Outlook

Jobs, Bernanke, and Buffett’s move: more volatility as summer ends? It’s still an options trading territory!

This week offered a several day long recovery of the $DJIA, $SPY and other major averages, as investors awaited Bernanke’s speech. Hopeful of some words of hope from the Fed chairman, investors recovered slightly from earlier weeks’ dip, some were expecting quantitative easing, others more skeptical. In the end, Bernanke did not offer much of a solution for immediate recovery, but did leave the door open for further examining of the US economy next month.

Giving investors hope for some sort of action in the mid-long term; allows for rumors of potential aid from the Fed next time, food for the bulls. This is essentially the opposite of any subpar news, similar to what we’ve had in early august. This in fact did lead to a short rally after Bernanke’s speech, with the S&P 500 up 17.53 points and DJIA up 134.72 points. I have no doubt this will be re-digested by media to push for more bullish moves in the coming weeks. However, given the global economic situation, including European bank debt problems, and with an exceptionally high VIX, above 30% since the first week of August, reaching 40% at least three times, we can’t say we’re out of a bear market.

The financial sectors partial recovery was also assisted by Buffett’s decision to invest $5 billion in $BAC preferred stock, a move in the style of most of Buffett’s investment decisions, that promises slow growth in his profits. This Buffett style investment is reminiscent of his $GS investments in 2008, which paid off over 128%. His new position entitles him to a juicy 6% dividend, as well as 700,000 $7.14 warrant options. This insurance of long term dividend driven profit, for a cheaply priced stock that will probably not be left to crash by the American government. Could this be Buffett’s tell that BAC bottomed? or is it a precautionary move to weather down the recession ahead.

From an option trader’s point of view this offers greater volatility to juice long strategies, long straddles will likely payoff greatly on $BAC and other financials as this summer approaches its end and investors get back from vacation. There is also the weekend news about RBC missing estimates by 4 cents, at $1.04 versus the concensus of $1.08. Buying 3 to 4 months calls on the dips, and puts on the dips in BAC is likely to pay off well, given all that is stated above.

Hidden by all this turmoil, Steve Jobs, took the classiest way out, resigning at the top. Jobs resignation was  a question of when, for a while now, and the timing was wisely chosen. After $AAPL became the most valuable company. So valuable it was able to withstand an apocalyptic crash following his decision.  With September traditionally promising to be a major month for sales (and the iPhone 5 coming out in october), $AAPL will be strong against any market downtrend. As well the philosophy of the company has finally been able to go beyond his youthful image, cool techy image.

These news together in the last couple of days warranted a market uprising. It cannot be neglected that the European situation is still grim. Any negative news, or hint of fear over the week to come could have devastating effects, such as another dip, and a plunge is not out of the picture.

I will be buying protective puts on most of my positions, including techs and financials in the next weeks on the high days, and calls on the low days.

 

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One more chance to pack up on options $SPY $GLD $DJIA

Following yesterday’s plunge of stock markets world wide, the $DJIA, and $SPY are rallying today, as investors await the Fed. Monday morning I hedged my long assets to avoid being affected by the downgrade, I did this by buying puts. The volatility was out of this world and those longing options, such as myself, made significant gains. My hedging paid off 200%, since the fear and doubt aura began in this market, and especially yesterday. I cautiously sold my puts by days end yesterday, and bought much longer expiring puts on the $SPY. We’re not out of this mad market, but I prefer to take less risk.

The $VIX was down a bit today, and this is giving us another opportunity to pack up on puts, and maybe get out of the long assets that may be more vulnerable of the crisis to come. If not, it’s always safer to go through the tough times ahead by hedging these positions.

$GLD maybe a good indicator of a crisis, if we look at 2008, following rising prices for gold for the past years, there was a sell off around October, as the recession began. Right now, gold is still strong but oil is letting go of its grip on high prices, I believe that when gold starts dropping too, this will be one sign of a big dip to come.

Once again I will hedge my investments for the days to come, at least until the end of August.

My opinion is that the day to day trading will be affected greatly by the news, especially by how much it will add to the uncertainty of the market the following session.

Also, I believe that just like European markets will affect markets world wide.

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S&P Downgrade, European debt confusion. How options can help.

The S&P downgrade, the timing of which could not have been better to match the plethora of debt problems in Europe, are going to be a gold rush for options traders.

The VIX indicates major volatility in the S&P 500 options in the past week, and the news is only going to keep increasing it. Volatility will increase the price of option contracts; with ambiguous news coming from every source and I will buy December or 2012 deep out of the money Puts on SPY, and some US stocks. It’s also a good idea to buy protective puts on long positions you have, at least for the short term. As panic ensues in the confusion, I strongly believe these put contracts are the only safe haven.

A recession might be right around the corner, several indicators, including a head and shoulders pattern on the S&P 500 and  DJI  indicate that. However promises are being made by the Feds, or Banks in Europe that all hell will not break loose.

As of this time open markets in Asia and Europe are plunging, US markets will no doubt follow this same faith.

I will hold long, deep out of the money puts on spyder, for december as well as buying several protective puts on my investment tomorrow.

 

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$SBUX – what will happen

There’s been a lot of good news from $SBUX, including about it’s presence world wide, china, making for a larger demand, and with cheaper coffee prices, stock growth in June as well.

But amidst debt concerns, and no clear idea of what is going to happen next week, I’m still hesitant to position myself in this stock before earnings.

There will clearly be movement in this stock, and I am betting it will be positive. We can take a look at $GMCR’s movement today following it’s report.

So I will probably buy some calls for the short term, and sell them off before any bad news comes from Congress.

Then probably jump back in the train when it’s in the trough

For those willing to juice the volatility, look in the strategy section to see what options trading secrets could help you maximize your gains in the following week!

 

 

 

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Who to watch on earnings in the coming weeks

Today I made a last minute bet on $AMZN today, bought some calls at a very cheap end of day price right before closing, and had a nice rally  post closing, following a satisfying earnings report.

AMZN’s rally follows $BIDU’s earlier this week, and $GOOG earlier this month. It’s why i’m willing to bet $SINA’s and MOBI’s in the coming days and week will be no different.

Option’s is a great way to make bets before big announcements like this, where there will obviously be a much greater volatility, it’s much cheaper than buying the underlying asset. You can hedge your losses and still make a lot of money on the difference in premiums you’ve paid. You can try simple long straddle strategies if you have no idea what will be the outcome of the earnings report.

But personally, i have a positive outlook for both $MOBI and $SINA, my targets being 11$ and 130$ for the end of August. $YOKU is another chinese tech making some noise, but i have not looked into it enough to give my outlook. Face-value for a Chinese tech like that would make me bet it’s going up at earnings (August 8), but it’s barely a guess.

 

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My picks for this week

I’ve been holding MOBI for a while now, waiting for it to recover and it’s almost there.

This rally is going to break several resistance levels i think, it’s around 11.10 right now, with extremely high volume, so something is probably  cooking in the kitchen. When news gets out i expect the volatility to raise even higher.

It’s a prime time to negotiate options with MOBI, two days in a row i saw 10$ and 12.50 calls each rise over 500-1000%, with minimal losses on the puts, so good time for hedging these stocks.

Definitely keep an eye on MOBI and one hand in your pocket.

 

Another one i’ve been watching recently is V, VISA, with a huge rally last week. It looks to be profiting from confusion in world wide economy. I’m not sure what to do with it yet. But definitely keep an eye on it, it looks volatile too.

 

SINA is settling at a resistance level around 114. My target for this stock is 140 by the end of summer, it will probably fluctuate before then, we’ll see what it gives.

 

RIMM, is probably a volatile one too, especially in the next week.

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