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us stock market, trading system
Begin part 2 of 2
We figure out what the dollar move the option will make, multiply that by the delta, and add the result to the bid price of the option at the time we bought it. That gives us roughly the bid price of the option (the price we can sell it at) when the stock hits the projected target. We use the following formula to pre-enter sell points for option plays or for buy back points in covered call plays (except we use the option ask price as opposed to the bid).
The formula: (Stock buy price - Stock target price) x option delta + option bid price = option bid price when stock hits target price.
It is also important to determine the percentage gain on an option play to see if it is worth our effort for the return. This is particularly true when playing puts or calls with definite support or resistance levels we anticipate will stall the move. We want to have enough of a return that is not eaten up by the spread and commissions.
The formula: (Stock buy price - Stock target price) x option delta/option ask price
THE PLAYS
Good movers: CREE; APOL; TECH
Best Plays:
1) IWM: Small cap ishare index ready to move.
2) TTWO: Nice pattern.
3) UNTD: Looks ready to move again.
4) CSL: Movign up again.
5) HGSI: Looks as if the test may be over.
6) NBIX: Forming a nice pullback before the next run.
7) USPI: Starting another leg up.
8) BRCM: A big covered call for a low maintenance play.
NEW PLAYS
CELG (Celgene--$19.33; -0.44; optionable): Biotech
http://biz.yahoo.com/p/c/celg.html
STATUS: Testing break over resistance. CELG has rallied well off the July low, making a series of moves and consolidations. CELG just tested the 10 day MVA (18.49) Wednesday and rallied, but had no volume late in the week and stalled at price resistance at 20. What we are looking at is another test back toward the 10 day MVA and then a stronger rally higher to take out that minor resistance. There is good accumulation in the pattern since the last tops at 20 in May (3 up weeks on rising volume to 1 down week on rising volume). The play is up to the 200 day MVA near 24 on a move up that gathers some volume.
Volume: 475.275K Avg Volume: 1.012M
BUY POINT: $19.85 Volume=1M Target=$23.85 Stop=$18.46
POSITION: LQH JC - Oct. $15 c (85 delta) and/or Stock
http://www.investmenthouse.com/ct/celg.html
CYMI (Cymer--$27.75; +2.41; optionable): Chip equipment
http://biz.yahoo.com/p/c/cymi.html
STATUS: Breaking the downtrend. This is a trade. After a nasty downtrend since mid-May, CYMI had moved laterally since early August, and Friday jumped higher on the best volume in 2 weeks, coming in just above average. The move pushed CYMI over its short term moving averages and the downtrend line that put a lid on upward moves. The entire SOX rallied on the Dell news, but CYMI showed a lot of pop. This momentum on the break can carry it up to the 50 day MVA (31.24). Money flow really started rising during the lateral consolidation and looks strong. As this is a shorter term target, we are looking at using the options to leverage us in for a bigger percentage gain.
Volume: 1.916M Avg Volume: 1.754M
BUY POINT: $27.95 Volume=2M Target=$31 Stop=$25.99
POSITION: CQG KE - Nov. $25 c (68 delta) and/or Stock
http://www.investmenthouse.com/ct/cymi.html
IWM (Ishares Russell 2000--$78.95; +1.19; optionable): Russell 2000 (small cap) index shares
http://biz.yahoo.com/p/i/iwm.html
STATUS: Ascending wedge. A common pattern in the indexes, but IWM is showing good accumulation during the short August pattern at 2 accumulation weeks to 0 distribution weeks. It is sitting on top of its 18 day MVA (77.77). We are looking for the index to move up to test its 50 day MVA (82.73) on this breakout.
Volume: 1.236M Avg Volume: 1.528M
BUY POINT: $79.02 Volume=2M Target=$82.65 Stop=$77.25
POSITION: IWM KO - Nov. $75 c (71 delta)
http://www.investmenthouse.com/ct/iwm.html
TTWO (Take-Two Intera--$23.4; +0.15; optionable): System software
http://biz.yahoo.com/p/t/ttwo.html
STATUS: Cup w/handle. A beautiful pattern developing, a 9-week base that has shown just the right attributes so far: aggressive but not too heavy selling on the correction, calm and lower volume trade at the bottom, and some rising volume as the stock moved up the right side of the pattern. It has how spent the last two sessions pulling back to test the move up the right side of the cup. During the base accumulation has been excellent with 4 up weeks on rising volume and 1 down week on lower volume. Looking for the handle to form up over the next 2 to 3 sessions and then give us the strong volume breakout.
Volume: 868.166K Avg Volume: 1.012M
BUY POINT: $24.75 Volume=1.5M Target=$29.85 Stop=$22.95
POSITION: TUO LD - Dec. $20 c (73 delta) and/or Stock
http://www.investmenthouse.com/ct/ttwo.html
UNTD (United Online--$11.45; +0.5; optionable): Internet service and software
http://biz.yahoo.com/p/u/untd.html
STATUS: Trading rang/flat base. UNTD has been trying to make the breakout move over the past 4.5 months, but the market has not been cooperative. It has actually formed a series of three cups during that time that just could not make the breakouts. The relative strength during an overall market selloff and given the stock's sector is impressive. Accumulation shows this strength at 4 accumulation weeks to just 1 distribution week since the base started in April. Instead of falling back to the bottom of the range at 8 this time it has checked up at the 10 day MVA (10.78) moving laterally the last six sessions before showing a solid move up off of that level Friday on an above average volume surge. As with a lot of leading stocks, money flow has surged up ahead of the price as it moves laterally, shaking out the last sellers. When looking at a trading range, when a stock pulls up well short of the low in the range and forms up such as this, it usually means a breakout of the range is ahead.
Volume: 1.099M Avg Volume: 610.988K
BUY POINT: $12.03 Volume=785K Target=$14.65 Stop=$11.19
POSITION: QAB LB - Dec. $10 c (72 delta, low OI) and/or Stock
http://www.investmenthouse.com/ct/untd.html
A BIG COVERED CALL: This is a low maintenance play. What it involves is taking a stock that looks to be steady or has bottomed and has enough premium built into its options so you can buy the stock and write the call against it and earn 4% to 5% a month over the life of the play. The stock may run up and you forgo a bigger gain, but many would like to earn that percentage on their money for less than a half year. Do it twice in a year and you bank 40% to 50% gain on your money. How many mutual funds would like to make that claim? Typically we look 4 to 5 months as the term of the play. That means you earn 20% to 25% on your money during that period without really worrying about the play. Option premiums had been somewhat low until recently, but we see some pickup of late. Now we can start looking at these lower maintenance plays again.
On this play we can do one of two things. We can buy the stock and let it run up to the strike price of the option we want to sell and then sell the option, or we can execute what is called a buy/write. In a buy/write you are buying the stock and selling the call in once transaction. The benefit? You buy the stock at the ask but you sell the call AT THE ASK as well. That has benefits. If the stock is right at the strike you want to sell or close to it, you get a better return because you can sell the call at the ask rather than the bid if you did the transactions separately. That translates into a better return, and the return is the key. Second, it is simple; you do the trade in one step and are done. You don't have to have the stock rise or fall and then make a second decision. Uncomplicated, straightforward, good return. Hard to beat.
The second choice is to let it rally to 20 and then sell the call when it appears to be stalling out. That pumps up some more value in the option when we sell it. That gives us a better return obviously, but the stock needs to make the run. That is not too hard for BRCM to do.
BRCM (Broadcom--$19.16; +1.26; optionable): Semiconductors
http://biz.yahoo.com/p/b/brcm.html
STATUS: BRCM jumped up Friday with the other semiconductors on the Dell news. It is just below the $20 string and the 50 day MVA at that level. Now BRCM has already retested its July low near 15 and we don't think it would go lower than that even on an overall market re-test. Thus the bottom is more or less set in our mind and we feel comfortable with the play. Think of it this way: in the next 5 months do you think BRCM will be at or near 20? On this one if we do a buy/write with the January $20 calls, picking the stock up around 19.20 we get a 3.9% return per month (if we are called out, i.e., the stock is over 20 at expiration, the return is 4.6% per month, a likely scenario). If we buy it and then wait for it to rally to 20 and sell the calls, the return per month is about 4.2% (5.1% adding in the 80 cent capital gain on the stock). We can go either way.
Volume: 9.088M Avg Volume: 12.317M
BUY POINT: $19.20 Volume=9M Target=$19.8 Stop=$17.25
POSITION: RCQ AD - January $20 c (56 delta) to sell, Stock to buy
http://www.investmenthouse.com/ct/brcm.html
CONTINUING PLAYS
Upside:
CSL (Carlisle Companies--$45.33; +1.01; optionable): Rubber & plastic
Play Date: 08/10/2002
http://biz.yahoo.com/p/c/csl.html
STATUS: Ascending wedge breakout. CSL hit our buy Wednesday on strong volume, then tested it immediately. Friday it came right back and rallied off the breakout point on continued strong, above average volume. It was a high volume finish to the week, a good sign for a further move higher. There is still plenty of room to get in on this play, particularly with options. 50 is our first target, but this is a stock that could continue to lead in an economic recovery.
Volume: 274.6K Avg Volume: 176.358K
BUY POINT: New positions: 45.55 (orig. $44.44) Volume=275K Target=$50 Stop=$43.75
POSITION: CSL LH - Dec. $40 c (75 delta, low OI) and/or Stock
http://www.investmenthouse.com/ct/csl.html
DNA (Genentech--$35.49; +0.53; optionable): Biotech
Play Date: 08/03/2002
http://biz.yahoo.com/p/d/dna.html
STATUS: Ascending wedge. The pattern has turned into a wedge and showed signs Friday it wanted to make the breakout, but it was not a high volume session overall to support the move. We like the lateral consolidation right at some price resistance at 35. A current play but we are ready to average up if we can get another good push with volume.
Volume: 1.79M Avg Volume: 2.595M
BUY POINT: New positions: 35.65 (orig. $33.65). Volume=3.2M Target=$39.88 Stop=$33.45
POSITION: DNA LF - Dec. $30c (68 delta) OR DNA LE - Dec. $25c (83 delta) and/or Stock
http://www.investmenthouse.com/ct/dna.html
HGSI (Human Genome Sciences--$17.59; -0.35; optionable): Biotech
Play Date: 08/14/2002
http://biz.yahoo.com/p/h/hgsi.html
STATUS: Testing the 18 day MVA. HGSI has rallied off the 50 day MVA and is now consolidating right below some price support at 18. Friday HGSI showed a doji that tested the 18 day MVA on the low (16.51) and rebounded to close over the 10 day MVA (17.18). There was a volume surge Wednesday and Thursday before it backed off Friday. Money flow has been shooting higher the past two weeks while the stock moved more or less laterally along the short term moving averages. Looks ready to go.
Volume: 1.823M Avg Volume: 2.542M
BUY POINT: $18.15 Volume=3.5M Target=$23 Stop=$16.65
POSITION: HQI JC - Oct. $15c (72 delta) and/or Stock
http://www.investmenthouse.com/ct/hgsi.html
MIK (Michaels--$40.55; -0.32; optionable): Hobby stores.
Play Date: 08/10/2002
http://biz.yahoo.com/p/m/mik.html
STATUS: Double bottom. MIK broke out of the early handle to the double bottom where we originated positions, and is now consolidating, perhaps forming another handle after clearing the 200 day MVA at 38 on Wednesday. The volume backed off on the late-week testing, just as it should. We want it to spend a few more days pulling back and testing the 40 level and then give us another strong move higher. In any event, we anticipate a move up starting ahead of the earnings as MIK has continued to raise its earnings targets and may just surprise again.
Volume: 478.2K Avg Volume: 621.965K
BUY POINT: 40.65 (original $38.85). Volume=800K Target=$44.25 Stop=$37.55
POSITION: MIK LG - Dec. $35c (66 delta) and/or Stock
http://www.investmenthouse.com/ct/mik.html
NBIX (Neurocrine Biosciences--$39.94; -0.17; optionable): Biotechnology
Play Date: 08/08/2002
http://biz.yahoo.com/p/n/nbix.html
STATUS: Cup w/handle. After clearing the 200 day MVA (38.38) the prior week, NBIX powered up Wednesday but stalled out with the larger indexes Thursday and Friday. It showed a doji Friday and may be ready to start rallying again, but it most likely will snug up a bit closer to the 200 day MVA before it takes off again as the indexes test back a bit early this week.
Volume: 457.176K Avg Volume: 666.731K
BUY POINT: After a test of 39, $39.65 Volume=800K Target=$45 Stop=$36.87
POSITION: UOT KG - Nov. $35c (70 delta) and/or Stock
http://www.investmenthouse.com/ct/nbix.html
USPI (United Surgical--$29.96; +0.8; optionable): Specialized healthcare
Play Date: 08/05/2002
http://biz.yahoo.com/p/u/uspi.html
STATUS: Cup w/handle. After a quick breakout of its short pattern two Fridays back, USPI undercut the 50 day MVA (27.94) but jumped right back on solid volume. Friday it tested lower to the 50 day MVA and then jumped up on rising, above average volume. A solid move, and it looks ready for more and a spot for new or added positions.
Volume: 428.077K Avg Volume: 366.468K
BUY POINT: $30.22 Volume=575K Target=$34.35 Stop=$28.11
POSITION: QPJ KE - Nov. $25 c (76 delta, low OI) and/or Stock
http://www.investmenthouse.com/ct/uspi.html
WATCHLIST/ CONTINUING:
NOTE: We have placed target volume in place of average volume so you can gauge how the stock is performing relative to our target.
Stock Date Play Close +/- Pivot Tgt Vol TgtV Stop
$OEX 08/12 A Wedge 468.44 -1.34 459.24 485 12M 0 458
Current. Doji right on top of the 50 day MVA on lower volume.
APOL 08/15 A Wedge 42.17 +0.98 40.65 48 3.8M 3.3M 39.94
Current. Blasting higher on continued above average volume, but closed well off the intraday high. Still in good shape though after such a move it will want to test back a bit.
BRCD 07/17 BO 15.81 -0.15 19.8 25 16M 17M 19
BRCM 08/17 Test 50 19.16 +1.26 19.2 19.8 9.1M 9M 17.25
New.
CCR 08/06 BO 53.13 -1.17 50.55 58.55 1.5M 2M 51.95
Current. Big move Wednesday giving back to some profit taking on lighter volume Thursday and Friday. Should hold at he 10 day MVA (52.43).
CELG 08/17 Test BO 19.33 -0.44 19.85 23.85 475K 1M 18.46
New.
CREE 08/15 A Wedge 16.2 +0.89 15.42 18 3.1M 2.9M 14.94
Current. Strong move Friday.
CSL 08/17 A Wedge 45.33 +1.01 45.55 50 275K 275K 42.36
New positions.
CSL 08/10 A Wedge 45.33 +1.01 44.44 50 275K 275K 43.75
Current. Solid move Friday.
CSTR 08/12 cup hdl 33.09 +0.15 32.5 36.65 348K 359K 30.22
Current. Closed over $1 off of its intraday high that tested the old high. Lower volume; looks like a bit of a test of 32 before making another run at breaking 34 to that new high.
CYMI 08/17 BO 27.75 +2.41 27.95 31 1.9M 2M 25.99
New.
DNA 08/17 Test 50 35.49 +0.53 35.65 39.88 1.8M 3.2M 33.15
New positions.
DNA 08/03 Test 50 35.49 +0.53 33.65 39.88 1.8M 3.2M 33.45
Current.
EXPE 08/14 BO 52.4 -0.2 50.06 55 2.4M 2.8M 49.75
Current. Rallied to 54.10 on Friday intraday high on lower volume and then gave it back. Looking for another push to the 200 day early in the week; if it gets close we take the gain.
FSH 08/10 BO 29.05 -0.4 28.76 33 312K 350K 27.85
Current. Pulled back a bit Friday on lower though still above average volume. Should hold near 28.75.
HGSI 08/14 Test 18 17.59 -0.35 18.15 23 1.8M 3.5M 16.65
Current.
INLD 08/03 A Wedge 2.92 +0.17 3.45 5.05 176K 1.1M 2.95
Buy not hit. Trying to comeback.
ISIS 07/31 BO 11.25 +0.25 9.05 12 518K 936K 9.94
Current. A modest move Friday on lower volume after the Thursday doji. Still solid though it may try to rest toward 11 more.
ITW 08/03 Put 65.71 -0.16 63.65 60.04 926K 1.2M 66
Buy not hit. Still watching this one below the 50 day MVA.
IVGN 08/03 BO 36.37 +0.23 36.1 39.88 729K 1.5M 33.57
Current. Nice lateral move along the 10 day MVA. Looks ready again.
IWM 08/17 A Wedge 78.95 +1.19 79.02 82.65 1.2M 2M 77.25
New.
JCOM 07/17 A Wedge 20.98 -0.7 16.65 23 385K 120K 19
Current. Testing back to 20 Friday. Needs to hold the line here.
MIK 08/10 DB hdl 40.55 -0.32 38.85 44.25 478K 800K 37.55
Current.
NBIX 08/08 Cup 39.94 -0.17 39.65 45 457K 800K 36.87
Current.
OSTE 08/10 cup hdl 9.51 -0.03 9.42 12.5 244K 195K 8.91
Current. After testing back to 9 OSTE finally started to rally back from the test Friday on rising, above average volume.
PDX 08/10 Test 50 30.38 +0.28 30.55 34.55 106K 425K 28.41
Buy not hit. Still holding in a very flat pattern at the 50 day MVA.
SIE 08/08 Test 50 22.88 -0.11 23.35 27.96 411K 500K 21.98
Current. Took a day off Friday after starting to move on much better volume again Wednesday.
STEM 07/27 Test 50 1.27 -0.09 1.87 2.45 194K 80K 1.74
Turned lower on some very, very strong volume Friday. Back at support at 1.25, but the strong volume resumed.
TECH 08/01 DB hdl 31.5 +0.82 27.76 32 568K 565K 29
Hit the target.
TELK 07/25 Flat 13.62 -0.28 13.35 16 215K 200K 13
Current. Testing the 18 day MVA once again on lower volume. It has not shown the pop up off of that level we wanted. Money flow remains excellent, so we still anticipate a gain off of this consolidation.
TEN 08/08 Test BO 6.92 -0.11 7.55 9.94 86K 225K 7.15
Current. Still holding at the 50 day MVA on very low volume. No further fall here will be tolerated.
TEN 07/27 Test BO 6.92 -0.11 7.43 9.94 86K 250K 7.15
Current.
TEVA 08/12 DB hdl 68.39 +0.15 68.25 77.85 729K 1.2M 66.50
Buy alert not issued. A pair of doji's with no volume to end the week. Looks ready for a test back to 67.
TTWO 08/17 cup hdl 23.4 +0.15 24.75 29.85 868K 1.5M 22.95
New.
UNTD 08/17 cup hdl 11.45 +0.5 12.03 14.65 1.1M 785K 11.19
New.
USPI 08/05 DB hdl 29.96 +0.8 30.22 34.35 428K 575K 28.11
Current. Looks to be starting back up on solid volume.
VARI 08/13 Test BO 35 +0.93 34.25 40 396K 415K 32
Buy alert not issued on this play.
VARI 08/07 Rv H&S 35 +0.93 34.95 40 396K 363K 33.95
Current. Back over some resistance Friday on rising volume, VARI may be ready to move again.
VFC 08/10 DB hdl 42.44 -0.49 40.65 45 416K 440K 41.55
Current. Tested lower Friday on some rising, average volume. Looks ready to test back toward 41.50 - 41.
WSFS 08/10 Rv H&S 28.7 -0.5 26.25 30.25 80K 65K 27.75
Turned back after gapping higher Friday. Volume rose sharply, not a good sign on that type of action. Moving stop higher.
Good Investing!
Jon L. Johnson and your Technical Traders Report Team
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 in 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.
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