|
|
us stock market, understanding the stock market
Begin Part 2 of 2
SUBSCRIBER QUESTIONS
Q: I have been so tempted to play puts in this wonderful downtrend. However, I am afraid to get a stock "put" to me. My question is, if a stock is trading at $55/share, would a stock get put to me if I buy a Aug-50 put or a Aug-60 put. Can you give a brief description on how that works? Why are put contracts so damn expensive compared to call options? Thank you, your faithful subscriber JD.
A: Your question brings out some of the common misperceptions of option trading/investing. The biggest: you have unlimited risk in options. The answer is 'yes' only in really one type of option transacction. On all the others the anwer is a big 'NO' in that your risk is 100% defined BEFORE you enter the play. That is just one of the reasons we really like options: our risk is limited to what we put into a play. And because options allow us to use smaller sums of money to leverage into a position, the risk is technically less than owning a stock (e.g., a $10 stocks goes to $0, you lose $10 per share. A $1.50 option on that same stock goes to $0, you lose $1.50 per share.).
You only would get a stock put to you if you sold the put without owning it (i.e., buying it) first. If the stock falls, the value of the put goes up, and someone can put the stock to you, that is make you buy it, at a price higher than market price. For instance, you sell a $15 put and the stock falls from $16 to $10. Someone owning that put can go buy the stock at $10 and force you to buy it for $15. That only happens if you sell the put naked.
In this market we do not sell many naked puts. We are buying puts to take advantage of of the downside action (we also sell some calls naked from time to time, but that does involve theoretically limitless risk). As we are buying, that means we are coming out of pocket to buy the options. We can choose to exercise them or not or sell them or not. Our risk is defined at the maximum to the cost of our purchase. In that sense they are just like buying calls on stocks anticipated to move to the upside. There is no difference other than you are taking opposite positions.
As we have noted before, the downside of late has been as easy and as fast as the upside in the last of the big bull market. We receive emails from subscribers somewhat shocked at how easy and how fast the gains are coming to the downside as they play the same pattern and even same stock again and again. We cover these topics in detail in our seminars which are also AVAILABLE ON CD's RIGHT NOW. You get reference quality materials as well. The 'Options You Can Use' seminar discusses understanding options and very straight forward, simple ways to use them to take advantage of the market ups and downs. Technical Analysis III discusses how to play a down market. We recommend the entire Technical Analysis series (I, II, AND III) to fully understand market movements. Package prices are available. We don't want to sound like a commercial, but the information is detailed and is just beyond the scope of this forum.
To sign up, go to the following link and click on the CD sales link:
http://www.stockseminarsonline.com
This is Jon Johnson's internet site for online seminars and the theories taught are the same that have delivered dozens and dozens of fantastic downside put plays during this downtrend. Hope you check it out.
THE PLAYS:
Good movers: Again the downside was strong: FRX; BWA; HLT
Thursday plays:
SSRI: Modest pullback on very light volume.
CCRN: Fell but started to rally back. May test 33 to 34 and that is where we will enter.
HTLD: All of the buildup just to fall to the 50 day MVA out of the pattern.
Best Plays:
1) ORCL: Looking to catch some upside momentum.
2) JDSU: Making a solid move already.
New Plays: We are looking at what could be a stronger upside move here with Dell reporting it will beat the street, JNPR beating the street, and the start of the reversal Thursday. We are looking at capturing this upside, one reason because there have been several bounces down this trend and it is primed to rise higher. These are not long term investments, but they hold potential for very nice returns.
ORCL (Oracle--$9.42; +0.44; optionable): Software
http://biz.yahoo.com/p/o/orcl.html
STATUS: Making higher lows itself and showing 2 weeks of accumulation to no distribution weeks since mid-May. It cracked over its exponential 50 day MVA Thursday on strong, above average volume. Looks ready to make some money for us here.
Volume: 73.131M Avg Volume: 49.508M
BUY POINT: $9.55 Volume=70M Target=$12 Stop=$8.88
POSITION: ORQ IU - Sept. $7.50 call (79 delta) and/or stock
http://www.investmenthouse.com/cd/orcl.html
JDSU (JDS Uniphase--$3.84; +0.61; optionable): Diversified electronics
http://biz.yahoo.com/p/j/jdsu.html
STATUS: Yes we said we would be colonizing Mars before JDSU made it to 50. But, we are not looking for it to go to 50. It blasted over the 50 day MVA today on huge volume. Some resistance at 4, but the momentum is strong and we want to let the momentum work for us and then take the gain.
Volume: 40.351M Avg Volume: 19.671M
BUY POINT: $3.97 Volume=22M Target=$5.15 Stop=$3.69
POSITION: Stock
http://www.investmenthouse.com/cd/jdsu.html
CPKI (California Pizza Kitchen--$24.78; +0.28; optionable): Fancy pizza
http://biz.yahoo.com/p/c/cpki.html
STATUS: Ascending wedge. You could also call it somewhat of a cup with handle, forming the handle the past 4 weeks. We have been watching CPKI for a few weeks, and it has tightened up the pattern, holding above the 50 day MVA (24.15). Accumulation has improved to 8 up weeks to just 4 distribution weeks. We will look for a breakout on strong volume.
Volume: 149.4K Avg Volume: 111.227K
BUY POINT: $26.25 Volume=180K Target=$31.5 Stop=$24.41
POSITION: CUH JD - Oct. $20 call (78 delta, low OI) and/or stock
http://www.investmenthouse.com/cd/cpki.html
MEMBER PORTFOLIO: CUB, EBAY, HOTT; LOW, NOC, PG, QLGC, RCII, SRCL, WM
Stock Date Play Close +/- Pivot Tgt Vol AvgV Stop
CUB 07/06 Cup 19.95 +0.1 0 0 121K 155K 0
Could give a bounce here off of the 200 day MVA.
EBAY 07/02 Test 50 60.38 +1.55 57.95 63 14M 6.2M 57
Tested the 200 day MVA and bounced hard on good volume. Can make that target now, maybe beyond.
HOTT 07/06 Test 50 24.75 -1.47 0 0 1.5M 622K 0
Pounded lower on the apparel sales reports, breaking the 50 day MVA. HOTT has some pretty solid support at 24, and it held that level just a week ago. Indeed, it rebounded when it approached that level today. Still needs to clear the 50 day MVA right away.
RCII 07/06 Cup 49.49 -3.25 0 0 701K 379K 0
Did break down on rising, above average volume. Making that put play without a test.
CONTINUING/WATCHLIST:
Stock Date Play Close +/- Pivot Tgt Vol AvgV Stop
ABCW 07/09 Test BO 22.71 -0.23 24.12 29 51K 52K 22.35
Nice recovery off a the 50 day MVA.
ABCW 06/20 A Wedge 22.71 -0.23 23.35 27.55 51K 52K 21.65
ACN 05/11 Put 15.55 +0.3 19.7 15.65 6.1M 3.6M 21.30
Hit the put target.
AXP 05/08 cup hdl 35.03 +0.2 43.53 52 6.1M 4.9M 40.48
AYI 07/05 cup hdl 15.12 -1.33 18.7 22.44 44K 95K 16.95
So much for that play. Never hit the buy.
BLI 06/11 Test BO 18.14 +0.04 18.5 22 945K 726K 17.30
Tested the 50 day MVA on the low and rebounded on solid volume. Not great, not bad.
BWA 06/08 Put 53.89 -1.3 59.99 55 291K 353K 63
Hit target.
BZH 06/18 Put 72.64 -1.71 75.95 73.35 840K 518K 81
Tanked below the 200 day MVA but rallied to recover. At target.
BZH 06/03 Put 72.64 -1.71 74.45 70.45 840K 518K 77
CCRN 07/10 Put 31.4 -0.62 32.95 28.55 448K 386K 35
Started to fall, but recovered. Expecting a move higher toward 24 then a fall.
CHGO 05/28 Test 18 8.52 -0.52 7.75 10 393K 255K 7.21
Plunged to the 50 day MVA on rising, above average volume. Eateries had a rough session. Needs to bounce; on a bounce that cannot clear the 18 day MVA (9.15) we exit.
CHGO 05/09 Test 50 8.52 -0.52 7.3 10 393K 255K 7.02
CHUX 07/03 cup hdl 21.74 -1.96 26.1 31.34 253K 161K 23.95
At least it did not hit the buy first.
CLF 05/15 Test BO 25.77 -1.15 28.2 34 48K 81K 26.90
Starting to break up again, falling below the 50 day on rising volume.
CNI 06/26 cup hdl 49.51 -0.91 52.9 63.25 557K 435K 49.55
Cracked up as well.
COH 06/03 Put 23.21 +0.01 24.82 22.51 1.8M 570K 25.55
Hit target.
CPKI 07/11 cup hdl 24.78 +0.28 26.25 31.5 149K 111K 24.41
CUB 07/06 Cup 19.95 +0.1 0 0 121K 155K 0
Could give a bounce here off of the 200 day MVA.
DESI 05/29 Test 18 5.16 +0.25 7.25 11 42K 142K 6.74
Going to try and bounce.
DLTR 05/09 Flat 33.58 +0.66 38.95 33 1M 1.3M 36.22
DNA 07/09 Put 28.14 +2.64 26.95 21.95 6.3M 3.3M 30.50
Better earnings and it rallied, but we don't think it is going over the 10 day MVA at 29.33.
DROOY 05/21 A Wedge 4.31 -0.25 4.85 7 2.5M 4.5M 4.30
EBAY 07/02 Test 50 60.38 +1.55 57.95 63 14M 6.2M 57
ELK 06/01 DB hdl 24.42 -0.33 27.46 34.96 75K 101K 24.95
Hammer doji at the 200 day MVA. May try a modest rally.
ENC 05/06 Rv H&S 8.9 -0.2 7.3 9.5 46K 39K 6.79
Holding well still, riding above the 10 day MVA.
EXAS 06/15 cup hdl 12.85 -0.06 15.3 18.5 191K 134K 12
Hammer doji just below the 50 day MVA on rising volume. May try to make a move higher here but resistance at 14.
FDP 06/26 Test 18 25.95 +0.01 27.1 32.5 221K 267K 25.25
Moving along the 18 day MVA. Not tanking, not rising. We will give it next week to bounce up toward 27 to 28. If it gets there and stalls we will close it out.
FDP 05/21 A Wedge 25.95 +0.01 24.75 29.7 221K 267K 23.02
FORG 06/15 Test BO 3.9 +0.02 5.15 6.85 307K 162K 4.20
Below the 50 day MVA, trying to rally back. Resistance at 4.50 if it does make the move.
FRX 07/05 Put 68.24 +2.24 72.45 68 2.3M 1.4M 75
Hit target.
HARB 06/22 BO 22.51 -1.69 24.11 29 166K 54K 21.75
Massive tank to the 50 day MVA on high volume. Exit on a bounce.
HLT 05/06 Put 12.6 +0.41 14.3 12 2.6M 2M 15.80
Hit target.
HLYW 05/29 Test 18 17.4 -0.76 19.25 27 1.4M 685K 17.9
Tested the 200 day MVA on the low and rebounded on strong volume. May rally back to 18 as first resistance then 19.
HOTT 07/06 Test 50 24.75 -1.47 0 0 1.5M 622K 0
HOTT 06/12 Test BO 24.75 -1.47 27.05 32 1.5M 622K 24.64
HOTT 05/29 Test BO 24.75 -1.47 26.5 32 1.5M 622K 24.64
HTLD 07/02 cup hdl 21.35 -1.06 24.19 29 244K 236K 22
Looked good; looks bad.
INLD 05/18 cup hdl 3.13 -0.07 3.1 4.75 713K 750K 2.50
IRN 07/08 BO 11.5 -0.39 12.05 14.74 30K 68K 10.45
Looks ready to make a move.
IVGN 07/01 Put 29.18 +0.99 28.65 23.55 1M 1.1M 32.55
Bounced up but on continued below average volume. 10 day MVA is at 30.
JDSU 07/11 BO 3.84 +0.61 3.97 5.15 40M 20M 3.69
KKD 07/05 Put 33.38 +0.63 33.75 29.5 578K 566K 34.50
Moved up just below the 18 day MVA on lower volume. Will see if it rolls back down; if not time to exit.
KMI 06/19 Put 38.88 +0.13 40.75 37 629K 709K 43.25
Hammer doji below the 10 day MVA on lower volume. Don't think there is much there.
KMI 05/25 Put 38.88 +0.13 44.75 40.25 629K 709K 41.62
LBIX 05/06 Flat 3.09 -0.06 1.95 3.5 115K 126K 1.58
Slight pullback on below average volume.
LOW 07/06 Test 50 43.2 +0.1 0 0 7.4M 4.1M 0
MANT 07/03 Cup 21.05 -2.04 24.25 29.25 128K 92K 21.92
Died without hitting the buy.
MDC 07/05 cup hdl 47.7 -2.2 53.21 63.85 394K 200K 49.49
Also died, having the good manners to do so before hitting the buy.
NCC 04/30 cup hdl 31.01 -0.23 31.42 37.25 1.9M 1.2M 29.75
Tested lower and recovered on some strong volume. May get a bounce up toward 32.
NCOG 06/22 Put 19.05 -0.03 21.3 18.04 197K 225K 24
Doji at 19. Could bounce.
NOC 07/06 Test 50 113.92 -3.19 0 0 3.8M 1.3M 0
NWRE 06/26 cup hdl 11.92 -0.23 11.2 13.55 315K 167K 10.35
Tested the 10 day MVA on the low and rebounded. Lower volume. Still looks good.
ORCL 07/11 A Wedge 9.42 +0.44 9.55 12 73M 50M 8.88
PG 07/05 Put 85.95 -2 89.48 85.25 6.3M 3.5M 83.22
Hit target.
PHLY 07/01 Test BO 39.69 -0.24 46.25 52.25 70K 82K 42.50
Tested the 200 day MVA and rallied back. Never hit the buy.
PTEK 07/02 Test BO 5.69 -0.01 5.76 7.99 246K 297K 5.24
Nice test of the 18 day MVA on low volume.
PTSI 06/24 Flat 24.5 -0.5 26.65 31.98 44K 59K 24.20
That toying around with the breakout was not good and the stock roll back below the 50 day MVA Thursday.
QLGC 07/06 Test 18 39.06 +2.17 0 0 16M 11M 0
RCII 07/06 Cup 49.49 -3.25 0 0 701K 379K 0
ROOM 07/05 Put 43.89 +1.39 44.35 38.85 721K 923K 46.25
Rallied up to the 18 day MVA on the close on rising volume.
SAM 06/12 cup hdl 15.3 -0.51 16.85 20.5 23K 33K 15.45
Broke down from the consolidation.
SIE 06/11 Test 18 19.52 -0.43 21.1 25.45 313K 257K 19.62
Testing the 50 day MVA and rallying back on strong, above average volume.
SLGN 07/09 A Wedge 36.53 -2.3 43.25 51.95 103K 124K 38.55
SNIC 05/30 A Wedge 8.1 +0.07 8.2 11 198K 325K 6.95
Hammer doji on the 50 day MVA. Good action.
SNS 04/12 Test BO 14.6 0 14.8 18 74K 110K 13.76
Doji on the 50 day MVA on rising volume. Momentum looks to be shifting back to selling.
SNS 04/10 Dbl btm 14.6 0 14.65 18 74K 110K 13.76
SSRI 07/10 Test BO 6.42 -0.5 7.21 9.25 756K 764K 6.35
Pulled back to test the 10 day MVA on low volume. Still in good shape.
TEN 06/29 BO 7.77 -0.13 6.71 9.35 257K 207K 6.24
Doji on higher volume. Lat time it did this it jumped up. Would like to see the same but may test 7.25.
UNP 06/22 Cup 59.55 -1.4 64.9 73 1.6M 1.2M 60.36
Tanked. It too never hit the buy.
UNP 06/12 Cup 59.55 -1.4 64.08 73 1.6M 1.2M 61
WM 07/06 Cup 34.73 +0.1 0 0 5.7M 3.4M 0
WTW 05/23 Test BO 41.28 +0.29 43.7 50 318K 318K 40.64
Hanging on at the 50 day MVA, but lower highs. Needs to bounce over 42 on some strong volume, otherwise it could be in for a further fall.
YCC 06/27 Test BO 25.25 -0.26 27.3 32.75 262K 402K 25
Testing support at 25. It will jump there or tank. Unfortunately, the pattern has really weakened.
Good Investing!
Jon L. Johnson and The Daily Staff
All of the foregoing is commentary for informational purposes only. All statements and expressions are the opinion of Online Investment Services, LP or its paid consultants and are not meant to be a solicitation or recommendation to buy, sell, or hold securities. We are not licensed or registered in the securities industry. The information presented herein and on our related web site has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. The security portfolio of Partners of Online Investment Services, LP or its paid consultants may, in some instances, include securities mentioned herein and on our web site. Estimates, assumptions and other forward-looking information are subject to the limits of forecasting. Actual future developments may differ materially due to many factors.
|
us stock market
understanding the stock market
|
