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TradeKing Midday Market Call Recap - $SPX & $WMT

Options Trading TradeKing

Featuring @BrianOverby  &  @MNKahn

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Quick Takes Pro Market Technician Michael Kahn Analyzes the S&P 500:

SPX was trading at 1,897.40, up 18.61 on the day. Last Wednesday, we saw a huge drop in the SPX with it closing down for the day with a bullish hammer candle present. To show that this wasn’t a one-day rally, Michael indicated that we’re looking for a successful follow-through day. Coined by William O’Neil, the concept of follow-through days lies in the idea that when the markets start a rally attempt, you must throw out the first handful of days as it could be a short bounce or bottom-fishing. However, if the market surges in both price and volume in the 4-7 days following that hammer candle, then it may be real buying coming back in. We’re now in that window and Michael’s looking for a surge in price and volume.

Michael Kahn’s Chart of the Day: Wal-Mart Stores, Inc. (WMT):

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Wal-Mart Stores, Inc. was trading around the 64.19 level during the time of analysis, above its 50-day moving average of 61.40. Following a steady year-long decline, WMT saw a break-through its support last October. Subsequently, a bullish flag emerged along with a rising trend-line with the 50-day moving average sitting right on top if it. These are all good short-term signals according to Michael. Now, the question is, can this continue? While the market’s strong today, Michael believes this stock is strong on its own merits and is not dependent on the market as it’s already gone through its bear market. If this thing can keep going, he expects the first stop to be around 68, then 71.

TradeKing “Options Guy” Brian Overby Analyzes Wal-Mart Store, Inc.’s Volatility & Dividends:

Wal-Mart Stores, Inc.’s 30-day Implied Volatility (IV) is beginning to spike in the shadow of the earnings announcement next month.

Wal-Mart Stores, Inc. pays dividends quarterly and it’s next earnings announcement is slated for 02/18/2016.

Brian Overby Shares WMT Paper-Trading Strategies:

Brian’s first paper trade is a Long Calendar Call Spread, a strategy that sells a call for the month that doesn’t contain the earnings and buys a call for the month that does have the earnings. Brian’s trying to take advantage of the potenial  drop in implied volatility on the short term month and increase in implied volatility on the long term month that usually happens around an earnings report. His second paper trade is a Short Put Spread, a bullish strategy that can also be employed on stocks that have the potential to be neutral.

Brian’s First Paper Trade - Long Calendar Call Spread

- Sell 1 Feb 05th 2016 WMT 65 Call

- Buy 1 Feb 19th 2016 WMT 65 Call

- 10 days  and 24 days to expiration

- Net Bid 0.71, Mid 0.76, Ask 0.81 for the strategy

- Net debit is 0.76 if we get it at the mid-price, though note this is not always possible

- Maximum potential loss: $0.76

- 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 max gain at initiation of this strategy, because it depends on how the back-month call performs at the front-month call’s expiration date.Maximum potential gain: $1.28

- Total commission to enter this trade at TradeKing is $6.25

Brian’s Second Paper Trade - Short Put Spread

- Buy 1 Feb 12th 2016 WMT 61 Put

- Sell 1 Feb 12th 2016 WMT 63 Put

- 17 days to expiration

- Net Bid 0.32, Mid 0.40, Ask 0.47 for the strategy

- Net credit is 0.40 if we get it at the mid-price, though note this is not always possible

- Maximum potential loss: $1.60

- Maximum potential gain: $0.40

- Total commission to enter this trade at TradeKing is $6.25

Important notes: 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 WMT Quote

- Long Calendar Call Spread

- Short Put Spread

- TradeKing Volatility Charts

- TradeKing Options Pricing Calculator

- TradeKing Probability Calculator

- TradeKing P&L Calculator

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