Recap for Tuesday, September 2nd by Kevin Corrigan
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Analysis of S&P 500 from
Michael Kahn -
The Chart of the Day is Starwood Hotels (HOT) -
Analysis of HOT Volatility Chart and Dividends from TradeKing’s Brian Overby -
Technical Tools Used:
Brian Overby’s paper trade strategies based on Michael’s analysis - Michael's analysis is bullish. Brian discusses two strategies, a shorter term Back Spread with Calls and a longer term Long Call. Earnings is after the October expirations, however, the dividend goes ex tomorrow and will adjust the options prices. Brian mentioned that, especially with the back spread, it is important to wait until the open tomorrow before considering the paper trade. The sale of an in-the-money call is at risk of being assigned early with an overnight dividend looming. Because tomorrow is the ex-dividend date, the prices on the open tomorrow are likely to be different than the prices used in the examples below.
Brian’s Paper Trade - Back Spread with Calls - Sell 1 Sep 20 2014 HOT 82.50 Call- Buy 2 Sep 20 2014 HOT 85 Call- 18 Days to expiration- Net Bid 0.67, Mid 0.71, Ask 0.76 for the Spread - Net Credit is $0.71, if we execute at the Mid (might not be possible).
- Keep in mind the stock price will be adjusted for the dividend tomorrow.- Maximum potential loss: $1.79- Maximum potential gain to the upside is unlimited if the stock goes to infinity (not likely to happen)Total commission to enter this trade is $6.25Brian’s Paper Trade - Long Call- Buy 1 Oct 18 2014 HOT 109.00- 46 Days to expiration- Bid 1.31, Ask 1.63 for the call- Debit is $1.63- Keep in mind the stock price will be adjusted for the dividend tomorrow.- Maximum potential loss: $1.63- Maximum potential gain is unlimited if the stock goes to infinity (not likely to happen)Total commission to enter this trade is $5.60
**NOTE: 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 Quote
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