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Analysis of S&P 500 fromMichael Kahn with
S&P 500 (SPX) – At the timeof this broadcast, SPX was at 2112.36, up 3.44. The S&P 500 closed at anall-time high last week and hit an intraday high yesterday. Michael highlightsyesterday’s bearish reversal bar but notes there appears to be no sign of adownside confirmation because volume remained relatively average and the indexis back in the green today.
SPX is currently sitting justabove both its 50 day moving average of 2090.35 and 200 day moving average of2024.62.The Chart of the Day is HomeDepot (HD):Home Depot was around 111.56, up0.17 at the time of broadcast. HD had a relatively steep breakdown to begin theday and stochastic has been on the low-side signaling that stock has beenrecently closing lower each day. Michael notes that though the stock could beperceived as bearish, the trend is soft, and there is potential support for abullish reversal. However, he is looking for two days of closing positively.HD was sitting in between the 50day moving average of 114.25 and the 200 day moving average of 99.73 at thetime of analysis.Analysis of HD Volatility Chartand Dividends from TradeKing’s BrianOverby:
HD’s 30-day Implied Volatility(IV) is at 21.92% and the 30-day Historical is sitting at 16.13%. The recentspike in IV is most likely in anticipation of an expected earnings announcementon May 19th.
Home Depotpaid a dividend of 0.59 on March 10th and is expected to pay its second quarterdividend in June. Brian isn’t looking at June options, so the dividend shouldnot reflect call and put prices.Brian Overby’s HD paper tradestrategies based on Michael’s analysis:
Brian discusses a ShortCall Spread as his first strategy hoping the stock will stay below theresistance level of 114 and avoid earnings using the contract that expires onMay 15th, just before the announcement. Based on where the stock closes onTuesday (Michael would like the stock to close below 111 today to confirm abreakdown), Brian’s second strategy considers buying a LongPut.
Brian’s Paper Trade - ShortCall Spread
- Sell 1 May 15th 2015 HD 114Call
- Buy 1 May 15th 2015 HD 116 Call
- 17 days to expiration
- Net Bid 0.41 cr, Mid 0.45 cr,Ask 0.49 cr for the strategy
- Net Credit is 0.45 if we get itat the Mid, may not be possible
- Maximum potential loss: $1.55
- Maximum potential gain: $0.45
- Total commissionto enter this trade is $6.25
Brian’s Paper Trade - LongPut
- Buy 1 May 15th 2015 HD 112 Put
- 17 days to expiration
- Bid 1.88, Mid 1.92, Ask 1.95for the put
- Debit is 1.95 if we get it atthe ask
- Maximum potential loss: $1.95
- Maximum potential gain: There may be substantial profit potential. If thestock goes to zero the gain would be 110.05. Keep in mind, however, stocksusually don’t go to zero.
- Totalcommission to enter this trade is $5.60
**NOTE: option prices are givenas a per contract amount. Multiply loss and gain figures by 100 shares and bythe number of contracts traded to determine the amount of the full potentialloss or full potential gain. No additional calculations are needed to determinecommission costs.
TradeKing Options Tools used:
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