announcement expected (Oct. 22nd), T’s volatility levels are relatively low. The 30-day historical is just above 7.5%. Its 30-day implied volatility has been rising as we near the two events, but even so, with a year range of 11.5% - 21.0%, the 30-day implied is still on the low end of that range at 14%.
Options prices will be affected by the upcoming dividend. Brian reviews how, at least in terms of implied volatility, you can already see this viewing TradeKing’s options chains, under the IV column.
Technical tools used:
- Moving Averages
Brian Overby’s paper trade strategies based on Michael’s analysis -
Michael's analysis is short-term bullish. With volatility levels relatively low and probable to rise, Brian discusses two strategies: an October 24th Long Call, and a For-Veterans-Only Diagonal Spread with Calls. Note that both strategies include BOTH the Dividend and Earnings announcement.
With the long call, Brian notes that the call is relatively inexpensive because of the pending dividend, the decrease in price on the ex-dividend date is something that needs to be understood and prepared for. He also noted implied volatility levels being in the low end of the range even though the anticipate earnings date is right around the corner (10/22).
Brian emphasized the complexity of managing the Diagonal Spread position, especially when the calls become near- or in-the-money because of Dividend Risk. Brian also reviewed this last month, when the Midday Market Call reviewed SLB’s volatility charts. It’s a high-touch, involved trade concept, where the trader needs to be in tune with news and stick to his/her trade plan, particularly around each upcoming event date.
Brian’s First Potential Trade Strategy - Long Call
- Buy 1 Oct 24 2014 T 35.50 Call
- 24 Days to Expiration
- Bid 0.27, Ask 0.29 for the call option
- Debit is 0.29. If we execute at the Ask.
- Maximum potential loss is $0.29
- Maximum potential gain is unlimited if the stock goes to infinity (not likely to happen).
- Total commission to enter this trade is $5.60
Brian’s Potential Trade Strategy - Diagonal Spread with Calls
- Sell 1 Oct 10 2014 T 35.00 Call
- Buy 1 Oct 24 2014 T 35.50 Call
- 10 days to Expiration on short Call.
- Net Bid 0.11, Mid 0.14, Ask 0.18 for the strategy
- Net credit is 0.14. if we can execute at the Mid. (may not be possible)
- Maximum potential loss is $0.36
- Maximum potential gain is limited to the premium received for the back-month call minus the cost to buy back the front-month call, minus the net debit paid to establish the position. NOTE: You can’t precisely calculate your risk at initiation of this strategy, because it depends on how the back-month call performs at the front-months expiration date.
- 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 Back Spread with Calls
- TradeKing Long Call
- TradeKing Volatility Charts
- 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: www.tradeking.com/events
Kevin Corrigan, PMP
VP Content and Social Media
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.
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 predefined 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.