In this post is a fresh list of stocks to watch for the week of August 24, 2009. All of the stocks mentioned in this post are stocks which have broken out to the upside on unusually large volume. The table below shows the company, ticker, Friday's per share % increase, and Friday's volume increase (% increased compared to 50 day average).
|Company||Ticker||Price Change||Volume Change|
|Fronteer Development Grp||FRG||12.27%||278.62%|
|Mentor Graphics Corp||MENT||13.51%||498.31%|
|Maguire Properties Inc||MPG||22.77%||462.50%|
|Mueller Water Products||MWA||13.13%||219.63%|
|Republic Airways Holdngs||RJET||11.80%||97.84%|
|Sinclair Broadcast Group||SBGI||32.56%||753.20%|
|Smucker J M Co||SJM||4.28%||130.32%|
|Meridian Resource Corp||TMR||31.25%||241.30%|
|Veeco Instruments Inc||VECO||13.93%||113.27%|
|Wet Seal Inc||WTSLA||10.54%||125.15%|
|Sirius X M Radio Inc||SIRI||3.24%||183.79%|
Many of these stocks are up big on earnings announcements, therefore it may be a good idea to wait for some profit taking and purchase the stocks on weakness. The stock which is most attractive to me is Aeropostale (ARO). Below are some trade ideas which I may be using in the weeks to come. To learn more about the risks, pricing, calculations, strategies, and options in general click here.
Aeropostale, Inc. Option Trade Ideas: The first trade is very simple and involves purchasing the stock and writing a call option against it. I would purchase the stock and immediately write out a call option for the September 42 strike price. The theoretical price for the option is $90 per contract which will lower the cost per share by 2.3% (as of Friday's close) and would give me a potential return of 8.5% if Aero stock is at or above $42 at September options expiration (26 calendar days).
The second Aero trade I would be looking at is much more risky and a bit more complicated. I would look at opening a diagonal call spread. With implied volatility down after their earnings release, it would be much cheaper to open this spread today versus a similar spread (not identical strike prices) one week ago. I would purchase the October 38 call options and sell the September 42 call options against them. The position would cost roughly $270 per option spread and assuming Aero's stock is at or above $42 on September 19, 2009 this position would return 48.1%. If the stock is below $42 at expiration, a vertical call spread can be formed using the October 42 strike calls (assuming Aero's stock is within range and the October 42 call option is bringing premium). It is important to note that if Aeropostale stock is below $38 a share at October options expiration the entire position will expire worthless. I am also looking at ratio call spreads for the upcoming months, but will not be going into details in this post.
The ideas outlined above involve the use of stock options. The reason option volumes have surged in the last 5 years is because they are a great way to hedge your portfolio as well as create income off of your shares (see option volume chart).
These are just examples and are not recommendations to buy or sell any security; if you're more bullish/bearish, you’ll want to adjust the strike price and expiration accordingly.
Disclosure: Long SIRI