Recap for Tuesday, December 16th by Kevin Corrigan
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Analysis of S&P 500 from QuickTakesPro’s Michael Kahn:
S&P 500 (SPX) – At the time of this broadcast, SPX was around 2008.02 up 18.39 today. The red line from the previous high in September is the key level at about 2020 that was acting as support. It broke below that and has remained below the past two days. It could have a reversal today, but it usually doesn’t mean anything unless there is follow through tomorrow.
It is well above its 50 and 200 day moving averages of 2002.11 and 1947.63, respectively.
The Chart of the Day is Bed, Bath and Beyond Inc. (BBBY) –
At the time of this broadcast, BBBY was at 73.52, up 0.38 today. It appears to have broken out of a “bull flag” pattern yesterday. It has been outperforming the Relative Performance of the SPX. If it continues heading up, we can look at the last “gap down” at the beginning of the year. If the stock fills the gap, the next level of resistance could be around 78.
It is above both its 50 and 200 day moving averages of 69.13 and 64.86, respectively.
Analysis of BBBY Volatility Chart and Dividends from TradeKing’s Brian Overby –
The 30-day implied volatility (IV) has been jumping up recently to about 32.5%, most likely because BBBY is expected to announce earnings on January 8th, which is within the next 30 days. The 30-day historical volatility is currently fairly low, about 15%.
BBBY does not currently pay a dividend.
Technical tools used:
– Moving Averages
Brian Overby’s paper trade strategies based on Michael’s analysis –
Michael’s analysis was bullish. Brian discusses two paper strategies, one with an expiration that that avoids the earnings announcement and one that contains it. One short term Long Call before earnings on January 2, and one longer term Short Put Spread that expires after the announcement on January 30th. Although the expiration is after the announcement, it is imperative to consider closing the position before the event date.
Brian’s Paper Trade – Long Call (shorter term) – Buy 1 Jan 2 2015 BBBY 72.50 Call
– 17 Days to expiration – Bid 1.83, Ask 2.04 for the Call
– Debit is $2.04
– Maximum potential loss: $2.04- Maximum potential gain is unlimited if the stock goes to infinity (not likely to happen).
Total commission to enter this trade is $5.60
Brian’s Paper Trade – Short Put Spread (longer term) – Buy 1 Jan 30 2014 BBBY 67.00 Put- Sell 1 Jan 30 2014 BBBY 69.00 Put
– 45 Days to expiration – Net Bid 0.13, Mid 0.44, Ask 0.75 for the strategy
– Net Credit is $0.44 if we get at the Mid (might not be possible)
– Maximum potential loss: $1.56 – Maximum potential gain is $0.44
Total commission to enter this trade is $6.25
**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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Kevin Corrigan, PMP
VP Content and Social Media
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