12/06/2013 FRI

Kellogg Company         NYSE: K

Kellogg’s has been in a down trend since it topped at 67.98 on 7/22/2013. The stock rallied back off the lo of 58.01 on 10/2/2013 hitting the 61.8% retracement, after which it has continued to show weakness. It looks like could be a nice play with trend support from the monthly chart coming in around 52 level with a couple Fibonacci retracements around 55.7 and 57 right where the stock broke out from at the beginning of the year. Watch for the stock to trade below 60.50 after which it could regain downside momentum again.

Avg. Volume    1,865,215

52 Wk High   67.98               52 Wk Low  54.53 

Resist   61.85*   62.88/63.05**    65.82***

Support   60.3/ 60.4*    60.05*   57/55.7**

PE Ratio Current Year Est. 3.76

IV    Jan 15.75%    Mar 16.61%

Look at buying the Jan 60 puts simply due to the lo implied volatility of 15.75% they offer inexpensive entry on a stock that is in a down trend coupled with a 42 day time frame. The Jan 60 puts closed at .925, though .85 or better is a good price based on risk v. time scenario.

The other play simply due to the upcoming holiday as well as the ever popular window dressing would be a Diagonal Calendar spread buying the Mar 62.5 put and selling the Dec 60 puts and then rolling the short Dec out to Jan depending where the stock is at that point in time.

Open Int. (est.)   strike   Dec Monthly (14)   Jan Monthly (42)   Mar 14 Monthly (105)

52.5                                      12                        242                          19

55                                       147                        549                        324

57.5                                    584                      2006                        304

60                                      1160                     5078                       1853

62.5                                   2883                     2684                       1753

*To view the full articles on trading please go to https://tradersexclusive.com

*Also for trading ideas and commentaries and responses from industry professional go to https://mtmtradercommunity.com

*Disclaimer: This is not a recommendation. All trading entails risk. Anyone employing any strategies and having limited knowledge of options trading should consult with a FNRA licensed professional.

12/06/2013 FRI

Kellogg Company         NYSE: K

Kellogg’s has been in a down trend since it topped at 67.98 on 7/22/2013. The stock rallied back off the lo of 58.01 on 10/2/2013hitting the 61.8% retracement, after which it has continued to show weakness. It looks like could be a nice play with trend support from the monthly chart coming in around 52 level with a couple Fibonacci retracements around 55.7 and 57 right where the stock broke out from at the beginning of the year. Watch for the stock to trade below 60.50 after which it could regain downside momentum again.

Avg. Volume    1,865,215

52 Wk High   67.98               52 Wk Low  54.53 

Resist   61.85*   62.88/63.05**    65.82***

Support   60.3/ 60.4*    60.05*   57/55.7**

PE Ratio Current Year Est. 3.76

IV    Jan 15.75%    Mar 16.61%

Look at buying the Jan 60 puts simply due to the lo implied volatility of 15.75% they offer inexpensive entry on a stock that is in a down trend coupled with a 42 day time frame. The Jan 60 puts closed at .925, though .85 or better is a good price based on risk v. time scenario.

The other play simply due to the upcoming holiday as well as the ever popular window dressing would be a Diagonal Calendar spread buying the Mar 62.5 put and selling the Dec 60 puts and then rolling the short Dec out to Jan depending where the stock is at that point in time.

Open Int. (est.)   strike   Dec Monthly (14)   Jan Monthly (42)   Mar 14 Monthly (105)

52.5                                      12                        242                          19

55                                       147                        549                        324

57.5                                    584                      2006                        304

60                                      1160                     5078                       1853

62.5                                   2883                     2684                       1753

*To view the full articles on trading please go to https://tradersexclusive.com

*Also for trading ideas and commentaries and responses from industry professional go to https://mtmtradercommunity.com

*Disclaimer: This is not a recommendation. All trading entails risk. Anyone employing any strategies and having limited knowledge of options trading should consult with a FNRA licensed professional.

12/05/2013 THURS

Earnings Volatility: Friend or Foe?

      When a company has an earning conference scheduled, many times there is speculation not only in regards to the accuracy of the projected Earnings Per Share (EPS), but to several other factors as well. These include, but are not limited to sales and revenue streams, products in the pipe line, cash on hand, management changes, possible future stock or bond offerings, etc. The uncertainty may cause volatility in the shares themselves, but the diamond in the rough is actually the temporary parabolic increase in the exchange listed options on the underlying shares. Traders tend to stay on the side lines going into the days leading up to the earnings conferences. Call buyers swap out shares of stock for call options so they may participate in a rise should the shares move higher and limit the potential should the shares trade lower, forcing the call options to trade, in many cases, a drastically expanded volatility. Additionally, put buyers force the options higher as they try and protect their positions.

      From a traders perspective the opportunity to capitalize on the potential volatility allows them to capitalize with limited risk via Verticals, Butterfly’s, and Diagonal Spreads. A Long Vertical Spread is simply a long call at a lower strike and a short call at a higher strike or a long put at a higher strike and a short put at a lower strike, normally in the front two months where premium is most sensitive and susceptible to Theta (time decay), especially if the earning are in the last week prior to expiration. The Long Butterfly is similar but it is achieved by buying a long vertical and selling a short vertical with a common short strike. The Long Diagonal is achieved by selling a front month option and buying a back month option of the same type, put or call, on different strikes. The trick is to devise a way to use options to benefit from a potentially large swing either up or down to your advantage. 

To view the full article please go to https://tradersexclusive.com

Also for trading ideas and commentaries and responses from industry professional go to https://mtmtradercommunity.com

*Disclaimer: This is not a recommendation. All trading entails risk. Anyone employing any strategies and having limited knowledge of options trading should consult with a FNRA licensed professional.

12/4/2013 WED    

International Business Machines                 NYSE: IBM   Close 176.08

Avg. Volume  4,921,991

52 Wk Lo       172.57

52 Wk Hi        215.90

Support    175.60*   172.60**   167.25/169.70***    159.6/153.85****

Resistance     178.25/178.95*   179.71**   182.30/182.65***

PE Ratio 10.51

IV Dec Monthly 19.03%   Jan 19.02%

IBM has been in a downtrend since late March when it made new his at 215.90

The 170/155/140 put Butterfly in January is trading on the mid for around 1.45 which is an approximately a 9 to 1 risk reward scenario with the risk at $145 and potential reward of $1,355 should the shares drop to the mid to upper150 area.

The Dec 175/165 put vertical is also attractive which is trading around 1.85 on the mid point.

The Jan Butterfly spread offers more time as well as allows you to sell out of the long vertical portion of the fly should the move come earlier than anticipated which would leave you short the 155/140 put vertical which is why I prefer to be positioned in the butterfly though with the Dec put vertical you have a chance to roll into a butterfly or put condor should the opportunity present itself.

Open Int. (est.)   strike   Dec Monthly (16)          JAN 14 Monthly (44)

140              152                                      2,047

145              268                                      1,380

150              294                                      3,161

155            1,572                                     2,193

160            8,219                                     4,000

165            7,498                                     6,787

170            9,716                                     8,169

175            8,835                                     8,633

For a better understanding of Butterfly spreads you can see a full 3 part article published on https://tradersexclusive.com

Also for trading ideas and commentaries and responses from industry professional go to https://mtmtradercommunity.com

*Disclaimer: This is not a recommendation. All trading entails risk. Anyone employing any strategies and having limited knowledge of options trading should consult with a FNRA licensed professional.

12/3/2013 VIX

VIX CBOE Market Volatility Index                                      CBOE: VIX 

Previous day        13.78 lo     14.32 hi    14.31 close

      “The ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking and is calculated from both calls and puts. The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge."”

     The current level created a low risk scenario with the markets starting to get nervous as they move into the newly untested heights they are presently at the mid-range over the past year is in the 17.05 range with the spikes reaching into the 18.50 – 19.00 levels and going all the way to 2.45 and 21.91 only twice this year. With 5 peaks already this year, all coming about 2 months a part except for these past two which were about a month apart.

      “VIX values greater than 30 are generally associated with a large amount of volatility as a result of investor fear or uncertainty, while values below 20 generally correspond to less stressful, even complacent, times in the markets.”

VIX - CBOE Volatility Index. Retrieved from http://www.investopedia.com

Long the 13/18/23 Call Butterfly for .65 which was purchased back on 11/25/2013. It closed yesterday at 1.00. Even with a .35 profit which represents roughly a 53% profit on capital risked I believe the market is poised for a much needed pull back I will consider exiting the trade if the VIX get up to the 17 level.

Open Int. (est.)   strike             DEC 13 Monthly (14)

12                                       142,600

13                                       420,490

14                                       523,265

15                                       450,614

16                                       243,390

17                                       224,797

18                                       165,282

19                                         88,525

20                                       124,248

21                                         70,114

22                                       124,442

23                                         71,351

*Disclaimer: This is not a recommendation. All trading entails risk. Anyone employing any strategies and having limited knowledge of options trading should consult with a FNRA licensed professional.

12/2/2013

Soybean Futures

ZSF4 Soybean futures looking good trading just above trend resistance after rallying back from the 1318 level. Looking for the 1357- 1360 area as the next target after that it looks like they could make a run at the 1400 level staying long the Jan 1350 call …fingers crossed and eyes closed

*Disclaimer: This is not a recommendation. All trading entails risk. Anyone employing any strategies and having limited knowledge of options trading should consult with a FNRA licensed professional.

11/29/2013

Put Friendly Trading

      Ever since the stock market crash in 1987 investors have viewed put options as a short hedge against overpriced and turbulent markets. The reality is there are better ways to utilize put options rather than outright costly hedging. Two of the most proficient ways to look at puts are collars in an up market or when a stock that you own makes a parabolic up move and in a down market via the outright sale or via creating a synthetic long call.

      In the first example using puts as part of a collar the owner of the shares can approach the trade as almost a free protection against a sudden reversal and simultaneously capping the stock to the upside via the sale of an OTM call.

XYZ stock trades at $85.80

Earnings are due in the next week and analysts are divided on the forward outlook of the company’s guidance.

The June 90 calls are trading for .30 and the June 80 puts are trading for .23

Selling the call and buying the put can be done for a .07 credit. The credit pays for the commissions and creates a free collar on the stock which is now capped out at 90.07 and creates a downside floor at 80.07 before commissions are taken into consideration.

The July 90 calls are trading for .92 and the July 80 puts are trading for .82

Selling the call and buying the put can be done for a .10 credit. The credit pays for the commissions and creates a free collar on the stock which is now capped out at 90.10 and creates a downside floor at 80.10 before commissions are taken into consideration.

The Aug 90 calls are trading for 1.60 and the Aug 80 puts are trading for .1.55

Selling the call and buying the put can be done for a .07 credit. The credit pays for the commissions and creates a free collar on the stock which is now capped out at 90.05 and creates a downside floor at 80.05 before commissions are taken into consideration.

In each of the above scenarios the trader has protected his downside via the purchase of the put for approximately 6.6% drop in the shares and has capped the stock via the simultaneous sale of the call for an upside move of approximately 5% 

You can view the entire article published on tradersexclusive.com

Also for trading ideas and commentaries and responses from industry professional go to https://mtmtradercommunity.com

*Disclaimer: This is not a recommendation. All trading entails risk. Anyone employing any strategies and having limited knowledge of options trading should consult with a FNRA licensed professional.

11/26/13 TUES

                                 

Best Buy Co Inc.           NYSE: BBY

IV Jan Monthly 42.60%

BBY holding up along a long term trend line starting from a low set on around Jan 9^th, 2012 at 11.40 levels.  The trend is coming in around 39.30 areas. Broke through and rallied back above the trend line after breaking down about 15% from the recent highs. Looking at selling the Jan Iron Condor 44/43 call vs the 40/39 put for .75 or better. Stock gapped lower from 43.14 not a bad risk reward with earnings behind going into the holiday season with IV in Jan sitting around 42.40%

Technical Support        39.35*    37.4/36.8**   32.90/31.85***

Technical Resistance   40.80/41.12*    42.25*     42.90/43.40**

Open Int. (est.)   Strike Jan Monthly (52)

37               4,670

38               2,300

39               2,120

40               7,230

41               1,645

42             15,880

43               4,665

44               1,995

45               3,315

*Disclaimer: This is not a recommendation. All trading entails risk. Anyone employing any strategies and having limited knowledge of options trading should consult with a FNRA licensed professional.

The “Greeks”

      Options are dynamic animals governed by a set of theoretical variables known as “Greeks.” Together they assume the dynamics of the sensitivity of the option with regards to a one point move in the underlying.

The most important of the “Greeks” are:

Delta represents the rate of change in the price of an option in relation to a one point move up or down in the underlying.

Gamma represents the rate of change in the delta of the option itself. In essence the rate of change in relation to the rate of change in relation to a one point move up or down on the underlying. 

Rho represents the sensitivity of an options price with regards to a change in interest rates.

Theta represents the option prices rate of decay price in relation to time until expiration.

Vega represents sensitivity of an options pricing to a change in implied volatility with regards to the underlying.

Additional terms of note:

ITM      in-the-money

ATM     at-the-money

OTM    out-of-the-money

Intrinsic Value

Extrinsic Value

      The above 5 “Greeks” are the most significant variables that go into the pricing of an option when trying to determine what a positions inherent risk is with regards to movement of the underlying and time left in an options life.

Delta

      The Delta of an option is used to identify the equivalency of the number of options to the actual underlying shares. As time passes, the deltas rise or fall the option in relation to the underlying, depending on the option in question, as expiration nears.

Look at the following examples:

Delta Table

BRUN @ 75.00  

Strike    August (16)   September (51)   December (142)

65           .91                       .88                      .80

70           .81                       .72                      .65

75           .42                       .44                      .47

80           .11                       .19                      .29

85           .02                       .07                      .17

In the above Table A notice that deltas increase on the 65 and 70 strikes (ITM) where as they decrease on the 80 and 85(OTM) strikes as expiration nears and stay relatively stable on the 75 strike (ATM). 

In-the-money options have little extrinsic values therefore their Theta is low, but they have the risk of loss in value should the option start to move to at-the-money or even out-of-the-money.

At-the-money options have the most Theta due to the fact that they offer the closest relation to the underlying price they typically have low to no intrinsic value associated with them.

Out-of-the-money options are comprised of only extrinsic value.

Gamma

       As the price of the underlying moves up or down so does the delta in relation to pricing of the option. A one point gain or loss means the underlying is either closer or further from the strike, so the relation of the price of that option changes accordingly as well. This is known as the gamma. As an option nears expiration the gamma tends to increase as it becomes more sensitive to movement in the underlying.

Gamma Table

BRUN @ 75.00  

Strike    August (16)   September (51)   December (142)

65           .02                        .03                      .03

70           .06                        .05                      .03

75           .09                        .06                      .04

80           .04                        .04                      .03

85           .01                       .02                       .02

Notice in the above table that the most sensitive options are again the august 75 strike, which again are the most sensitive to a price change in the underlying.

Theta

      Since options have a defined life or set expiration date, Theta is one of the most important of the variables. At expiration they will either expire worthless or be converted to shares of stock. That is a given. Knowing how much time decay an option will incur allows a trader to calculate his risk of owning or premium capture if they were a seller of the option. The rate of decay increases exponentially as the option gets closer to expiration. In the money options have what is known as both intrinsic value which represents the amount of premium in relation to the strike with regards to parity to the underlying. Extrinsic is the amount of excess premium in relation to parity with regards to the underlying.   

Theta Table

BRUN @ 75.00  

Strike    August (16)   September (51)   December (142)

65           -.03                       -.01                      -.01

70          - .04                      - .02                      -.01

75          - .05                       -.02                      -.01

80           -.03                       -.02                      -.01

85           -.01                       -.01                      -.01

      In the above table notice that the decay is greatest in the front month and on the 75 strike which represents the ATM options. This is due to the relation of premium left in the option in relation to the amount of time left in the life of that option. It is also worth noting that Theta is expressed as a negative value due to the fact it represents decay. If Vega were to increase the value of the options would also increase, but the decay would simply be greater.

Vega

      Vega is actually representing the value in relation to the underlying as volatility increases so does the value of options. This occurs for a number of reasons. Traders back off as sellers due to increased risk. They want to be paid for the increased risk of selling that premium if you will. Buyers are also willing to pay a higher premium as the chances of the option ending up ITM increase. It is a constant ebb and flow and sets the pace for the rest of the “Greeks” to follow suit.

Vega Table

BRUN @ 75.00  

Strike    August (16)   September (51)   December (142)

65           .03                       .05                      .12

70           .06                       .09                      .17

75           .06                       .11                      .18

80           .03                       .08                      .16

85           .01                       .04                      .12

Rho

      Though at this point in time Rho has been rendered somewhat moot, it is important to understand a couple of things with regards to options pricing. A rise in interest rates causes puts to become cheaper due to the increased cost of carry on stocks. Speculators would rather face premium decay as opposed to paying the cost of carry. The at-the-money options in the furthest out months are the most effected by the changes in interest rates.

*Disclaimer: This is not a recommendation. All trading entails risk. Anyone employing any strategies and having limited knowledge of options trading should consult with a FNRA licensed professional.

 Soybean Futures             ZS

After last week’s crop report the futures were unable to sustain the rally from the 1246area up to the 1321 level backing down to 1270 level and consolidating. It looks like they are poised to make another run at the 1320 area with trend resistance dictating the next target area at 1340 and 1355 respectively. After the 1355 area it looks like there is little technical resistance up to the 14oo area which is where the previous rally failed which began from the 1160 area.

ZSF IV 16.30%

Look at buying the Jan 1350 call and selling the Jan 1400 call for 6.00 or better

The risk is $300 with a potential reward of $2,200 over the next 38 days.

*Disclaimer: This is not a recommendation. All trading entails risk. Anyone employing any strategies and having limited knowledge of options trading should consult with a FINRA licensed professional.

11/19/2013 TUES

VIX   CBOE Volatility Index

    “The ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking and is calculated from both calls and puts. The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge."”

      “VIX values greater than 30 are generally associated with a large amount of volatility as a result of investor fear or uncertainty, while values below 20 generally correspond to less stressful, even complacent, times in the markets.”

VIX - CBOE Volatility Index. Retrieved from http://www.investopedia.com

Looking very tempting down here around the 12% level, looks like it spikes every couple months over this past year, and from this area, last spike was on 10/9/2013, with all the spikes this year getting up at the very least to the 17% level and above. Looking at the Dec 13/18 call vertical for 1.15 or better looks like it closed on the mid-point of 1.25, also looking at the Dec 13/18/23 call Butterfly for .75 or better,  but more inclined to work the call vertical.

*Also for trading ideas and commentaries and responses from industry professional go to https://mtmtradercommunity.com

*Disclaimer: This is not a recommendation. All trading entails risk. Anyone employing any strategies and having limited knowledge of options trading should consult with a FINRA licensed professional.