With the major indices trading lower across the board Monday, there were quite a few stocks which traded higher with above average volume. If this is your first time reading one of my breakout reports you'll want to read the section below, however if you are familiar with my daily breakout report you should skip ahead to the list of stocks and option strategy below it.
To reiterate previous blog posts like this, the first thing I do is scan the list for familiar names, such as stocks I am quite familiar with or ones which have appeared on similar scans multiple times in the past week or two (most of these names are unfamiliar so it saves a lot of time). This indicates there may be some real momentum behind the stock, and that it could trade higher in following sessions as well. Then (if and when any of the stocks I find are familiar to me), I make sure the stock has options available to trade, and then take a look at the chart(s) to see if I can structure a potential option trade. The list in this post is quite large and includes 13 stocks, all of which traded higher on heavy volume Monday February 22, 2010. However I will only be writing about one stock in detail which I'll be adding to my watch list, and outline an option trade I may look at opening in the near future.
This method is just one of the ways I use to find stocks for potential option trades. The first part of this post will show the list of stocks which traded higher on above average volume. The second part of this post requires the knowledge of stock options. To learn more about the option strategies outlined in this post, risks, pricing, calculations, other strategies, and options in general, click here.
The table below shows the company, ticker, per share % increase, and volume increase (% increased compared to 50 day average). For your convenience I have ranked the stocks in order from greatest to least volume % change.
|Company||Ticker||Price Change||Volume Change|
|Smith International, Inc.||(SII)||8.83%||2135.42%|
|Green Plains Renewable Energy Inc.||(NASDAQ:GPRE)||20.16%||1467.79%|
|TASER International, Inc.||(NASDAQ:TASR)||6.71%||218.27%|
|China Agritech Inc.||(OTCPK:CAGC)||5.40%||108.77%|
|Blue Coat Systems, Inc.||(NASDAQ:BCSI)||2.21%||71.05%|
|Sirona Dental Systems, Inc.||(NASDAQ:SIRO)||1.62%||70.78%|
|China Automotive Systems, Inc.||(NASDAQ:CAAS)||12.91%||63.33%|
One stock which I have noticed appear on my screener multiple times lately is Sirona Dental Systems. As always, I will give a company profile from Google Finance below.
Sirona Dental Systems, Inc. (Sirona) is a manufacturer of dental equipment. Sirona focuses on developing systems and solutions for dentists globally. The Company provides a range of advanced products in each of the four primary areas: Dental CAD/CAM Systems; Imaging Systems; Treatment Centers and Instruments. Sirona distributes its products globally to dental practices, clinics and laboratories through an international network of distributors.
From the chart below, we can see that Sirona Dental has started moving off its old level of resistance (now support) at around 35. This is a rather bullish sign, especially as volume is increasing. Below I will outline a Long Combo Option strategy which will cost me next to nothing to open, give me unlimited gains to the upside, while still capping my losses to the downside in case of a severe sell off.
Click chart to enlarge
Click to enlarge
Sirona Long Combo Option Strategy: This is a very bullish option strategy, and is called a Long Combo because I will be using both put and call options. As we can see the lower part of the bollinger bands and strong support come in near 30 per share, so this is where I will decide to take some premium to finance the other side of this bullish trade. I would first look to sell April 30/25 Vertical Put Spreads for a net credit of $25 per spread. This will put $25 in my portfolio for each spread sold, and then with the premium received I would look to purchase March 40 Strike Call Options (which had some heavy activity moving into them Monday, trading 366 contracts on open interest of 345) for a premium of $25 making the overall cost of this trade the commissions paid. As stated this is a very bullish option strategy that will benefit greatest if SIRO continues higher by March options expiration.
Profit & Loss: My maximum loss using current data is $500 per long combo, and that is if the stock trades lower and closes on April options expiration at or below 25 per share. If the stock continues higher and come March options expiration shares of SIRO are at or above 40 per share, this strategy will be profitable (less any commissions and assuming the April Vertical Put Spread can be closed for less than the March Calls are sold for). Assuming this strategy is filled for just the cost of commissions, this strategy will break even as long as SIRO trades and expires above 30 per share at April options expiration.
This is a very bullish strategy and should not be considered if you think the stock will sell off in the near future. However if you feel the stock could move higher in the near future, this strategy could yield a nice gain. To get a better understanding of stock options and different option strategies please check out my Simplified Stock Option Trading E-Books.
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.
The reason option volumes have surged in the last five years is because they are a great way to hedge your portfolio as well as create income off of your shares (see chart here). Keep in mind when using this strategy it is essential that broker commissions are low enough to profit from the position.
Disclosure: No Positions