Seeking Alpha

Momentum Option...'s  Instablog

Momentum Options Trading
Send Message
We are a poweful option trading newsletter that focuses on momentum stocks. Momentum can be used to the upside or downside to play call and put options on stocks that are in a clear trend. We target triple-digit returns for all option trades while trying to keep losses at 50%. We have 6-year... More
My company:
Momentum Options Trading LLC
View Momentum Options Trading's Instablogs on:
  • Bulls and Bears at Standstill
    12:45pm (EST)
    The market is trading in a tight range today with much of the action staying on the north side and favoring the bulls. Down south, the bears have made a little noise but better-than-expected economic news has helped the bulls as they make another attempt to break and hold resistance.

    The Labor Department said jobless claims fell 17,000 for the week to 421,000. The number was the second-lowest level for the year and beat expectations of a drop to 429,000.  The four-week average of claims, a less-volatile measure, dropped for the fifth straight week to 427,500.

    Wholesale trade inventories for October were up 1.9%, month over month, which was stronger-than-expected and more than double the 0.7% rise that had been penciled in.

    Turning to earnings, Lululemon Athletica (LULU, $66.20, up $10.50) is up nearly 20% and at new 52-week highs after beating Wall Street’s expectations. The company reported a profit of $25.7 million, or $0.36 a share, versus $14.1 million, or $0.20 a share, in the year ago period. Revenue surged double-nickels (55%) to $176 million from $113 million from last year’s levels.

    The suit-and-ties were expecting a profit of $0.25 a share on revenue of $160 million.

    Back in September, we talked about a strangle option trade for Lulu and profiled the results of an October trade that would have made 52%. These trades are also known as “chicken” trades and can be used if you are unsure on which way the stock will go after the earnings announcement. To be profitable, you need a move of 10%, or more, in the stock.

    Here were our words on three months ago on September 10, after the stock jumped over 10% (quotes from that day):

    “We were watching the October 30 puts (LULU101016P00030000, $0.20, down $0.50) and the October 40 calls (LULU101016C00040000, $2.15, up $1.30) and before the close yesterday these two options would have cost you a total of $1.55.  The put options were at 70 cents while the call options were at 85 cents before they shut the lights off yesterday in the option pits.

    A 10 contract trade would have cost you $1,550 and today the total position would be worth $2.35, or $2,350.  The calls are at $2.15 and the the puts are at 20 cents which gets us this total.  Folks, this is a return of 52% in less than a day.  Not bad.” (NYSE:END)

    Fast-forward to today.Shares were at $55 going into the close yesterday so you could have used the LULU December 60 calls (LULU101218C00060000, $5.40, up $4.50) which were going for 90 cents yesterday and the LULU December 50 puts (LULU101218P00050000, $0.05, down $0.60) which were at 65 cents going into the close.

    The calls have surged 500% while the puts have fallen over 90%. The total cost of the trade would have been $1.55, or $1,550, for 10 option contracts of each. 

    At current prices, the trade is now at $5.40, or $5,400, for a total return of 250%! However ,the big difference this time versus last is the stock moved 20% instead of 10% which for the options was also a big difference. Either way, a 50% or 250% return for being a chicken? Sign us up!
    We should have listed them on our Watch List but, honestly, our portfolio is so full of good news right now we didn’t have room. 
    In the past, we didn’t profile a lot of strangle or straddle option trades but we should of used more of them this year. We have traditionally been a directional based option trading newsletter but market conditions change and so should your strategies.

    A lot of investors feel uncomfortable putting on these types of trades and we haven’t felt the need to hedge because we called for this bullish run at the start of October. Since then, we have been recommending nothing but call options. That will change, and when it does, we may have to use these types of trades as we head into 2011.

    The market has been trending higher since mid-September and while we are bullish, we also know there will be a time to become bearish.

    With that said, we do have a couple of stocks we are keeping an eye on over the next few weeks that are on our Watch List. We have listed a possible strangle trade for each but we are still in the profiling stages. As we get closer to their earnings announcement, we expect to pull the trigger on a trade or two that could top the LULU trades we have outlined.

    We expect both stocks to move at least 10% and last time out, one of them moved over 20% after their earnings announcement.

    We are trying to end the year on big bang and we want you with us before we close out the year and head into 2011. We are excited about the endless possibilities we think we are going to see next year and we want you to be a part of it.

    As we head to press, the action is still flat and has been boring since the quick pop at the open. The Dow is down 28 points 11,344 while the S&P is up a point to 1,228. The Nasdaq is up by 3 points to 2,611. Subscribers, check the Members Area for the updates.
    Dec 09 12:48 PM | Link | Comment!
  • Jobless Claims Lift Futures
    9:00am (EST)

    Although it's not a done deal, the compromise backed by the President and Republican leaders on extending tax cuts led to choppy trading on Wednesday as bonds got crushed and the dollar gained strength.  The bulls are arguing that a tax-relief package will stimulate economic growth in 2011 while the bears are worried about the $1 trillion price tag.

    The debate didn't bother the Financial sector which saw strong gains as the prospects of the tax cuts helped the group.  The sector finished the day with a gain of nearly 2%, on average, as Bank of America (BAC, $12.00, up $0.43), JPMorgan Chase (JPM, $40.26, up $1.01) and Morgan Stanley (MS, $26.47, up $0.81) stormed higher.

    As a result, the Dow managed to finish with a gain of 13 points, or 0.1%, to settle at 11,372.  The index traded in a tight 60-point range for much of the session and hit a high of 11,389 where it met resistance once again.The S&P closed with a 4 point pop and ended at 1,228 while the Nasdaq cleared closed above the 2,600 level by adding 10 points for an official print of 2,609.

    In earnings news, Diamond Foods (DMND, $45.82, down $0.72) was up 4% in after-hours trading last night after reporting a profit of $14.2 million, or $0.64 a share, versus $14.9 million, or $0.88 a share, in the year ago period.  Revenue jumped to $253 million from $180.6 million.  Wall Street was looking for earnings of $0.60 a share on revenue of $240 million.

    The company also raised its current quarter and full-year profit outlook for 2011 by saying it sees quarterly figures at $0.85-$0.91 which was higher than the current calls for $0.86 a share.  For next year, Diamond Foods predicted $2.43-$2.49 a share, versus its previous forecast for $2.38-$2.48 a share.  The suit-and-ties were looking for $2.47 a share.The move in the Financials over the past few days has been impressive but we just don’t know if the sector is crying “wolf” again or if it is really ready to lead the next leg higher. We have been saying a sustained rally will need the sector participate if the market has a shot at extending its gains past its current two-year highs.

    Back in September, we went long and strong on Bank of America as we thought shares might break past resistance as it appeared then the Financials were ready to join the rally. Well, the rally didn’t stop and Bank of America was facing resistance at $14. By mid-October, shares were at $12, we said to exit, as the charts showed a trip to $10 was in the cards.

    Last week, shares hit a 52-week low of $10.91.

    Well, we printed $10 and change but shares have bounced 10% off the lows in a week.

    Let’s see how this plays out and we wouldn’t be surprised to see shares approach $14 again. However, we would wait for confirmation of a breakout above this level before we even think about jumping back in the sack with BofA.

    Jobless claims came in better-than-expected at 421,000.

    As we head to press, Dow futures are up 44 points; S&P futures are higher by 6; Nssdaq futures are showing an advance of 9 points.
    Dec 09 9:05 AM | Link | Comment!
  • Flat Action Favors Bulls
    1:00pm (EST)

    The market is bouncing around on both sides of the ledger today as the bulls try to push through resistance once again. There's little economic news today so most of the action involves individual stocks. The bears seem content on holding the major averages under resistance following yesterday’s breakout as they plan their next move.

    Earnings are winding to a close as the market gets set for 4Q and full-year updates which will start in January. However, this is usually the time where a company will update Wall Street on the current quarter and year as well as providing clues for the following year.

    Home Depot (HD, $33.93, up $0.38) stepped-up to the plate and said it expects 2010 earnings of $1.97 a share, on sales growth of about 2%-2.5%.  Analysts are currently expecting 2010 earnings of $1.95 a share. For 2011, the company forecast earnings of $2.19-$2.23 a share, while Wall Street is looking for $2.22 a share. Home Depot also said that it plans to buy back $2.5 billion in stock next year.

    Turning to IPO’s (initial public offerings), two new Chinese IPOs opened for trading this morning and have experienced huge gains as investors see them as “premium” names.

    E-Commerce China Dangdang (DANG, $29.14, up $13.14) is China’s version of (AMZN, $176.80, up $0.03) and is up 80%. The deal was priced above the initial range of $11-$13 and was increased to $13-$15 this week. The company raised $272 million after offering the American Depositary Receipts (ADR’s) at $16 each. (YOKU, $33.34, up $20.54) sold over 15 million shares at $12.80 and is similar to YouTube. Shares are up 160% and it appears both companies left a lot on the table after underestimating demand.

    As we head to press, the Dow is down 3 points to 11,355; the S&P 500 is up 1 point to 1,225; the Nasdaq is up 6 points to 2,604.

    We have an incredible amount of information to cover in our Members Area so we have to cut our commentary a little short today. We will be back in the morning at 9am with a full update.
    Dec 08 1:08 PM | Link | Comment!
Full index of posts »
Latest Followers


More »
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.