Continue Reading Below
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.
Continue Reading Below
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:
Options involve risks andare not suitable for all investors. Prior to buying or selling options, aninvestor must receive a copy of Characteristics and Risks of StandardizedOptions, sent to you in previous communication. Additional copies may beobtained by calling TRADEKING at 877-495-KING or by visiting www.TradeKing.com/ODD.
Multiple leg optionsstrategies involve additional risks, and may result in complextax treatments. Please consult a tax advisor.
At the time of publicationand in the preceding month, TradeKing and/or Michael Kahn did not haveownership greater than 1% in any stocks mentioned; did not have any otheractual, material conflict of interest known at the time of publication; havenot received compensation from a public offering nor from investment bankingservices related to any companies mentioned within the past 12 months, norexpect to receive any in the next 3 months; nor engaged in market making in thesecurities mentioned.
System response and accesstimes may vary due to market conditions, system performance, and other factors.
Any strategies discussed andexamples using actual securities and price data are strictly for illustrativeand educational purposes only and are not to be construed as an endorsement,recommendation, or solicitation to buy or sell securities. Past performance isnot a guarantee of future results. Consider the following when making aninvestment decision: your financial situation, your risk profile andtransaction costs.
Market timing is a complexinvestment strategy which involves risk and may incur additional commissioncosts.
While implied volatilityrepresents the consensus of the marketplace as to the future level of stockprice volatility, there is no guarantee that this forecast will be correct.
TradeKing charges $4.95 foronline equity and option trades, add 65 cents per option contract. TradeKingcharges an additional $0.35 per contract on certain index products where theexchange charges fees. See our FAQ for details. TradeKing adds $0.01 per shareon 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 otherinformation generated by TradeKing's tools regarding the likelihood of variousinvestment outcomes are hypothetical in nature, do not reflect actualinvestment results and are not guarantees of future results. The calculationsdo not take into consideration all costs, such as commissions and margininterest which may impact the results shown. It is the user's soleresponsibility to select the criteria to enter in the TradeKing's tools, or tochoose among the predefined screens, and to evaluate the merits and risksassociated with the use of the tools before making any investment decisions.TradeKing is not responsible for any losses that occur from such investmentdecisions.
TradeKing Webinars andAll-Star Blogs are provided for educational and informational purposes only.
All investments involve risk, losses may exceed the principal invested, and thepast performance of a security, industry, sector, market, or financial productdoes not guarantee future results or returns. TradeKing provides self-directedinvestors with discount brokerage services, and does not make recommendationsor offer investment, financial, legal or tax advice. You alone are responsiblefor evaluating the merits and risks associated with the use of TradeKing'ssystems, services or products.
TradeKing selects anddefines as All-Stars certain independent market commentators who are recognizedindustry personalities and experienced traders and who provide timely marketcommentary via the TradeKing All-Star Blog and/or TradeKingWebinars. Each All-Starcommentator's bio, related qualifications and disclosure as to theirrelationship with TradeKing can be found on the All-Star Roster. The selection of All-Starcommentators is solely based on the quality and style of the content provided.TradeKing does not measure, endorse, or monitor the performance or correctnessof any statement or recommendation made by independent All-Stars commentators.Supporting documentation for any claims made by TradeKing All-Stars will besupplied upon request by the author of the post, who is solely responsible forthe views expressed. Contact TradeKing All-Stars by sending an email message toTKallstars@tradeking.com.
© 2016 TradeKing Group, Inc. All rights reserved.