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Options Trading

TradeKing Midday Market Call Recap - $SPX & $AMAT

Options TradingTradeKing

Featuring @BrianOverby  &  @MNKahn

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

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SPX was trading at 2,067.72, down 1.03 on the day. The momentum we saw last week continued as SPX saw a successful breakout at resistance with a small uptick in volume. The Index has now pushed back into its old trading range following this most recent rally. However, Michael doesn’t believe the Index is out of the weeds quite yet. There’s a huge band of overhead resistance at the top of the trading range that we’ve ventured back into. At this point, Michael feels the moves are great in the short term, but the Index needs to break out to new highs following a possible cool-down and regroup.

Michael Kahn’s Chart of the Day: Applied Materials, Inc. (AMAT):

Applied Materials, Inc. was trading around the 16.49 level during the time of analysis, above its 50-day moving average of 15.56. AMAT, an equipment company for the semiconductor industry, is beginning to catch up to its peers, according to Michael. The Semiconductor index has been outperforming relative to the S&P 500 and has overall been a hot sector in October. Applied Materials had been lagging behind, but Michael doesn’t believe that to be the case any longer. AMAT formed a double bottom, paused, gained momentum and appeared to go through a break-out. Michael thinks it’s safe to say the stock has broken out if you’re on the aggressive end, but if you’re more conservative you should look for a breakout around 16.70. Michael’s question now is how far it can go? He believes it will hit its first resistance level around 18.16 with a second resistance level right above 20. Time will tell.

TradeKing “Options Guy” Brian Overby Analyzes Applied Materials, Inc.’s Volatility & Dividends:

Applied Materials, Inc.’s 30-day Implied Volatility (IV) hasn’t had a ton of fluctuation, considering earnings are upcoming, but it has increased some.

Applied Materials, Inc. pays dividends quarterly, with the next ex-dividend date on 11/17/15 with a 2.44% dividend yield.

Brian Overby Shares AMAT Paper-Trading Strategies:

Brian’s first paper trade is a Long Call, a bullish strategy. He’s hoping that by avoiding the earnings, we’ll be able to pick up the option contract at a discount then take advantage of the expected upcoming break-out. His second paper trade is a Long Call Spread. This strategy is also considered to be a bullish strategy but he’ll be trading options that include the earnings. The idea is to sell a call to offset the additional cost  that’s associated with the upcoming earnings.

Brian’s First Paper Trade - Long Call

- Buy 1 Nov 6th 2015 AMAT 16 Call

- 10 days to expiration

- Bid 0.56, Ask 0.60 for the strategy

- Debit is 0.60 if we get it at the ask price, though note this is not always possible

- Maximum potential loss: $0.60

- Maximum potential gain: Unlimited in theory

- Total commission to enter this trade at TradeKing is $5.60

Brian’s Second Paper Trade - Long Call Spread

- Sell 1 Nov 20th 2015 AMAT 17.50 Call

- Buy 1 Nov 20th 2015 AMAT 15.50 Call

- 24 days to expiration

- Net Bid 0.91, Mid 0.97, Ask 1.02 for the strategy

- Net debit is 0.97 if we get it at the mid-price, though note this is not always possible

- Maximum potential loss: $0.97

- Maximum potential gain: $1.00

- 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 AMAT Quote

- Long Call

- Long Call Spread

- TradeKing Volatility Charts

- TradeKing Options Pricing Calculator

- TradeKing Probability Calculator

- TradeKing P&L Calculator

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