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TradeKing Midday Market Call Recap - $SPX & $CAT

Options Trading TradeKing

Presented by @BrianOverby  &  @MNKahn

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

At the time of broadcast,the S&P 500 index was trading around 1963, up about 31 points on the day.SPX has slowly started to creep over its 50-day moving average of 1939.60 butremains about 60 points below its 200-day moving average (2024.96). Michaelnotes we’ve seen a nice rally in stocks over the last two to three weeks.Trading volume was experiencing a negative trend during this time untilyesterday which boasted a negative day. Kahn draws a line that highlights asupport for 2016, right above the 1950 mark. Short-term trend is moving in apositive direction, but Michael is “not convinced the trend is going muchhigher” over the next few weeks.

 

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Michael Kahn’s Chart of theDay: Caterpillar Inc. (CAT):

Caterpillar Inc. was tradingabove its 50-day moving average (64.3) but below its 200-day (73.5) movingaverage. During the time of analysis, CAT was sitting around the 69 level. CAThas been experiencing an overall downward trend since about mid-year in 2014.However, Michael examined its relative performance compared to the S&P 500,and CAT has been rallying over the last month. Kahn put a target at 75, lookingfor the rally to continue.

 

“Options Guy” Brian OverbyAnalyzes Caterpillar Inc. Volatility & Dividends:

Implied Volatility saw a biguptick towards the end of 2015 due to the lack of market performance. After itsQ4 earnings report, CAT’s 30-day Implied Volatility (IV) dropped from a 52-weekhigh of 41% down to 29%. Caterpillar Inc. has seen a significant rise in 30-dayHistorical Volatility (HV) going from the mid-20s in January up now to nearly41%.

Caterpillar Inc. had anex-dividend date back in January of 2016 and paied a 77 cent dividend inFebruary. The company reported 2015 Q4 earnings on January 28, 2016. CAT’s nextanticipated earnings announcement is April 2016.

Brian Overby Shares CATPaper-Trading Strategies:

Brian stated he would bepaying attention to time values relative to both of his strategies. His firstpaper trade was a Short Put Spread, which was a neutral tobullish strategy based on the fact CAT was up about 2% at the time of analysis.This is more of a conservative strategy, going out farther in time, bringing ina little more premium with the concept of buying back when it gets back to yourprofitability target or approaches your risk tolerance level.

His second paper trade was amore aggressive trade featuring a Long Call Spread with a near-termexpiration. This is an attempt to sell as much time premium as what is beingbought.

Brian’s First Paper Trade - Short Put Spread

- Sell 1 April 15th 2016 CAT65.00 Put

- Buy 1 April 15th 2016 CAT62.50 Put

- 45 days to expiration

- Net Bid 0.31 credit, Mid0.41 credit,  Ask 0.51 credit for the strategy

- Net credit is 0.41 if weget it at the mid-price, though note this is not always possible

- Maximum potential loss:$2.09

- Maximum potential gain:$0.41

- Total commission to enterthis trade at TradeKing is $6.25

Brian’s Second Paper Trade -Long Call Spread

- Buy 1 March 24th 2016 CAT68.00 Call

- Sell 1 March 24th 2016 CAT71.00 Call

- 23 days to expiration

- Net Bid 1.37 debit, Mid1.51 debit, Ask 1.65 debit  for this strategy

- Net debit is 1.51 if weget it at the mid-price, though note this is not always possible

- Maximum potential loss:$1.51

- Maximum potential gain: $1.49

- Total commission to enterthis 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 contractstraded to determine the amount of the full potential loss or full potentialgain. No additional calculations are needed to determine commission costs.

TradeKing Options Tools used:

- Detailed CAT Quote

- Short Put Spread

- Long Call Spread

- TradeKing Volatility Charts

- TradeKing Options Pricing Calculator

- TradeKing Probability Calculator

- TradeKing P&L Calculator

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