Options/Futures

Bulls Won't Quit American Tower

twocents@thestreet.com (OptionMonster) — Wed, 16 May 2012 08:54 GMT

By David Russell, reporter at OptionMonster

NEW YORK -- American Tower has been unstoppable for the last year, and option traders are betting that it will keep running.

OptionMonster's tracking systems detected the purchase of more than 2,100 May 67.50 calls Tuesday against open interest of just 693 contracts. Most of the options priced for 50 cents. ...

Click to view a price quote on AMT.

Click to research the Telecommunications industry.

7 Best Choices for Dividend-Capture

twocents@thestreet.com (Robert Weinstein) — Tue, 15 May 2012 11:53 GMT

NEW YORK (TheStreet) -- Using a call option to hedge against downward price risk is my favorite dividend-capture strategy. With this strategy, I have found I must be highly selective in my stock targets. In this review, I filter for the most worthy stocks also offering dividends.

Let's look at my first stock, Gannett as an example. Gannett operates as a media and marketing solutions company in the U.S. and internationally. Yield: 5.98% Dividend Amount: $0.20 Ex-Dividend Date: June 06, 2012 Beta: 2.47

Strategy: Buy Gannett stock and offer to sell the June $13.00 strike or lower call for 37 cents over the intrinsic value. ...

Click to view a price quote on GCI.

Click to research the Media industry.

The Difference Between You and JPM

twocents@thestreet.com (Jared Woodard) — Tue, 15 May 2012 11:40 GMT

This complimentary article from Options Profits was originally published on May 15. Don't risk missing over 40 options trade ideas every week, educational content, exclusive commentary and webinars from over 15 experts. Click here for more information and a 14-Day Free Trial. WEBINAR: Implied Volatility 101. Thursday, May 17 at 5pm ET CLICK HERE FOR INVITE AND TO REGISTER. It still isn't clear how JP Morgan (JPM) managed to lose $2B in a portfolio hedge trading an index of credit default swaps. It isn't clear whether the hedge was always just a hedge, or whether it morphed into an outright directional - that is, speculative - position at some point. Given the arcane nature of bank accounting, it isn't even clear whether JPM didn't make money, net of everything, due to something called a "debit valuation adjustment." One thing that is clear, however, is that there has never been a better time to be small and nimble. Instead of using derivatives to blow yourself up, use derivatives to lock in some gains while keeping upside exposure. Banks, dealers, and market makers don't get to construct portfolios the way you and I do - they have to follow customer demand where it goes. And when you combine the need to hedge an exposed portfolio with the size and leverage of a JPM, there aren't always a lot of places to find the necessary liquidity. Lisa Pollack at the FT wonders whether the loss was actually the result of the bank unwinding what was a hedge into something more directional: "Reverse back to the summer of 2011, and put on a(n innocuous) trade like so: - Buy $12bn of 5-year protection on the index, maturing December 2012 (five years from when the index started to trade). - Sell $4bn of 10-year protection on the index, maturing December 2017 (ten years from index start). ... The European Central Bank came riding to the rescue towards the end of 2011 with cheap three year loans for banks under its long-term refinancing operations (LTROs). It just won't do to have big hedges against systemic risk if the ECB is backstopping the system! We just won't be seen dead in this dress hedge it makes our butt carry look big! So let's 'manage' that off. And let's make money while we're at it." The resulting activity starting in January of this year (cf. the bottom panels of fig. 1) is, on this theory, the result of JPM selling more 10Y swap protection - bringing in more premium - and not hedging it. Once the price of the index reversed course (top panel), the position started incurring some major losses.

CDX-NAIG.9.4 Source: Markit, FT Alphaville View Chart

Let's leave the detailed storytelling there. These are the lessons I think we can take, as individuals, from the tale: 1) Don't take on more exposure than you can hedge effectively in five minutes. It took a lot of time (months) for JPM to build up the exposure that it did. As an individual investor, you can choose to limit yourself to liquid assets and deep markets. 2) Don't confuse hedging and speculation. Let's say you're sitting on gains in some stocks that have performed well in the last 6 months. If you buy one at the money call option for every 100 shares of stock you sell, you're just converting shares to calls, which can be a very smart way to lock in gains while keeping some upside exposure in place. If you buy two at the money calls for every 100 shares of stock you sell, you're actually just adding speculative exposure, not hedging, and eventually you'll take the same kind of hit that JPM did....

Click to view a price quote on JPM.

Click to research the Banking industry.

WEBINAR: Implied Volatility 101

twocents@thestreet.com (Jill Malandrino) — Tue, 15 May 2012 11:28 GMT

Don't risk missing over 40 options trade ideas every week, educational content, exclusive commentary and webinars from over 15 experts. Click here for more information and a 14-Day Free Trial. Before committing capital to trading options, investors should have a good understanding of the factors that determine the value of an option. Implied volatility, arguably one of the most important components, is directly influenced by the supply and demand of the underlying options and by the market's expectation of the share price's direction. Russell and Jill (the Bonnie and Clyde of options education) will break down the basics and how to design strategies to trade, whether speculating or hedging a portfolio. When: Thursday, May 17Time: 4pm ET (3pm CT)CLICK HERE for the LINK to the webinar: You will be able to pre-register but the presentation WILL NOT be live until 15 minutes before the webinar. You will be required to provide your name, email address and phone number to gain access to the presentation. Course material and replay link will be made available Monday, April 23. OptionsProfits can be followed on Twitter at twitter.com/OptionsProfits CBOE can be followed on Twitter at twitter.com/CBOE

Click to view a price quote on VIX.

Exelon Bulls Look for a Jolt

twocents@thestreet.com (OptionMonster) — Tue, 15 May 2012 08:53 GMT

By Pete Najarian, co-founder of OptionMonster

NEW YORK -- Exelon has been beaten down since the beginning of the year but traders remain hopeful for a rally.

Traders were selling May 39 calls for 15 cents and buying June 39 calls for 60 cents Monday, according to OptionMonster's real-time tracking systems. They were apparently rolling long positions from one strike to the next to get an additional month for the stock to rise. ...

Click to view a price quote on EXC.

Click to research the Utilities industry.

REPLAY LINK: Options Strategies for Trading Our 2012 Pick

twocents@thestreet.com (Jill Malandrino) — Mon, 14 May 2012 17:10 GMT

This complimentary webinar from Options Profits and Real Money Pro was originally presented on May 9. Don't risk missing over 40 options trade ideas every week, educational content, exclusive commentary and webinars from TheStreet's Premium Services experts. Click here for more information on Options Profits and a 14-Day Free Trial. Click here for more information on Real Money Pro and a 14-Day Free Trial. Jill Malandrino and Bob Lang invite you to the first ever joint Options Profits/Real Money Pro webinar! This presentation is perfect for traders of all levels and time frames as we give our short- and long-term fundamental views on the Agricultural space, our top pick for 2012. Learn about the key trends and themes in the sector, get our top stock picks and how to use basic options strategies to trade a bullishly-biased opinion. The back half of the presentation will be an exciting, interactive Q&A session. **For any technical questions DURING the presentation, call LIVE WebEx support directly: 866-229-3239** CLICK HERE for the LINK to the webinar: OptionsProfits can be followed on Twitter at twitter.com/OptionsProfits TheStreet can be followed on Twitter at twitter.com/TheStreet Bob Lang can be followed on Twitter at twitter.com/aztecs99

Click to view a price quote on MOS.

Click to research the Chemicals industry.

Sentiment Shift

twocents@thestreet.com (Jill Malandrino) — Mon, 14 May 2012 14:29 GMT

This complimentary article from Options Profits was originally published on May 8. Don't risk missing over 40 options trade ideas every week, educational content, exclusive commentary and webinars from over 15 experts. Click here for more information and a 14-Day Free Trial. Market action was interesting last week. After suffering its worst week for 2012, the S&P 500 slipped again and fell in three of five trading sessions. CBOE Volatility Index (VIX) moved up 3.8% and is once again testing the 20 "psyche" level. Yet, while the S&P 500 saw some wide intraday swings, the average daily move last week was just 4.7 points or 0.2%. By that measure, it was one of the least volatile weeks so far in 2012. Still, market slide is causing a noticeable change in investor sentiment some indicators are pointing to relatively high levels of bearishness among investors today....

Click to view a price quote on VIX.

Investor Sees Rally Brewing in TiVo

twocents@thestreet.com (OptionMonster) — Mon, 14 May 2012 08:57 GMT

By David Russell, reporter at OptionMonster

NEW YORK -- TiVo has been working its way higher since August, and one investor is looking for a rally this year.

OptionMonster's tracking systems detected a long-term bullish strategy in the video-recording stock on Friday. About 2,400 January 11 calls were bought for $1.35 and an equal number of January 9 puts were sold for 98 cents. Volume was more than twice open interest at both strikes, meaning that a new position was opened. ...

Click to view a price quote on TIVO.

Click to research the Media industry.

7 Dividend Captures Using an Option Hedge

twocents@thestreet.com (Robert Weinstein) — Sat, 12 May 2012 10:00 GMT

NEW YORK (TheStreet) -- Many high-quality companies offer quarterly dividends to investors. Dividends may be a great source of income. What's more, with each dividend payment received, shareholders are able to lower their cost in an investment. The most important requirement to receive a dividend is to be a shareholder on the required day of record.

Here are seven dividend-paying stocks to play using options as a hedge against downward price risk:

Expeditors International of Washington provides logistic services in the United States and internationally....

Click to view a price quote on QCOM.

Click to research the Telecommunications industry.

Options Trade: Iron Condor on Apple

twocents@thestreet.com (Matthew "Whiz" Buckley) — Fri, 11 May 2012 14:05 GMT

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (TheStreet) -- Strategic Mindset: Market neutral with possibilities of surges in volatility.

Target: Apple AAPL trading at $572.49....

Click to view a price quote on AAPL.

Click to research the Computer Hardware industry.

6 Dividend Captures Offering Fast Cash

twocents@thestreet.com (Robert Weinstein) — Fri, 11 May 2012 13:36 GMT

NEW YORK (TheStreet) -- Using options, you can hedge against downward price risk while capturing a dividend. In this article, I provide six examples:

Time Warner Yield: 2.89% Dividend Amount: $0.26 Ex-Dividend Date: May 29, 2012 Beta: 1.26

Strategy: In combination with my buying Time Warner stock and after checking company updates, offer to sell the June $34.00 strike call for $0.33 over the intrinsic value. ...

Click to view a price quote on X.

Click to research the Metals & Mining industry.

Pullback Draws Buyers to CNO Financial

twocents@thestreet.com (OptionMonster) — Fri, 11 May 2012 09:18 GMT

By David Russell, reporter at OptionMonster

NEW YORK -- CNO Financial has been pulling back, and now the bulls are stepping in.

OptionMonster's tracking programs detected the purchase of about 2,400 December 8 calls for 50 cents and 55 cents. Volume was more than 39 times open interest in the strike, so the activity resulted from new positions being initiated. ...

Click to view a price quote on CNO.

Click to research the Insurance industry.

Bulls Stay Constructive on Toll Brothers

twocents@thestreet.com (OptionMonster) — Thu, 10 May 2012 09:05 GMT

By David Russell, reporter at OptionMonster

NEW YORK -- Homebuilders have been bulletproof recently, and Wednesday the bulls moved into Toll Brothers.

OptionMonster's tracking systems detected heavy buying in the May 25 calls, which initially priced for $1.40. They later fetched as much as $2.15 as the stock pushed higher throughout the session. ...

Click to view a price quote on TOL.

Click to research the Materials & Construction industry.

Top 5 Tech Stocks Ahead of Cisco Earnings

twocents@thestreet.com (Richard Suttmeier) — Wed, 09 May 2012 14:59 GMT

NEW YORK (TheStreet) -- When I focus on tech stocks, my main focus is on the Nasdaq and PHLX Semiconductor Sector Index.

The top five Nasdaq stocks I analyze are Apple, Cisco, Google, Intel and Microsoft -- a mix of new technology and older technology. I look at the SOX because chips are in almost everything we buy and use so its performance is an economic barometer.

...

Click to view a price quote on CSCO.

Click to research the Computer Hardware industry.

Commodity Resource Alert: Weekly Market Briefing

twocents@thestreet.com (Alan Knuckman) — Wed, 09 May 2012 13:08 GMT

This complimentary article from Options Profits was originally published on May 8. Options, Futures, Commodities...Check out OP free for 14 days Click here for more information and a 14-Day Free Trial. WEBINAR: Basic options Strategies to Trade Our 2012 Pick Wedsnesday, May 9 at 6pm ET CLICK HERE FOR INVITE AND TO REGISTER.Welcome to the weekly resource brief where we break down opportunities in the dynamic commodities markets. The mandatory use of options allows us to control risk and take advantage of longer-term trends in the true Supply and Demand markets. These futures options have many advantages and offer a more pure play with leverage on leverage benefits not available with typical equity options plays. In addition to identifying profitable option plays, the intention is to educate, inform and even entertain with our discussion about the vital economic building blocks, Commodities, which are the underlying basis for all investments. Briefing for May 8, 2012 - Participation Driving Em Crazy and Lean On Me CRBExpectations are the scorecard not the actual economic data for sales, revenues or unemployment figures. Disappoint, and the harsh reality is met with unwinding selling sales. The initial negative reaction to the April non-farm payrolls has roiled the markets once again even though 115,000 new jobs were created. A higher bar had been set for the last two reports as recovery forecasts pushed equities into bullish mode for 2012. Participation Equation One major takeaway for skeptics of the rate decline to 8.1% was the numbers on labor participation. A 350,000 drop off in the number looking for jobs was attributed to frustration. Not so fast my economic friends, a major demographic change is that you may have heard of, baby boom retirement, is having an impact on labor market. Every single day 10,000 people reach retirement age and drop off the eligible rolls of potential employees. This occurs for the nineteen years of the march to the golden age for this population bubble. Actually the net impact of the report Friday was positive for jobs with 45,000 less than expected but 53,000 added in the prior two months revisions. Basic math puts that at a Plus 8000 job net increase. A further look into the data had 500,000 previous employable people fall off over the past two months though 60+ retirement day parties over that time period adds up to more than that. Nefarious government plot, I think not... Climbing the Protein Ladder Continuous diet evolution around the world should help propel the need for feed as livestock consumption is on the rise. Protein demand changes are the result of emerging market economics. The chicken sandwich is a tangible edible reward for the move from the countryside to the factories in much of Asia. Chicago Tribune May 1 - "U.S. barnyards help China supersize food output Record exports worldwide of breeding stock, genetic material in 2011" While Americans cut meat consumption to the lowest levels in two decades, the Chinese eat nearly 10 percent more meat than they did five years ago. China's solution: to supersize its supply by snapping up millions of live animals raised by U.S. farmers as breeding stock, capitalizing on decades of cutting-edge agricultural research in America. By taking this step, say breeders and exporters, China will move from small-scale backyard farms to the Westernized tradition of large consolidated operations to keep up with demand. A taste for chicken In a country wrestling with food inflation, China's population spent 25 percent of its annual income on food in 2010, compared with Americans spending about 10 percent. One solution to rising food prices: chicken. A chicken drumstick costs half or less the price of a pork loin, said Wang Xiaoyue, a senior analyst with Beijing Orient Agribusiness Consultant Ltd. It also takes about half as much grain to produce a pound of chicken meat, compared with a pound of pork, Wang said. That has helped fuel more imports of broiler breeder chicks from U.S. farmers. So has expansion by fast-food chains, including McDonald's. McDonald's, which ranks China as its third-biggest market worldwide, opened a record 200 new stores in China last year and has unveiled plans for more. China, the world's most populous nation, isn't the only country doing this. Sales to Russia and Turkey, the biggest markets for U.S. livestock-breeding exports last year, have risen even faster. But the impact of a vastly larger, more efficient livestock sector in China would cause a major shift in the global market, particularly for grain demand. China could need an incremental 22 million to 28 million tons of corn in the next few years just to keep up with the growth of the swine industry, according to a recent research report by Rabobank. The United States exported a record of $664 million worth of live breeding animals, semen and livestock embryos worldwide last year, an 82 percent jump in two years, according to the Department of Agriculture's Foreign Agricultural Service. While countries like Russia and Turkey spent more last year, China was a big buyer on volume: About 14 percent of U.S. live animal exports, largely breeder chicks, were sent to China in 2011." Sunday Fun Day After a weekend to digest the job data the futures markets reopened Sunday night with new concerns about the Eurozone humpty dumpty plan to put all of the pieces back together again. Elections in France and Greece have torn off the band-aid to expose the unhealed financial wound. The evening gap lower pushed equities below the 1350 support boundary in the S&P for the first time since February. The lows marked 1342.50 before a recovery rush back to 1370 during Monday's session. The reaction action to another attempt on that extreme will be a good market measure. A weekly close below 1350 puts trade back inside the 2011 January to August 100 point trading channel. The 1250-1350 action projected a run to 1450 that was seems distant though only 7.5% above current levels. 2011 Review In Blue

The 2012 S&P peak at 1420 was 14% above the year-end closing mark and has now seen a healthy halfway unwinding pullback. Watch the 1350 pivot for insight into futures future moves. Commodities Floored The fundamentals of lower commodity prices have done nothing to support equities over the last few sessions. A staggering decline in Crude Oil from $106 last Wednesday to $95 support should alleviate gas price fears. Gold is also at the bottom of the six-month $1600-$1800 range and has seen no safe haven buying as a Euro fallback investment. The list of commodities at yearly lows shows NOOOoooo signs of inflation pressures in silver, corn, copper, wheat, sugar, coffee, and hogs. The CRB basket of commodities as a whole sits more than 15% from yearly highs, though it never participated in the last equity asset rally leg higher in 2012. Another test of the 290-support bottom will tell us a lot about the resource markets fate.

Grains on the Plains A near perfect spring planting season has the grains ahead of schedule. The dollar difference in front month July corn at $6.30 versus new crop December at $5.30 a bushel has doubled over the past month though a long hot summer is still ahead. Reuters May 8 - "Corn up on near-term supply concerns" "Corn prices are higher, despite Monday's USDA planting progress report that showed stronger than expected weekly growth in corn plantings. "The U.S. (corn) market is tight," said Nicholas Higgins, an analyst with Rabobank. "This is supporting prices throughout grains and oil seed sector. "We expect trade to be choppy until Thursday when the USDA report is due." The U.S. Department of Agriculture is expected to release its first forecasts for the 2012/13 crop year in its May supply/demand report due on Thursday. TIGHT SUPPLIES Corn supplies in the United States are on track to reach a 16-year low this year, but are expected to soar nearly 130 percent next year to a six-year high as farmers plant the largest corn area in 75 years. A Reuters poll released on Monday that predicted Chinese imports of corn would grow almost 60 percent to 7.9 million tonnes in the year to September 2013. The USDA report showed 71 percent of the corn crop was planted as of May 6, up from 53 percent a week earlier. Analysts polled by Reuters had expected the report to show 67 percent of the corn had been planted. Analysts have said timely planting of corn in the northern states is critical to adding the acreage needed to produce a crop big enough to ease the strain on supplies. The USDA said soybean planting was 24 percent complete compared to 12 percent a week earlier. Soybean planting progress slightly surpassed the for the five-year average of 11 percent complete. While soybean plantings surpassed analysts' expectations, a Reuter's poll on Monday showed the market expects Thursday's USDA report to show a decline in soybean stocks at the end of the 2011/12 marketing season, which ends on August 31." Current Portfolio Positions June 2012 Canadian Dollar (CDM12) 100.5 call at 160 points ($1,600): The CD$ sat at our option strike at the close Monday. The breakout move above 101.5 set up a potential 2 point run to 103.5. Canadian Dollar support had held the last drawdown at 99.5 and reversed prices higher. The move above 101.33 highs from March 1st signals a rally run. A sideways trading range between 99.5 and 101.5 sets up a breakout rally above 103.5. The At The Money option has a high Delta payoff on the CD$ price increase. The position sits at 91 points ($910), which represents a 43% loss. HOLD. October 2012 Natural Gas (NGV12) 3.5 call at 160 points ($1,600): October NG may have finally found a bottom at $2.3 after the straight down decline from $3.2. The halfway recovery resistance sits at $2.75 to confirm a reversal higher. Time is an ally with the October option. A push above $3.2 in the October contract lights higher prices to the $3.7 target. The position sits at 9.6 points ($960), which represents a 40% loss. HOLD. September 2012 Cocoa (CCU12) 2400 call at 160 points ($1,600): A rally run has pushed Cocoa back above $2350 and new month highs. Sep Cocoa found a base at $2100 in the last weeks and rebound back from triple digit losses in the last sessions. A secondary push to $2450 basis September contract set up an attack on resistance peak. Another thrust above $2450 sets up for a test of crucial $2500/$2550 to put in price bottom. The larger target of $2900 is the halfway point of multi-month decline. The position sits at 152 points ($1520), which represents a 5% loss. HOLD. July 2012 Crude (CLN12) 110/115 call spreads at 152 points ($1,520): $102 support failed last week on the heavy unwinding sales. Prices sat at $106 Wednesday before the plug was pulled. The bull flag breakout above $105 sets up a rally run to $120. Crude prices had traded between $109.50 and $104.50 for weeks before a dip below the channel. Broken support at $102 recaptured to spark another rebound. The recent peak touched the nine month highs target at $110. The reversal has put crude at multi week highs again and above bull flag breakout. A full $30 retracement sets up for a move to $135. The position sits at 25 points ($250), which represents a 84% loss. HOLD. June 2012 Gold (GCM12) 1750/1825 call spreads at 15 points ($1,500): Half of the spreads were sold at $1000 profit per position last week. The option premium had pushed to more than double the initial premium cost again on a run above $1750. Weekly support was tested at $1600 with only a reclaim of the $1700 level bullish in the near term. The push above the $1675 October lows targeted the next upside at $1725 and $1750. New relative highs at $1800 months ago still set a goal at $2000 an ounce on a breakout of the trading range. Expiration is May 24th. The position sits at 3 points ($300), which represents a 81% loss. HOLD. July 2012 Corn (CN12) 700/850 call spreads at 32 points ($1,600): Old crop July Corn has pushed above $6.30 this week and sits a full dollar above December contract. A move above $6.70 sets sights on breakout run to $7.10+. The recent recovery and attack on $6.50 resistance revealed resilient trend strength. A Bounce off $6.00 has twice rallied Corn $0.50+ in the last months. A move back inside the range from $6.80 to $6.50 lows Oct 11 is a good sign to test recent highs again. The breakout above that highs at $8 projects a run to double-digit $10 Corn. The position sits at 8.5 points ($425), which represents a 73% loss. HOLD. October 2012 Sugar (SBV12) 25/31 call spreads at 135 points ($1,512): A drop from 24 cents just weeks ago has pressured Sugar to new 6 month lows. The new dip below 21 cents has voided any bottom pattern. Sugar prices had hit lower lows at 22.5 cent area after pushing above 24 cents before the failure last week. Sugar prices had held again the critical quadruple + bottom at 22.5 cent area which now represents a bottom confirmation level. This was also the September and October three-month lows. The position expiration is over four months away September 17th. The spread sits at 25 points ($280), which represents an 81% loss. HOLD. It ALL comes back to commodities! OptionsProfits can be followed on Twitter at twitter.com/OptionsProfits. Alan Knuckman can be followed on Twitter at twitter.com/AlBk2Comodities ....

Bulls Look for Bounce in Finisar

twocents@thestreet.com (OptionMonster) — Wed, 09 May 2012 08:59 GMT

By Chris McKhann , analyst at OptionMonster

NEW YORK -- Finisar has been a dog in recent months, but one investor is holding out hope for a rebound.

OptionMonster's tracking programs detected the purchase of more than 9,000 May 15 calls against previous open interest of just 64 contracts. Larger institution-sized blocks were snapped up in the course of a couple of minutes, with premiums going from 45 cents to 55 cents. ...

Click to view a price quote on FNSR.

Click to research the Computer Hardware industry.

Choosing the Proper Expiration Cycle

twocents@thestreet.com (Jared Woodard) — Tue, 08 May 2012 14:32 GMT

This complimentary article from Options Profits was originally published on May 8. Don't miss all of our educational content and meet our online trading community. Click here for more information and a 14-Day Free Trial. WEBINAR: Basic Options Strategies to Trade Our 2012 Pick Wedsnesday, May 9 at 6pm ET CLICK HERE FOR INVITE AND TO REGISTER. If you pick the wrong expiration cycle when putting on an options trade, it can ruin an otherwise successful position. That's one of the ways that options are so different from any other sort of asset: decide that you want to be long or short a stock and your work is almost done -- but deciding to be long or short via options leaves you with the important step of choosing the most fitting expiration cycle. How do you choose? The first step is to let your thesis be your guide. If you like some stock or ETF because of a change in the fundamental outlook, or because you think the asset represents under-appreciated value, those sorts of theses will often take more time to play out, so longer-dated options are more appropriate. If you rely on day-to-day technical indicators or short-term estimates of volatility, you can trade shorter-term options as well. In a recent position for OP, we looked at improving economic data for South Korea and entered into a bullish vertical put spread to profit from the expected stability and/or improvement in the iShares MSCI South Korea Index Fund ETF (EWY). One reader raised the excellent question of why we chose an expiration date for the position that was almost two months away. With only 16 days left in the nearest expiration cycle, there wasn't enough time to let the thesis of the position play out. Additionally, with so little time to expiration, any market noise or other exogenous factors could affect the position and leave us with no time to wait for a recovery. In options lingo, we say that there is too much short gamma near expiration, meaning that the effects of price swings in the underlying asset have an ever-larger impact on the profitability of the position as expiration gets closer. Some traders love to trade options near expiration, and there are smart ways to do that, but this position wasn't one of those. What about longer-term options? The reason we didn't look many months into the future for this particular trade is that, when you enter an options position, you are in some sense "married" to the strike prices of the options you choose. We didn't want to be quite so committed to a particular set of strikes at an 80-day horizon; instead, we reserved the right to trade the in-between June cycle and then, if our core thesis was confirmed, enter a similar position for the July cycle at a later time with strike prices updated to reflect any movement in the underlying ETF. OptionsProfits can be followed on Twitter at twitter.com/OptionsProfits Jared can be followed on Twitter at twitter.com/CondorOptions

Click to view a price quote on EWY.

Click to research the Financial Services industry.

DWA: Reader's Choice (includes video)

twocents@thestreet.com (Jill Malandrino) — Tue, 08 May 2012 13:38 GMT

WEBINAR: Basic Options Strategies to Trade Our 2012 Pick Wedsnesday, May 9 at 6pm ET CLICK HERE FOR INVITE AND TO REGISTER. DreamWorks (DWA) is one very interesting stock right now! To begin, consider this evidence: 1) at worst, DWA will have flat earnings over the current fiscal year; 2) for fiscal year 2013 (ending in December) DWA is projected to increase their 2012 fiscal year earnings by at least 10%; 3) DWA has zero debt and $1.00 per share in cash; 4) DWA has a float of 66 million shares, and 19 million of those shares have been sold short. Yes, 29% of the common share float of DWA is now sold short! I had a decade of experience trading the stock and especially the options of another great movie making corporation. That company back, in the 1980s, was known as MCA. You would know them today as Universal Studios and of course, Universal Theme Parks. MCA was not a stock to trade for anyone with a questionable ticker or high blood pressure because itcould move from a 35 volatility to a 70 volatility or higher while you took your first bite of your lunchtime sandwich. Those wild days trading MCA for me are still quite vivid. And one good movie can catalyze a big stock price move, like "Back to the Future" among others did such for MCA. But never, ever was MCA shorted the way DWA has been shorted today. DWA is a well-managed company in a hit and miss business -- movie making. It has no debt, cash on hand and some of the best talent in that business. What might be forming for DWA's common stock now is much higher volatility as we go into the summer movie season. On, and by the way, it has Madagascar 3D ready for release on June 8. Technically DWA has been trying to make a tradable, decent bottom. The $20 level has been tough resistance, however. It has been on a steady downward path in price since it hit $37 in November 2010. Thus, DWA has to overcome technical resistance to turn bullish. But with so much short covering potential as upside firepower that resistance can be quickly overcome given the right circumstances....

Click to view a price quote on DWA.

Click to research the Media industry.

Don't Count RIM Out

twocents@thestreet.com (Robert Weinstein) — Tue, 08 May 2012 12:23 GMT

NEW YORK (TheStreet) -- We are only a few games out of the spring season training and already some are calling who is going to win the world series of smartphones. Stories abound how Research In Motion should all but be written off by users and investors alike.

Some pundits have already declared Apple the winner, with possibly Google becoming a spoiler if only to keep things entertaining. Even Microsoft, arguably the most powerful software company in the world has been declared by some to be unfit to take the field.

...

Click to view a price quote on RIMM.

Click to research the Telecommunications industry.

Options Trade Alert on Rio Tinto

twocents@thestreet.com (Matthew "Whiz" Buckley) — Tue, 08 May 2012 12:03 GMT

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (TheStreet) -- Strategic Mindset: Market neutral with possibilities of surges in volatility.

Target: Rio Tinto trading at $53.99....

Click to view a price quote on RIO.

Click to research the Metals & Mining industry.

Bulls Look for Another Leg From Fifth Third

twocents@thestreet.com (OptionMonster) — Tue, 08 May 2012 09:23 GMT

By Pete Najarian, co-founder of OptionMonster

NEW YORK (TheStreet) -- Option trading turned bullish in Fifth Third Bancorp Monday as buyers targeted the financials.

The diversified financial-services stock pays a dividend yield of 2.25% or better and trades near 1.3 times tangible book. The company has been expanding, and its stock price has been reaching new highs along the way. ...

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Supreme Court Ruling Key to Cigna Trade

twocents@thestreet.com (OptionMonster) — Mon, 07 May 2012 08:53 GMT

By Jon "DRJ" Najarian, co-founder of OptionMonster

NEW YORK (TheStreet) -- Someone is looking for a big move in Cigna.

The health insurer's last earnings report missed estimates, but the company did raise full-year guidance. An even bigger catalyst is expected in June, when the U.S. Supreme Court will rule on the constitutionality of national health care. ...

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Pullback Draws Buyers to Russell ETF

twocents@thestreet.com (OptionMonster) — Fri, 04 May 2012 08:51 GMT

By Pete Najarian, co-founder of OptionMonster

NEW YORK -- Even as the Russell 2000 led the major indices lower Thursday, upside options were active in its exchange-traded fund.

OptionMonster's tracking systems detected a strong buying pattern in contracts on the small-cap iShares Russell 2000 Index ETF . The Weekly 82 calls, which expire this afternoon, were particularly busy with more than 52,000 changing hands. The Weekly 81 and 83 calls traded heavily as well. ...

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Bulls Hope ARM Gets Helping Hand

twocents@thestreet.com (OptionMonster) — Thu, 03 May 2012 08:54 GMT

By David Russell, reporter at OptionMonster

NEW YORK -- ARM Holdings has fallen to support, and the bulls want to run it back up.

OptionMonster's tracking systems detected the purchase of about 8,500 June 26 calls for 70 cents. Volume was almost 50 times the previous open interest in the strike. ...

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Will J.C. Penney Pop on Earnings?

twocents@thestreet.com (OptionMonster) — Wed, 02 May 2012 09:01 GMT

By David Russell, reporter at OptionMonster

NEW YORK -- J.C. Penney has seen some bullish activity recently, and one big investor is betting that a rally may come even sooner.

There was a surge of options volume in the department-store operator Tuesday, with the August and May months especially active. It appears that a trader was closing a complex three-way strategy involving the August 29 puts, the August 33 calls, and August 39 calls. The investor was probably net short calls at the higher strike, which could expose him or her to unlimited losses if the stock rallies too far too fast. ...

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Click to research the Retail industry.

Resource Alert: Commodities Weekly Market Briefing

twocents@thestreet.com (Alan Knuckman) — Tue, 01 May 2012 18:33 GMT

This complimentary article from Options Profits was originally published on May 1. Don't risk missing over 40 options trade ideas every week, exclusive commentary and webinars from over 15 experts. Click here for more information and a 14-Day Free Trial. WEBINAR: Basic options Strategies to Trade Our 2012 Pick Wedsnesday, May 9 at 6pm ET CLICK HERE FOR INVITE AND TO REGISTER.Welcome to the weekly resource brief where we break down opportunities in the dynamic commodities markets. The mandatory use of options allows us to control risk and take advantage of longer-term trends in the true Supply and Demand markets. These futures options have many advantages and offer a more pure play with leverage on leverage benefits not available with typical equity options plays. In addition to identifying profitable option plays, the intention is to educate, inform and even entertain with our discussion about the vital economic building blocks, Commodities, which are the underlying basis for all investments. Briefing for May 1, 2012 - Follow the Leader and Vertical Cost Drilldown Asset Correlation Equation Though this commentary is devoted mainly to commodities, the equity asset class cannot be ignored for its macroeconomic market evaluation. A weekly analysis of stock performance in the broad sense via the major index scorecard puts global financials in context. The broad based S&P 500 index surpassed the 1400 level again Friday to finish +1.8% higher up 24 points on the week. The NASDAQ jumped +2.3% and the Dow rose +1.5% over the five day period ending April 27th. The continuation of the asset uptrend can be measured by the quarterly stock response to earnings announcements. Repeated worry about robust corporate profits puts traders on edge every market cycle. Any disappointment has been short lived as new index highs have consistently been achieved in the post crisis economy. April did finish negative, down -0.8% in the S&P, for the first time in four months. With the index up 11% year to date and an excess of 70% of stocks so far from that basket reporting better than expected numbers the trend looks to remain positive. Fear is Healthy, Inaction is Dangerous and Often Costly Every major pullback selloff prior to earnings has been a buying opportunity in stocks over the last few years. The fear that expectations would not be met and reverse the bullish market course has unfortunately left many retail investors on the sidelines. Bloomberg April 30th - "S&P 500 Halts Four-Month Advance Amid Global Economic Concern" Analysts predict U.S. shares will rise enough this year to boost the S&P 500 to a record, even as Wall Street strategists say the best is already over for American equities. Individual price forecasts for stocks show the combined projection for the gauge has risen to 1,569.74, according to analyst estimates compiled by Bloomberg. That compares with the October 2007 high of 1,565.15. At the same time, strategists who base their predictions on assessments of the economy say this year's rally represents all the gains investors will see. Bullish forecasts are based on analysts' expectations that S&P 500 earnings will reach records every year through 2014 as stimulus by the Federal Reserve props up the U.S. economy." An on again / off again tolerance for risk enters the markets every few sessions as the fear de jour puts asset up-trends in peril to some. An overriding concern about a slowdown in Europe and China has paralyzed the ability to see the financial opportunity. The market action tells a much more opportunistic tale with prices where they are in spite of the potential challenges. Trading options can help smooth out some of the volatility with long term price objectives in mind if you buy enough time to be right. Future Focus With equities within striking distance of the month ago relative highs the other highly followed asset groups of gold and oil look poised for major gains. An extended resource price depression has seen the Commodity Research Bureau Index finally reverse higher from four-month lows last week. The CRB 300 level is an important weekly support to lean on for a buyers bounce. At the same time the dollar index has turned lower set to act as a commodity catalyst as it approaches three month lows near 78. That coincides with the long held downside objective that is a halfway retracement of the December to January rally run up. Last week the Resource Alert Briefing analysis covered the extreme reward to risk situation in silver as it sits at the $30/$31 level. Another supportive factor is the resilient tone in the sister metal gold. The powerful gold rally above $1650 sets up for an attack on $1680 and then the $1700 range pivot once again. The multi year post crash chart below shows the nearly straight up moves in stocks and gold. These asset classes have moved together while having very different motivations. A couple months pause in gold looks to be the base for another leg higher. Trade the trends until proven otherwise......

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Click to research the Transportation industry.

Sirius Shareholders Get Everything but Share Price Increase

twocents@thestreet.com (Robert Weinstein) — Tue, 01 May 2012 18:10 GMT

NEW YORK (TheStreet ) -- With today's earnings, 22 million Sirius perma-bull shareholders finally received what they anxiously awaited for. First quarter was a dream quarter for investors that should have shareholders dancing in the street singing praises for CEO Mel Karmazin.

The top line revenue increased more than 11% year-over-year resulting in more than $804 million in the first three months of the year. $804 million may not be a relatively big beat compared to the mean estimate of $803, but Mel Karmazin has done a remarkable job navigating through the challenges to bring home another winner quarter.

Monthly churn has dropped to 1.9% and even auto sales are now cooperating to bring the total subscribers up to a record 22.3 million. Net income is up almost 40% meeting Wall Street's expectations of $0.02 per share....

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Shaw Call-Buyers Light Up July Options

twocents@thestreet.com (OptionMonster) — Tue, 01 May 2012 09:00 GMT

By Pete Najarian, co-founder of OptionMonster

NEW YORK -- Shaw Group recently got a big contract win, and on Monday buyers lit up the July options.

The July 34 calls saw strong activity, with investors paying 69 cents to 75 cents. More than 4,000 of those contracts changed hands against open interest of 100 contracts -- not off the charts, but still heavy for a name that usually trades fewer than 1,300 contracts a day. ...

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Click to research the Materials & Construction industry.

Why Options Get a Bad Rap

twocents@thestreet.com (Fred Ruffy) — Mon, 30 Apr 2012 17:30 GMT

This complimentary article from Options Profits was originally published on April 30. Don't risk missing over 40 options trade ideas every week, exclusive commentary and webinars from over 15 experts. Click here for more information and a 14-Day Free Trial. WEBINAR: Basic options Strategies to Trade Our 2012 Pick Wedsnesday, May 9 at 6pm ETCLICK HERE FOR INVITE AND TO REGISTER. Barron's options reporter Steven Sears made a bold trade recommendation to the masses. In the latest issue, Sears' Striking Price column suggested that bullish investors sell put spreads on the SPDR 500 Trust (SPY). The idea is to collect a bit of premium by writing puts on the "Spiders", but also hedge the bet by buying a lower-strike put. It's a position that has a high probability of success, but could also wipe an investor out if market conditions suddenly change. Stephen Solaka of Belmont Capital was the source of Sears' latest trading suggestion. According to the piece, "With the SPDR S&P 500 ETF Trust (ticker: SPY) at $138.83, Solaka likes selling the June $128 put, and collecting 95 cents, and buying the July $110 put for 41 cents. The vertical put spread--which is the name of the strategy--generates a 54-cent credit." Sometimes called Spiders, SPY is one of the most active exchange-traded funds today and, like the S&P 500 itself, holds five hundred of the largest publicly traded companies ranked by market value. It can be used as a barometer for the performance of the stock market and also as a trading vehicle via its shares and options. SPY is down $0.52 to $139.87 Monday morning. The aforementioned June 128 put is now 8.5% out-of-the-money. The Barron's idea is to write the $128 puts on the view that SPY will hold above that level through the June expiration over the next 46 days. Writing out-of-the-money puts on index products is not a new idea. Indeed, over the years, many hedge funds and other pros have been active sellers of downside puts on the Spiders, S&P 500 Index (.SPX), S&P 100 Index (.OEX) and other indexes and exchange-traded funds. Over time, the strategies generate income and capitalize from the fact that most downside puts expire worthless. The probability of success is relatively high. For example, the delta of the June 128 put on the Spiders today is only -0.13. Therefore, the probability the contract will expire worthless is roughly 87% (1 - 0.13). You don't often hear about risks and rewards of index put writing until there is a serious market downturn or crash. At that time, you don't need to look far to find reports of some high flying hedge fund or trader getting wiped out because they were selling naked puts on the stock indexes. Losses from one bad trade can wipe out gains from many months of winning put writes. The risks are high and, for that reason, only customers with deep pockets and much experience in options are allowed to sell puts on the index products with most brokerage firms today. To hedge the risk of writing June 128 puts, Sears recommended that investors also buy a July 110 put. "If SPY dips below $128 before June expiration, investors are assigned the SPY exchange-traded fund, which includes the 500 largest U.S. stocks. That risk is contained by the July $110 put." Indeed, buying the deep out-of-the-money $110 put for $0.41 will limit the risk (and margin required) for writing the $128 put at $0.95. However, the downside protection really doesn't come into play until SPY falls towards $110, or a market plunge of 21.4%. What the article fails to inform us is that the risk to the spread is equal the difference between the two strike prices minus the credit collected, or $18 - $0.54. Therefore, the investor is risking $17.46 to make $0.54. Or, on one contract, $54 in premium is collected and the potential risk is $1746. Most firms are probably very willing to take the other side of a short put spread on the SPY because buying out-of-the-money put spreads is a popular way to hedge "tail risk" or to protect portfolios from a significant market decline. In addition, an out-of-the-money put spread, if bought, takes advantage of skew and the fact that deep out-of-the-money puts have higher levels of implied volatility relative to at-the-moneys or near-the-moneys. For example, implied volatility in the June 128 puts on SPY today is 21.7%, compared to 31.7% for the June 110s. Experienced spread traders prefer to sell the high IV and buy the low IV, not vice versa. In sum, a July 110 - June 128 put spread on the Spiders for a $0.54 credit is a high probability trade because it is unlikely that the US equity market will decline by 9% through mid-June. There is a good chance that the June 128 put will expire worthless and the strategist can keep the credit. They can then hold the July 110 puts or sell it to salvage any remaining value at the June expiration. Even if the market declines by 5% to 8%, the trade is a winner. However, the typical Barron's reader might not fully understand the risks associated with the strategy. It would probably be a very unpleasant experience, for example, to write ten of these spreads and collect $540, then 46 days later find themselves saddled for a loss of $17,460 if the market tanks. It's these types of trades that get people in trouble during downturns or crashes, and that give options a bad rap within the investment community. OptionsProfits can be followed on Twitter at twitter.com/OptionsProfits.

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You Can Lose It All With Apple Options

twocents@thestreet.com (Rocco Pendola) — Mon, 30 Apr 2012 16:05 GMT

I'm not being melodramatic when I say that I get email almost daily that breaks my heart.

Here's an example of the correspondence I receive from burned options traders. Admittedly, most of the stories of loss reported by readers are not of this magnitude in raw dollars, but from a percentage of portfolio standpoint, I bet they're all pretty close.

I made a little money on AAPL calls over the past 3-4 months total time i have been trading options On 4th April I purchased 10 $620 May19 call totalling $32,500 approx since then the stock has tanked with losses ammounting to $23,000. Unfort i also paid 7 puts around earning instead of a straddle and lost $11,000 before i exited the trade the day after earnings. All the money i made on profits from aapl have been washed off and i was hoping how and when i can exit the May19th call with as little a loss as possible. ...

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Click to research the Computer Hardware industry.