Option Trade: Google (GOOG)
With the introduction of Google Plus we may have seen a bottom in Google stock. Technically, GOOG has rallied up consistently with the market last week and showed no signs of weakness. On Thursday, the stock gapped up through initial resistance at 500.00 and went to 520.00 on Friday. The next heavy resistance level is at 546.00. Fundamentally, investors did not wait for this name to fall down to 450 as they understood the stock was beginning to show great value near 470 with a sub-19 P/E ratio.
Depending on an investor's risk tolerance we now see the July 500/495, 495/490, and 490/485 Bull Put Spread all as lucrative opportunities.
We may sell the July 16th 500/495 Vertical Put Spread for 1.20 or better.
Max Return: 32%
Breakeven Point: 498.8
Probability that options expire worthless: 89%
Option Trade: Baker Hughes (BHI)
With the market moving higher, our hopes that we would see $85/barrel in the short term have been crushed. After concluding that we must switch our sentiment on oil to being neutral to bullish, we were reminded of a Baker Hughes article from the New York Times published on June 17. The column said that U.S. drilling companies were soon to benefit from numerous contracts in Iraq (surprise!). This column implied that Baker Hughes may be the perfect play for higher oil prices and increasing demand. Technically, Baker Hughes just broke out above its resistance line at 71.00. I now see 70 as a good level to sell some vertical put spreads. Even when the Dow Jones was falling Baker Hughes remained around 70.00 for weeks instead of free falling like crude did in the beginning of May and June.
We may sell the July 16th 70/67.5 Vertical Put Spread at 0.38.
Max Return: 18%
Breakeven Point: 69.62
Probability that options expire worthless: 77%
Option Trade: Apple (AAPL)
Current Market Condition: Neutral to Bullish
Apple's Current condition: Neutral to Bullish
In these conditions, AAPL stock is not going to fall very far. After earnings, it could drop a max of 5%. If AAPL were to drop 5%, it would trade at 326.09 based on last Friday's close (343.26). Also, $326 is an interesting number because 326-330 is where AAPL has a lot of support, which gives us even more confidence the stock could only fall 5% on a large sell-off before or after earnings. There are two ways to trade AAPL:
(Note: AAPL reports on July 19th, so we cannot trade July options as expiration is on the 16th.)
Option Trade 1: Conservative trade betting AAPL may not rally big, but at least will not fall in price too far due to its strong fundamentals.
Sell August 330/325 Vertical Put Spread for 1.35
Max Return: 37%
Breakeven Point: 328.65
Probability that options expire worthless: 72% (July Expiration for 330/325 is 86% chance of winning on this trade).
If your risk tolerance is low, sell the August 325/320 for $1.00-$1.10. Max Return: 25% The probability that these options will expire worthless is 79%.
Option Trade 2: Betting that AAPL is going to breakout through 344.50-345 and is headed straight for 375.
Buy August 375 Call Options for 2.22
Max Return: Unlimited (I would take profits at 75% - 200% gains)
Breakeven Point: 377.22
Probability that options will expire worthless: 90.1%
Buy Pick: Kirby Corporation (KEX)
Kirby Corporation is a U.S. shipping services company which just broke out above its above its heavy resistance line near 58.00. The breakout was on large volume and I expect the stock to rise up to 60-65 very soon. The last time this stock broke out (January) KEX’s price went from 45 to 55 in 1.5 months (including two upside gaps that were never filled). We may enter an equity position with a $55.00 stop and at $65 price target.
Buy Pick: Post Properties Inc (PPS)
Post Properties just broke out on large volume Friday. The stock is in a very strong upward channel and I expect to see this name trading at or near 44 in the next 2-4 weeks.
Buy Pick: Kopin Corp. (KOPN)
Technically KOPN is in a strong upward channel and seems to be bouncing off its lower trend line. At its current price the stock is giving us an entry opportunity at 4.70, and we would be looking to sell at 5.05. Stop loss: 4.45.
Monthly Buy Pick: Market Vectors Russia (RSX)
This ETF which tracks large-cap Russian companies has been doing remarkably well considering its weight in both energy and metals (both of which have pulled back from their highs). On a monthly chart we see that RSX was sold off for three months in a row. The last time this occurred was in 2010 followed by a large rally. With current market conditions at least neutral to bullish I expect RSX to close July with a gain. We received confirmation that RSX wants to move higher on Friday as it broke out of a three month downward channel. We may initiate position with a stop loss at 37.00 and a price target of 42-plus.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.