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Options Trading

TradeKing Midday Market Call Recap - $SPX & $AAL

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Analysisof S&P 500 from Michael Kahn with QuickTakesPro:

S&P 500 (SPX) – At the time of broadcast, the S&P 500 was tradingaround 2091.05, just below its 50 day moving average of 2103.82 and above the200 day moving average of 2048.71. The index has been relatively flat thisyear, and Michael mentions that it’s “one of the narrowest first halves onrecord.” Greece rumors and the potential interest rate increase the Fed isconsidering may have caused some of the recent fluctuations, but overall themarket has remained sideways.

TheChart of the Day is American Airlines (AAL):

American Airlines went through a rally late last year, stabilized duringQ1 of 2015 and has now broken down. The stock was trading at 39.55 at the timeof analysis, below both its 50 day moving average (46.24) and 200 day movingaverage (46.07). Michael draws the moving average death cross where the 50 daymoving average dips below the 200 day moving average which signals theimmediate term has crossed below the long-term trend. He set his bearishbreakdown target at about 35.50 if the breakdown occurs.

Analysisof AAL Volatility Chart and Dividends from TradeKing’s BrianOverby:

American Airlines’ 30-day Implied Volatility (IV) is 37.19% and the30-day Historical is 42.77%. The company’s next earnings report is anticipatedto be announced later this summer on July 23, 2015. American Airlines lastex-dividend date was April 30, 2015 and paid $0.10 per share.

Note: Brian’s paper trades do not use options that will be affected byupcoming earnings announcements or dividend payments.

Brian Overby’s AAL paper trade strategies based on Michael’sanalysis:

Brian’s first paper trade was a Short Call Spread based on the stock’s volatility and Michael’sbearish analysis. The second paper trade was a Long Put, a few points out-of-the-money.

Brian’s First Paper Trade - ShortCall Spread

- Buy 1 June 26th 2015 AAL 43.00 Call

- Sell 1 June 26th 2015 AAL 41.00 Call

- 10 days to expiration

- Net Bid 0.33 credit, Mid 0.35 credit,Ask 0.37 credit for the strategy

- Net Credit is 0.35 if we get it at themid, though note this is not always possible

- Maximum potential loss: $1.65(difference in strike prices minus credit received)

- Maximum potential gain: $0.35 (creditreceived for putting on the trade)

- Total commission to enter this tradeis $6.25

Brian’s Second Paper Trade - LongPut

- Buy 1 July 17th 2015 AAL 38.00 Put

- 31 days to expiration

- Bid 0.95, Ask 0.98 for the put

- Debit is 0.98 if we get it at the ask

- Maximum potential loss: $0.98

- Maximum potential gain: There’s asubstantial profit potential. If the stock goes to zero you make the entirestrike price minus the cost of the put contract. Keep in mind, however, stocksusually don’t go to zero.

- Total commission to enter this tradeis $5.60

**NOTE: option prices are given as a per contract amount. Multiply loss andgain figures by 100 shares and by the number of contracts traded to determinethe amount of the full potential loss or full potential gain. No additionalcalculations are needed to determine commission costs.

TradeKing Options Tools used:

- Detailed AAL Quote

- Short Call Spread

- Long Put

- TradeKing Volatility Charts

- TradeKing Options Pricing Calculator

- TradeKing Probability Calculator

- TradeKing P&L Calculator

Wantsolid market analysis and potential trading ideas? Join Michael and Brian, asthey analyze the market during this live online session. As an added bonus, astock chart will be covered in detail each session accompanied by a potentialoption trade. The event is every Tuesday and begins at 12:00pm ET.

Register here for next week’s Midday MarketCall!



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Whileimplied volatility represents the consensus of the marketplace as to the futurelevel of stock price volatility, there is no guarantee that this forecast willbe correct.

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