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TradeKing Midday Market Call Recap - $SPX & $CAG

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 1,928.45, down 13.93 on the day. Michael began his analysis by addressing the similarities between the current rally and the rally that occurred last summer. While they both had that W-appearance with a double bounce, it’s in a different position in the trend. He believes the trend is now down overall looking at the big picture versus when it was up when the last double bottom happened. Michael is also quick to point out that it can’t be a true double-bottom pattern until it breaks out above resistance, otherwise it will just be considered a trading range. Currently the highs are still sitting at the highs from last month, with no breakout, while SPX is still below the major trendline. Additionally, the current rally has lower volume than the last rally and hasn’t seen an O’Neil follow-through day, an indicator that can signal that a new bullish trend is forming. This occurs when you get a surge in price and volume 4-7 days into the rally. Looking at SPX over the last 7 days, we’ve seen a drop in volume as the price has increased which Michael believes may indicate that this resistance level is very important and may be hard to get through.

Michael Kahn’s Chart of the Day: ConAgra Foods, Inc. (CAG):

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ConAgra Foods, Inc. was trading around the 41.99 level during the time of analysis, below its 50-day moving average of 40.69. The food group is one of the few groups that’s been outperforming the market which led Michael to look at CAG. He indicated that it appears that a bullish-flag type pattern may be present. That means the stock is bumping up against the trendline, on-bounce volume has hit a new high, the price is above both the 50 and 200-day moving averages, and CAG appears to possible be preparing for a break-out. If it does break-through the trendline, Michael believes it has a good shot to hit some new highs.

TradeKing “Options Guy” Brian Overby Analyzes ConAgra Food Inc.’s Volatility & Dividends:

ConAgra Food, Inc.’s 30-day Implied Volatility (IV) is in the middle of the range for the year at about 25%. With the 30-day Historical Volatility around 26%, there obviously isn’t much divergence between the two which tends to imply fairly priced options.

ConAgra Food, Inc. pays dividends quarterly and it’s next earnings announcement is slated for 03/24/2016.

Brian Overby Shares CAG Paper-Trading Strategies:

Brian’s first paper trade was a Long Calendar Spread with Calls, The strategy is set up with an out-of-the-money call strike which turns this neutral strategy slightly bullish.

His second paper trade, a Diagonal Spread with Calls, was also a slightly bullish. It’s a strategy that’s similar to a long calendar spread with calls but has more overall risk because it embeds a short credit spread to help pay for the trade.

Brian’s First Paper Trade - Long Calendar Spread with Calls

- Sell 1 March 18th 2016 CAG 44 Call
- Buy 1 April 15th 2016 CAG 44 Call

- 24 and 52 days to expiration

- Net Bid 0.40 debit, Mid 0.47 debit,  Ask 0.55 debit for the strategy

- Net debit is 0.47 if we get it at the mid-price, though note this is not always possible

- Maximum potential loss: $0.47

- 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 potential gain 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 at TradeKing is $6.25

Brian’s Second Paper Trade - Diagonal Spread with Calls

- Sell 1 March 18th 2016 CAG 44 Call
- Buy 1 April 15th 2016 CAG 45 Call

- 24 and 52 days to expiration

- Net Bid 0.10, Mid 0.20, Ask 0.30 for the strategy

- Net debit is 0.20 if we get it at the mid-price, though note this is not always possible

- Maximum potential loss: $1.20

- 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 potential gain 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 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 CAG Quote

- Long Calendar Spread with Calls

- Diagonal Spread with Calls

- TradeKing Volatility Charts

- TradeKing Options Pricing Calculator

- TradeKing Probability Calculator

- TradeKing P&L Calculator

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