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Options Trading

TradeKing Midday Market Call Recap - $SPX & $YUM

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 2,009.02 at the time of analysis, down 6.25 on the day. This week Michael thinks SPX is looking pretty much the same. He’s been looking for the rounded top formation to break if the market’s going to move to the upside but it hasn’t happened yet. Right now SPX is sitting near its 200-day moving average. It closed just above it Friday, on the average yesterday, and is now just under it. Resistance has been holding there, but Michael’s quick to point out that he doesn't believe averages are hard and fast support and resistance areas but are more so guides. He continues by stating that he believes if the market’s going to fail, it will probably fail here. He doesn’t believe it’s overbought, but is still in a good place for it to fail in terms of support and resistance.

Michael Kahn’s Chart of the Day: Yum! Brands, Inc. (YUM):

Yum! Brands, Inc. was trading around the 78.21 level during the time of analysis, above its 50-day moving average of 72.11. Following the trend from last week, Michael’s stock this week was also in the food industry. Michael stated that food tends to be defensive and has been performing as well, if not better, than the market as a whole. YUM saw a large drop off in September with a short-term trading range emerging soon after. Since the stock broke through it’s bear trendline and that short-term trading range and is now flirting with breaking through its 200-day moving average. Michael also points out a false breakdown that happened in February when YUM dropped below that short-term trading range. He explained that failed bearish signals generally turn out to be bullish signals and when the false breakdown occurred, he would expect the stock to jump up to the top of the trading range which is exactly what happened. He believes those false breakdowns can be good buying opportunities. If the stock continues to rise, Michael sees the next point of resistance around the $86 range.  This is based on the width of the most recent trading range before the breakout.

TradeKing “Options Guy” Brian Overby Analyzes Yum! Brand, Inc.’s Volatility & Dividends:

Yum! Brand, Inc.’s 30-day Implied Volatility (IV) is currently at the lows looking back at volatility over the last 6-months, but looking back over the last year, it’s not at it’s lowest point.

Yum! Brands, Inc. pays dividends quarterly and it’s next earnings announcement is slated for 04/19/2016.

Brian Overby Shares YUM Paper-Trading Strategies:

Brian’s first paper trade was a Long Call, an aggressive bullish strategy that involves buying an out-of-the money strike call. His second paper trade is a Long Call Spread. This strategy is also bullish but isn’t as aggressive as the long call as the sale of the call reduces the overall cost which provides some protection on the downside.

Brian’s First Paper Trade - Long Call

- Buy 1 April 15th 2016 YUM 82.50 Call

- 31 days to expiration

- Net Bid 1.13, Mid 1.17, Ask 1.21 for the strategy

- Net debit is 1.17 if we get it at the mid-price, though note this is not always possible

- Maximum potential loss: $1.17

- 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

- Buy 1 April 15th 2016 YUM 80 Call- Sell 1 May 20th 2016 YUM 85 Call

- 31 days to expiration

- Net Bid 1.38, Mid 1.47, Ask 1.56 for the strategy

- Net debit is 1.47 if we get it at the mid-price, though note this is not always possible

- Maximum potential loss: $1.47

- Maximum potential gain: $3.53

- 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 YUM Quote

- Long Call

- Long Call Spread

- TradeKing Volatility Charts

- TradeKing Options Pricing Calculator

- TradeKing Probability Calculator

- TradeKing P&L Calculator

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