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TradeKing Midday Market Call Recap - SPX, BBY

Options Trading TradeKing

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Recap for Tuesday, March 10th 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 2050.47, down 28.96 today. It has gotten really “sour” over the last week, with large sells offs after recent highs. According to Michael: there is more room to go down, but it’s not clear how oversold the market is after the recent sharp pull back. The long-term trend is still up.

SPX is just below its 50 day moving average of 2061.47, but remains above the 200 day MA of 2001.33.

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The Chart of the Day is Best Buy, Inc. (BBY) -

At the time of this broadcast, BBY was at 39.49, down 0.34 today. The increasing on balance volume is what initially attracted Michael to take a closer look at BBY. It’s recently been outperforming the market after recovering strongly from a sharp drop. There’s an important caveat that as BBY tests a possible breakout just below the 40.00 line, it did recently fail a test of the resistance-- cracking through but still closing under. It’s in a place to watch, not be too excited about just yet. If a breakthrough does happen, Michael sees 46.75 as a next possible area for resistance.

It is above both its 50 day and 200 day moving averages of 37.72 and 33.68, respectively.

Analysis of BBY Volatility Chart and Dividends from TradeKing’s Brian Overby -

The 30-day Implied Volatility (IV) is around 27%, while the 30-day Historical is near 24%. The volatility chart is close to ideal for option buyers. It would be preferable for historical to be slightly above implied instead of vice versa, but both volatility levels are near the very bottom of the yearly range.  

Technical tools used:

- Moving Averages

- Trendlines

Brian Overby’s paper trade strategies based on Michael’s analysis -

Michael’s outlook is tentatively bullish, hoping for a breakout past 40 to reaffirm his outlook. With no immediate earnings announcement, the only factor on options prices should be the upcoming dividend for BBY. It’s a relatively large one at .23, and this will be inflating put prices and deflating call prices, including on the paper trades Brian reviews today. The stock will go ex-dividend on March 20th, and the dividend is already priced into the options prices. Brian discusses two Long Calls, at or near the money, but going out to the April monthly expiration with March 20th being so near, and better open interest and volume in monthly expirations compared to the weeklies.

Brian’s Paper Trade - Long Call (if the breakout happens)

- Buy 1 April 17 2015 BBY 40 Call

- 38 Days to expiration

- Bid 1.08, Ask 1.12 for the call

- Debit is 1.12 if we pay the Ask

- Maximum potential loss: $1.12

- Maximum potential gain is technically unlimited if the stock goes to infinity.

Total commission to enter this trade is $5.60

Brian’s Paper Trade - Long Call (if the breakout happens)

- Buy 1 April 17 2015 BBY 41 Call

- 38 Days to expiration

- Bid 0.69, Ask 0.73 for the call

- Debit is 0.73 if we pay the Ask

- Maximum potential loss: $0.73

- Maximum potential gain is technically unlimited if the stock goes to infinity.

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 Call

- TradeKing Volatility Charts

- TradeKing Options Pricing Calculator

- TradeKing Probability Calculator

- TradeKing P&L Calculator

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Regards,

Kevin Corrigan, PMP

VP Content and Social Media

www.tradeking.com

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