Posts Tagged ‘Jim Cramer’

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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Cramer calls Bank of America (NYSE:BAC) a buy

Monday, June 14th, 2010

Bank of America (BAC)Jim Cramer, host of CNBC’s lively (and often controversial) Mad Money program, weighed in on Bank of America (NYSE:BAC) late last week. The pundit still calls the stock a solid buy and said that if financial regulation passes, investors won’t be able to “find bank stocks anywhere near where they are” so he encourages people to pull the trigger now.  BAC is set to report earnings on July 16 (expiration Friday) ahead of the opening bell.

BAC shares have dropped more than 20% from their April 15 peak but could be putting in a rounding bottom around the 15 level.  BAC has not traded solidly below 15 since last July, so it may have some support at this region.  Investors who want an alternative to buying the shares outright (spending $1,571 for 100 shares) could consider option strategies, some of which offer reduced risk and enhanced leverage.

Two hypothetical debit-spread strategies on BAC – one bullish, one bearish – are described below.  Remember these serve as examples, not recommendations.  Consider your own risk/reward parameters and personal trading goals before executing any new trades.

Want to learn more about different options strategies or the OptionsHouse trading platform?  Stop by our events page to review our schedule of free weekly webinars and sign up for one that interests you. Tomorrow’s strategy webinar will discuss the short-call strategy.

*Prices given as of Monday morning. BAC was trading at $15.71 (more…)

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Cramer Says It’s Time to Buy Teva Pharmaceutical (TEVA) on a Pullback

Tuesday, June 8th, 2010

PillsLast week, during his infamous “Lighting Round” on CNBC, Jim Cramer opined on Teva Pharmaceutical Industries (NASDAQ: TEVA), saying it might be a candidate to buy on the dip given its recent pullback.  The eccentric Mad Money host said that even with health care stocks in reversal mode, it could be time to start buying.

TEVA shares have been in a steep downtrend since late March, shedding 18% of its value since its May 23 peak.  During this pullback, the stock has breached prior support at its 50-day and 200-day simple moving averages.  Cramer is trying to call the bottom here, which can be a very tricky thing to do, especially amid broad-market volatility.

For investors who want to follow Cramer’s thesis but not with the straight-line downside exposure of a straight purchase of 100 shares, there are bullish option strategies that could be put to work.  Additionally, those who disagree with Cramer (on TEVA or everything in general) could take advantage of a bearish option strategy that might capitalize on continued downside in the shares (or an implosion in implied volatility).  Two hypothetical option strategies on TEVA – one neutral, one bearish – are described below.  Remember these are merely examples, not recommendations.  Consider your own risk/reward parameters and personal trading goals before executing any new trades. (more…)

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Cramer Bearish on Freeport-McMoRan (NYSE: FCX) as the Stock Heads Lower

Monday, May 24th, 2010

Last week in an episode of Mad Money, Jim Cramer said that while he likes Freeport-McMoRan Copper & Gold (NYSE: FCX) as a company, he would put it on his “sell” list for now.  He cited concerns such as exposure to China’s slowing economy or the stock’s recent run.  From December 2008 through mid-January this year (14 months’ of activity), the stock gained more than 400%; since another visit to its January peak six weeks ago, the shares have given back roughly one quarter of their value and are below potential resistance at the 200-day moving average.

Investors who agree with Cramer’s bearish remarks but who don’t want to engage in a short sale could consider option trading strategies.  Bullish investors, who believe FCX might break out of its recent downtrend, could also look at various option strategies as an alternative to buying the stock outright.  Two hypothetical options trades on the stock – one bullish, one bearish – are outlined below.  Remember these are merely examples, not recommendations.  Consider your own risk/reward parameters and personal trading goals before executing any new trades. (more…)

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Bullish and Bearish Option Strategies for Ford Motor (NYSE: F)

Wednesday, May 12th, 2010

Jim Cramer again highlighted Ford Motor (NYSE: F) shares in a recent episode of Mad Money.  The bombastic TV analyst screamed that buying Ford shares is a smart move, particularly for long-term investors.  This past 14 months, Ford has seen a tremendous rally, from a low of $1.65 in March 2009 to a peak of $14.57 in April 2010.  The shares lost a bit of ground in the past two weeks, but now appear to be attempting to rally once again.  In Tuesday’s session, the stock closed marginally higher at $12.31.

While 100 shares of Ford won’t exactly break the bank at $1,231, there are ways to invest in Ford using options.  Depending on the strategy selected, options trades may require a lower capital outlay and can also benefit from the concept of leverage (some options can theoretically yield a potentially higher percentage return than the stock outright).

Two hypothetical options trades (both debit spreads – one bullish, one bearish) are described below. Remember, these are just examples, not recommendations, and be cognizant of your personal risk/reward parameters before executing any new trades. (more…)

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Option Plays in Nike (NKE): A Long Call and a Bear Call Spread

Tuesday, April 13th, 2010

Runners wearing Nike shoes at the starting line of a raceAre you a Cramer fan or do you just like Nike’s products? Jim Cramer offered a “screaming buy” on Nike (NYSE: NKE) shares on a recent edition of Mad Money on CNBC, saying the athletic apparel and footwear giant should benefit from the resurgence of the global consumer (particularly in China). Cramer added that he sees the stock potentially going to $90. As of last Friday, NKE was trading around $74.70, gaining 22% since its February low.

In line with Cramer’s advice, you could buy 100 shares for nearly $7,500, or explore a bullish options strategy using less capital. On the flip side, if you take a contrarian view of all things Cramer (or you think Nike is nearing the end of its uptrend), a bearish options strategy might be preferable to selling the shares short. Options strategies can be useful whether a trader is bullish, bearish, or even neutral on the underlying stock.

Below are just two potential options strategies for NKE shares – these are not buy-sell-hold recommendations, just hypothetical examples of two trades – one bullish and one bearish, depending on whether you think Nike is still poised to shoot higher or if you see a slowdown ahead. (more…)

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Two Options Strategies in American International Group (AIG): One for Bulls and One For Bears

Wednesday, March 31st, 2010

Jim Cramer took a bearish stance in American International Group (NYSE: AIG), last Thursday on CNBC’s Mad Money, calling the stock a “sell – sell –sell!” Cramer said he thinks the company owes too much money to the government and should have never enacted a reverse split. Over the weekend, however, Barron’s spoke with fund manager Bruce Berkowitz, who said he likes AIG and other big financials, as they are potentially undervalued. AIG closed at $34.21 on Friday and rose modestly in Monday’s trading.

AIG is certainly a controversial play, and now we’ve recently heard vocal pundits in both the bullish and bearish camp. As I’ve mentioned before, AIG, with all of its very public challenges, is extremely hard to borrow. Because so many investors are trying to short AIG these days, the cost of borrowing the shares is more than 20% per year. For this reason, bears might consider options as one alternative to taking a short position in the stock. Options can also be a reasonable choice for bullish investors, as they can put less capital at risk (among other potential advantages).

Below are just two examples of ways stock traders might consider using options to trade AIG in lieu of buying (or attempting to sell) the stock outright. These are not buy-sell-hold recommendations, just a look at two potential bullish and bearish strategies.

*Option prices given as of Monday afternoon (more…)

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Trading Ideas in JPMorgan Chase (JPM), Cramer’s Big Bank Pick

Wednesday, March 3rd, 2010

Jim Cramer praised JPMorgan Chase (JPM) Chief Executive Jamie Dimon, calling him “The best banker in America,” during the February 24th edition of CNBC’s “Mad Money.” Cramer was also positive on the bank’s balance sheet as well as its overall growth and dividend potential. In short, Cramer is bullish on JPM shares and thinks the stock could rally as high as $50 if the federal government eases up on proposed banking regulations.

Thinking Beyond Buy or Sell

JPM shares were trading at $40.85 at the time of Cramer’s broadcast. When Cramer and other well-known market pundits broadcast their opinions on stocks, investors who prefer to trade options have many different strategies at their disposal, as opposed to just buying or selling the shares outright. Here’s a look at two of the ways options investors might follow Cramer’s opinion (or trade against it!). These are not buy-sell-hold recommendations – just potential strategies that fall into the bullish or bearish camps.

Traders who agree with Cramer and expect upside (or at least limited downside) in JPM shares could consider buying an intermediate-term call butterfly. The investor could buy the June 30/45 call spreads and sell the June 45/49 call spreads, paying an overall net debit of $9.80 per butterfly. Maximum risk for this strategy is 100% of the premium paid (plus commissions). Maximum potential profit is $5.20 per butterfly, minus commissions. This June call butterfly spread will be profitable if JPM is trading higher than $39.80 when the June options expire.

Investors who disagree with Cramer and expect downside in JPM could consider buying bear put spreads. For example, the April 50/40 put spread could be purchased for a net cost of $8.00, which is also the maximum potential risk (plus commissions). The maximum potential profit is $2.00 minus commissions (the difference in strike prices minus the premium paid). This bear put spread will be profitable If JPM shares are trading lower than $42 at April expiration.

Options provide traders with a variety of options, and this call butterfly spread and bear put spread idea are just two of the many strategies you might use to reflect your investment opinion, whether you agree or disagree with Cramer or any other market pundit.

Your Take

Cramer is bullish on JPM. Do you agree with his assertion that Dimon is the “best banker in America” and investors are smart to expect upside in JPM? Or, do you think your money is better spent hedging against expected downside? The comments are yours to add your voice to the conversation.

Image of Jamie Dimon from the cover of the April 3, 2006 issue of Fortune.

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Options Trades in Devon Energy (DVN), Cramer’s Pick in Natural Gas

Wednesday, March 3rd, 2010

Jim Cramer said in a February 19 edition of CNBC’s Mad Money he thinks Devon Energy (DVN) has become the best way to play natural gas. The company’s shares were trading at $71 at the time of Cramer’s insight.

When Cramer sends out comments like this, investors who use options can try many different strategies, as opposed to just buying or selling the shares outright. Here’s an example of some ways that options investors might follow or rebel against Cramer’s opinion. These are not buy-sell-hold recommendations – just some potential strategies that fall into the bullish or bearish camps.

Those who agree with Cramer and expect upside (or at least limited downside) in DVN might be trying to buy call spreads by buying the April 60/70 call spread. This spread is currently trading near $7.60, and that debit plus commissions is the maximum risk to this strategy, while the maximum reward is $2.40 minus commissions. This spread will be profitable if DVN shares are trading above $67.60 at April expiration.

On the flip side, investors who don’t agree with Cramer’s bullishness could be buying put butterflies. Investors could do this if, for example, they buy July 80/65 put spreads for $9 each, and simultaneously sell the July 65/60 put spread for $1.50. The net debit, or maximum they could lose, would be $7.50 plus any applicable broker commissions. In the unlikely event the stock is trading right at 65 at July expiration, the maximum profit would be $7.50 per spread. The put butterfly will be profitable if DVN shares are trading lower than $72.50 at July expiration.

Options give investors options, and these are just two of the many strategies you could potentially employ to reflect your particular investment opinion.

Cramer boldly proclaimed his opinion on DVN, so what’s your take; bullish or bearish?

Photo Credit: Dobrych

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