Seeking Alpha

Option Maestro's  Instablog

Option Maestro
Send Message
Marco is a trader of stocks, options, currencies, and futures. He has been fascinated with the financial markets ever since he bought his first stock at 11 years old. Marco entered the business world at the age of 13, with the creation of an extremely successful retail website... More
My blog:
Hot Trading Strategies for a Cold Market
My book:
Trading Options Made Easy
  • Breakout Stocks on BIG Volume November 12, 2009 & NTY Detailed Option Trade 0 comments
    Nov 13, 2009 3:25 AM | about stocks: SPY, XLK, DIA, QQQ, TLT, GLD, IWM, IWN, NLST, PLA, SORL, CAAS, FFHL, LONG, ADAM, ANW, CERS, CVGW, DDD, ATK, OPLK, PRVT, NTY, MTR, ADY, CHSI, SIRI
    Here is a list of stocks which traded higher Thursday November 12, 2009 on unusually higher volume. I will keep an eye on these stocks Friday to see if there is continued buying pushing the stocks higher. This method is just one of the ways I use to pick stocks to structure particular option trades. 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
    Netlist Inc NLST 54.48% 4517.82%
    Playboy Enterprises Cl B PLA 42.31% 1173.39%
    Sorl Auto Parts Inc SORL 12.72% 748.70%
    China Automotive Systems CAAS 11.15% 701.49%
    Kandi Technologies Corp KNDI 22.49% 617.31%
    Fuwei Films Holdings Co FFHL 19.63% 578.57%
    Elong Inc Ads LONG 19.89% 449.47%
    A D A M Inc ADAM 14.83% 370.17%
    Aegean Marine Petroleum ANW 3.81% 310.21%
    Cerus Corp CERS 21.72% 300.55%
    Calavo Growers Inc CVGW 5.79% 273.64%
    Scolr Pharma Inc DDD 18.37% 184.64%
    Alliant Techsystems Inc ATK 3.33% 181.75%
    Oplink Communications OPLK 3.55% 168.48%
    Private Media Group Ltd PRVT 10.00% 163.20%
    N B T Y Inc NTY 3.07% 152.67%
    Mesa Royalty Tr Ubi MTR 3.43% 147.83%
    American Dairy Inc ADY 4.88% 80.53%
    Catalyst Health Sltns CHSI 1.92% 64.05%
    Sirius X M Radio Inc SIRI 4.59% 44.54%
    Abovenet Inc ABVT 1.09% 20.40%

    I decided to write about a stock which I have been watching lately. I started watching this stock when I first started noticing many of my friends taking the many nutritional supplements they take before working out. The stock I will be writing an option strategy about is N B T Y Inc (NTY). Note that many of the stocks listed above will be good plays and many will be bad plays, I list them all to show possible breakout stocks and write about a few of the ones I am interested in. (Click chart to enlarge).


    N B T Y Option Trade: As we can see from the chart above NTY had a huge move down on big volume when it reported earnings, however it fought back to finish the day lower by less than 1.3%. Thursday the stock traded higher amongst a rather negative market on no major news. Looking at the chart above we can see a bullish triangle pattern has emerged, however it also looks as if a double top has formed, which is key to note. This option strategy I am about to write should be considered if and when NTY clears the 41.50 a share price, which would take out that bearish double top formation. If this stock continues higher and clears 41.50 I wouldn't mind getting behind this stock.

    If and when the stock clears 41.50 I would look to open a Vertical Call Spreads on this stock. This will give me leverage on the stock, as well as limit my downside risk. Although I would become a buyer when the stock is trading at almost a dollar higher, I will write about this trade as if I were to open it at close of Thursday. This is a very easy trade that involves one expiration month and two separate option contracts. I would purchase December in-the-money 40 strike call options and sell December 45 strike call options against them (1 for 1). The theoretical price for this spread as of close Thursday is roughly $170 per option spread. However if the stock breaks $41.50 very soon, both call contracts will move higher causing the spread to be slightly more expensive (about $40 per spread based on current delta's and time value).

    Profit and Loss: Let's say I opened just one spread. In the worst possible scenario, this strategy would lose a maximum of $170 per option spread. Now let's assume the stock continues to rally and closes at December option expiration at or above $45, this position would return maximum profitability, $330 per option spread or 194%. It is worth noting the break even point for this strategy, it would be at $41.70 per share of NTY, therefore anything above this level in the underlying would result in a profitable option trade.

    This is a bullish strategy and should not be considered if you think the stock will sell off in the near future. However if you feel you've missed the stock and think it 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: Long SIRI

Back To Option Maestro's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

StockTalks

  • Time for profits... I can raise cash and be patient or pay down debts as I wait for a corrction.
    Nov 18, 2013
  • Ugly weekly candle stick with slightly heavier volume... Use caution
    Jul 28, 2013
  • $SPY $SPX put in a doji for the year... I'm expecting a huge range and a +/- 25% move either way this year
    Jan 2, 2012
More »
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.