Posts Tagged ‘Bear Call Spread’

Using Options to Trade Apple (AAPL) at a Possible Discount

Wednesday, March 2nd, 2011


Apple (NASDAQ:AAPL) appears to be bouncing back after a rough second half of February.  From February 16 through last Thursday, the shares dipped from an annual high near $365 to below the $340 level.

Last Friday, as the market put in its first positive session for the week, Apple shares began to claw higher as well and have already recovered back above the $350 level.  After rebounding off its 50-day moving average last week, the stock has now moved back above its 10-day and 20-day moving-average trendlines. (more…)

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Tide May be Turning Bearish in Intel (INTC)

Friday, January 7th, 2011


As Intel (NASDAQ:INTC) approaches its earnings report next week, analysts are taking stock of their stake in the semiconductor. Piper Jaffray downgraded the stock to neutral from overweight earlier this week, setting a 12-month price target of $21.50. This doesn’t represent much upside for the shares.

The stock was virtually flat in 2010, drastically underperforming the tech sector and the broad market, but earnings have been largely positive.  According to Briefing.com, INTC has surprised to the upside in seven of the past eight reporting periods. Analysts are expecting per-share results of 53 cents for the January 13 post-market report; this would be a 33% improvement from year-ago figures.

The chart shows a consolidating stock despite strong earnings – what is an investor to do?  One of the potential advantages heralded by option traders is the ability to customize a strategy beyond buy-sell-hold. There are neutral option strategies investors can use when the market (or a particular stock) is expected to move sideways.  For more information on neutral strategies for a range-bound market, check out our free three-part webinar series beginning on Tuesday (1/11) after the close. (more…)

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Bullish and Bearish Plays in Microsoft (NASDAQ:MSFT)

Thursday, September 23rd, 2010

Microsoft Options Strategies Is a company’s fundamental strength enough to power a stock higher? It’s an age-old rhetorical question and one that blue-chip names like Wal-Mart (NYSE:WMT) and Microsoft (NASDAQ:MSFT) have confronted for years. MSFT said earlier this week that it was upping its quarterly dividend to 16 cents per share from 13 cents, marking its first dividend increase in two years.

Is this boost a sign that MSFT executives have renewed confidence in the company and perhaps in the economy as a whole? The company is now set to pay out $5.6 billion to shareholders each year, making the software giant “one of the [world's] largest aggregate returns of cash to shareholders,” according to Jefferies & Co. (more…)

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What Buffett Selling Moody’s (NYSE:MCO) Shares Could Mean For Option Traders

Friday, September 17th, 2010

Moody's option strategies Although Warren Buffet is a “huge bull” toward the U.S. economy, there are names within the market that he’s not as optimistic about. Buffett’s company, Berkshire Hathaway, filed to sell 1.3 million shares of Moody’s Investor Service (NYSE:MCO) earlier this week. Throughout the year, Berkshire has been unloading large blocks of its long-term stake in the ratings company.

At the end of the last quarter, Berkshire’s total stake in Moody’s was more than 30 million shares, so what’s the sale of 1.3 million shares mean, really?  It’s the fact that this has been somewhat of a trend that has investors nervous. (more…)

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First Solar (NASDAQ:FSLR) outperforms following upgrade

Tuesday, August 24th, 2010

First Solar options strategies UBS upped its rating on First Solar (NASDAQ:FSLR) Monday morning to buy from neutral, citing strengthening growth rates across the sector. The firm also lifted its price target on the stock to $150 from $136, allowing for almost 19% of additional upside from current levels.

UBS now estimates 2010 and 2011 global solar demand of 16.4GW and 19.2GW, nearly one-third higher than previous estimates. Growth is expected to be especially robust in France and Italy.  Looking forward, the covering analyst upped his EPS estimate for First Solar for 2010 to $7.50 from $7.30 and lifted his 2011 projection to $8.80 from $8.00.

FSLR gained roughly 1% in Monday’s trading, outperforming the broader market, which suffered modest losses.  This move lifted the shares above their 50-day moving average, but will the stock be able to hold above this trendline?

For investors who are either bullish or bearish on FSLR, we have outlined two moderate strategies below.  Both are call spreads but one is a debit (bull) spread and one is a credit (bear) spread.  Both are limited risk, limited return strategies. These are not trading recommendations, merely examples of different strategies for educational purposes. The prices are taken as of Monday’s close, when FSLR shares were trading at $126.29, up $1.26 on the day. For a full dissection of the strategies including profit/loss information, (more…)

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Strategies for Deere & Co. (DE) before earnings

Tuesday, August 17th, 2010

John Deere (DE) option strategies Deere & Co. (NYSE:DE) recently abandoned a nice uptrend that had taken the shares to a new closing high on August 9. This uptrend, driven in part by strength in the overall agriculture sector as Russia experienced a drought, came to a screeching halt as the broader market spun on its heels.

Analysts with Citigroup, however, may feel that the pullback in DE is short-lived.  On Monday, the firm upped its price target on the stock to $75 from $70. The firm expects “better [North American] large ag equipment demand, and a more favorable price/cost spread driving upside to near term numbers.” The price adjustment, which allows for roughly 15% upside in the shares, comes just days before Deere earnings scheduled for the morning of August 18.  Analysts are expecting results of $1.22 per share.

With earnings around the corner, volatility is elevated; the front-month, at-the-money DE straddle (August 65) is currently priced at $3.17, or roughly 4.8% of strike.  In other words, the options market thinks DE is likely to move almost 5% (higher or lower) between now and the expiration of August options this Friday.

We’ve outlined two potential option strategies here – first a calendar spread for those wanting to express a bullish thesis but concerned by elevated premiums just prior to earnings. Second is a bear call spread, which is a credit spread and can actually benefit from falling implied vols.

Remember these are not buy/sell/hold recommendations, merely examples of various strategies for educational purposes. The prices are taken as of Monday afternoon, when DE shares were trading at $65.60, up 75 cents on the day.

(more…)

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A Couple of Ways to Play Google (GOOG) Earnings

Tuesday, July 13th, 2010

While Google (NASDAQ:GOOG) is not exactly known for a complete lack of volatility around earnings, its movements have not been all that violent (on a percentage basis).  Thursday’s earnings report may be a pivotal one for Google, with the smartphone wars continuing to heat up.

The Blackberry, part of the Research in Motion (NASDAQ:RIMM) family, still leads the sector with a 41% market share in the U.S. and of course the iPhone craze powers on, but Google’s Android operating system is still growing at an exponential rate.  I like to think of it as the 1980s Microsoft (NASDAQ:MSFT)/Apple (NASDAQ:AAPL) saga, redux.  Back then, MSFT, like Google, offered its “window” operating system to multiple computer makers.  In doing so, the company got folks across the world and on different hardware platforms addicted to its products.

Apple, in typical Jobs’ style, only sold its operating system software (and all software, for that matter) for Apple-made PCs.  This strategy hurt Apple in the early days.   Obviously, things have improved for the company and now the iPhone is like the Rubik’s Cube of the 2000s.  Apple has done a good job at getting the public addicted to a cool (albeit flawed) product.  Now that Consumer Reports won’t bless the iPhone 4 because of antenna issues, I’m looking forward to seeing how Apple spins it. (more…)

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Google (NASDAQ:GOOG) pre-earnings options strategies

Monday, July 12th, 2010
Top image for Goog bulls/bears

Google Inc.

Google (NASDAQ:GOOG) has been all over the news lately, so let’s briefly hit the highlights. Last Wednesday, JP Morgan cut its earnings estimates for the second quarter and lowered its 12-month price target on the shares to $566 from $639 (though keeping a bullish rating of “overweight”). In a similar move on Thursday, an analyst with Oppenheimer trimmed his earnings outlook on the Internet giant and dropped his price target to $500 from $715 (keeping an “outperform” rating). Both “overweight” and “outperform” are essentially equal to a “buy” recommendation.

Then on Friday, the stock was boosted higher after Google renewed its license with China, allowing it to keep operating the google.cn website within the People’s Republic. This is currently the world’s largest market when it comes to online users, but there had been speculation for months that Google would choose to exit the country due to censorship laws. The stock moved higher on this news, outperforming the broad market on Friday.

Investors who believe Friday’s gains could carry through into next week could be considering bullish strategies such as the bull call spread we’ve outlined below. On the other side of the fence, contrarian investors could be looking into a variety of strategies that would benefit if GOOG heads lower. The examples below are hypothetical and should not be interpreted as buy/sell/hold recommendations. Always consider your risk/reward parameters before placing any new trades. Prices are given as of Friday afternoon, when GOOG was trading at $464.48, up $7.92 (1.7%) on the day.

To learn more about option trading strategies or our online option platform, visit our events page and check out schedule of free weekly webinars. Upcoming classes include tomorrow’s in-depth look at covered calls in the Two Traders, One Strategy series.

(more…)

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Getting an Edge on Jim Cramer

Tuesday, July 6th, 2010

For more than a year, I took Mad Money host Jim Cramer’s investing ideas and gave them a thumbs up or thumbs down according my own technical analysis and views.  Here at OptionsHouse, it’s not about telling you what to do, but rather offering some strategies for you to explore based on your own individual opinions.

We all have a right to agree or disagree with Cramer and while I have great respect for the man, I can’t say that I am in full agreement with all of his recommendations.  Furthermore, as options traders, we can take his thesis and augment it into acceptable risk for our individual personalities and risk tolerances.

Watching my DVR recording of Friday’s program, I actually liked what Cramer had to say about investing after the crash (I think this was taped earlier).  He talked about the difference between trading and investing and how today’s market participants perhaps need to be an amalgam of the two. I happen to agree with Cramer’s suggestion that traders learn as much as they can about a company, although even with soup-to-nuts knowledge of a company and its business, you can still find yourself in a losing position.  This is due to factors beyond the quality of a company’s product or their ability to sell that product or service to the public.  Cramer noted this when he talked about a company’s stock price becoming “un-glued” from its fundamentals.

Frankly, while I agree that huge variances from typical price-to-earnings (p/e) ratios may be a reason to buy or sell a stock, it still doesn’t ensure success. It may, however, increase the probability of a longer-term trade coming into profitability because of the anticipated “reversion to the mean” an overbought or oversold stock may experience. (more…)

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A Mixed Message for Dell (NASDAQ:DELL) Shares

Monday, June 28th, 2010

A Mixed Message for Dell (NASDAQ:DELL) Shares The technology sector was under the microscope Friday following mixed reports from Research in Motion (NASDAQ:RIMM) and Oracle Corp. (NASDAQ:ORCL).  While many investors focused, respectively, on selling and buying these names, Stifel Nicolaus turned its attention to a historically newsworthy tech stock, Dell (NASDAQ: DELL).  The firm reiterated its “buy” rating on the shares but lowered its 12-month price target by 11% from $18 to $16. This represents projected upside of less than 25%.

Earlier in the week, on the eve of its annual analyst day, Dell issued its first official guidance in four years, saying it expects fiscal year 2011 revenue to increase 14% to 19% over this year’s levels.  The computer company also said operating income should rise by 18% to 23% throughout the current year.  The shares dropped 6.4% in Thursday’s session on the heels of this announcement and were virtually flat in Friday’s trading.  DELL has drifted lower since late April (along with the tech sector and the broader market) and remains below its 50-day and 200-day simple moving averages (SMA).  At $14.70 and $14.68, respectively, these trendlines are in danger of a bearish cross.

Stifel still believes DELL is worthy of a “buy” rating but appears the bullishness has limits, judging from its adjusted price target.  The “buy,” “hold,” and “sell” scale is somewhat limiting, but options traders have access to a full arsenal of strategies they can use depending on their outlook and other factors.  Two option strategies on DELL – one bullish, one bearish – are detailed below.  Remember these are hypothetical examples, not recommendations.  Consider your risk/reward parameters and trading goals before executing any new trades. (more…)

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