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us stock market, trading system
Begin Part 2 of 2
SUBSCRIBER QUESTIONS
Q: Should there be stop losses set on covered call plays in order to limit any loss should the stock take a dive? Also, according to my broker, Charles Schwab, I do not receive the ask price when selling a call using a buy/write. They also do not have a mechanism to automatically set a stop loss for the stock on a buy/write. Should I be finding another broker?
A: One of the things about covered calls is that you should, just as with other positions, keep stop losses of some sort (we use mental) in place. You are correct, a stock can still tank in a covered position just as with any other. What happens when the stock falls in value? The option does as well. If you are in an account that allows it and are qualified to ride calls naked (sold but no stock to cover), you can sell the stock when it hits your stop point and continue to ride the calls down as they will continue to lose value. You can then buy them back when the stock stops falling or let them expire if the stock falls and does not come back. We would prefer to just close it out when the calls are at a low value.
If you are in an account such as an IRA that does not allow you to be naked on calls, you will have to close the calls out when the stock is sold. As the calls will have lost value as well you will still be in decent shape. I don't keep stops too tight on these longer term positions as they will fluctuate during the period and we want to have the time work for us.
As for getting buy/writes written, you are not the first to have a problem with Schwab on buy/writes. From the emails I have received, if Schwab is calling this a buy/write, then Schwab is making it up. One problem may be that they simply do not understand what you want to do by the name.
At first I had to educate some of the brokers as to what I was talking about, but the old pros knew exactly what it was I wanted to do. The head options trader at Schwab should know this method; you buy the stock at the ask and sell the call at the ask, getting a net debit on your trade. If you buy a stock at $20 and want to sell the $20 call option that is trading at 3.90 by 4.00, you tell your broker you want to do a buy/write covered call play, buying the stock and simultaneously selling the specified call for a net debit of $16. It is one transaction so you get a break; it may be on the option, it may be on the stock, but if your net debit is where you want it to be, what do you care? Your return is the same. The key is it is not two separate transactions and that is where the younger option brokers get thrown off. Again, I would think the head options trader at Schwab should be familiar with this. I am not, however, shocked to hear it because when I first started doing this the younger brokers did not know what I was talking about and they had to get the more seasoned brokers to educate them. It is as old as options themselves, but as with many solid techniques, it is overlooked by the flash and glitter of all the spreads, naked option sales, etc. Sometimes, however, the basic can be the best.
THE PLAYS
Best Plays:
1) MCO: Testing the breakout.
2) MAN: Heading lower.
3) BMS: Took a breather Friday.
4) CELG: Rest stop.
5) TTWO: Forming another nice handle.
6) MIK: Forming a handle as well.
7) VARI: Very nice consolidation.
8) Watchlist/continuing: CSTR; TELK. VARI and VFC look ready to move again after this breather.
NEW PLAYS
CAO (CSK Auto--$13.20; -0.14; optionable): Auto parts
http://biz.yahoo.com/p/c/cao.html
STATUS: Testing the 50 day MVA. You could call it a double bottom with handle, but that is a stretch. What you have is a stock that is working back up its base after peaking at 17 in May. It has broken over its 50 day MVA and came back to test that level intraday (12.81) before rallying back. We like to see a stock show snap back when it tests the 50 day. Buying while still in the base you still have to deal with overhead supply, but we are looking for a move up to the recent high, not a rally forever. That will provide a nice return. Accumulation during this base is positive at 2 weeks to zero.
Volume: 177K Avg Volume: 272.553K
BUY POINT: $13.55 Volume=275K Target=$17 Stop=$12.55
POSITION: CAO KB - Nov. $10 call and/or Stock
http://www.investmenthouse.com/ct/cao.html
MCO (Moodys Corp.--$49.31; -0.6; optionable): Investment ratings
http://biz.yahoo.com/p/m/mco.html
STATUS: Testing the breakout. There are two times to buy into a breakout, when it occurs and on a test of that move. We were watching MCO before it made the breakout move last week but it made the move before we could put it on. Just as well. The stock jumped up on the breakout last week but has pulled back quickly to test the move as volume fell sharply. The lower volume is good, the quick test no the best action. Still what we like about it is the good accumulation at 4 accumulation weeks to just 1 distribution week, plus the fact that we don't buy until it shows us the test is complete, i.e., it starts moving back up on rising volume.
Volume: 522K Avg Volume: 662.4K
BUY POINT: $50.25 Volume=800K Target=$60.25 Stop=$46.73
POSITION: MCO KI - Nov. $45c and/or Stock
http://www.investmenthouse.com/ct/mco.html
Downside:
MAN (Manpower--$35.12; -1.68; optionable): Staffing service
http://biz.yahoo.com/p/m/man.html
STATUS: After the move up off of the August low (but on low volume), MAN ran into the 200 day MVA (36.49). After trying to break that level all last week it rallied Thursday and reversed intraday. Friday it rolled over below that and the short term moving averages. Volume was not as high as on Thursday's reversal, but it was higher than the upside days.
Volume: 648.8K Avg Volume: 717.507K
BUY POINT: $34.96 Volume=900K Target=$32 Stop=$36.74
POSITION: MAN VH - Oct. $40p (-84 delta)
http://www.investmenthouse.com/ct/man.html
CONTINUING PLAYS
BMS (Bemis--$52.06; -0.53; optionable): Packages and containers
Play Date: 08/21/2002
http://biz.yahoo.com/p/b/bms.html
STATUS: Reverse head & shoulder breakout. Continued the breakout Thursday and then took a very short rest Friday on very low volume as the rest of the market sold harder. Good action, and with some further market testing BMS could test back to the 200 day MVA at 51 before moving back up. Accumulation is solid at 8 up weeks on rising volume to 4 down weeks on rising volume. After the test it will be a good time to pick up new or additional positions.
Volume: 206.4K Avg Volume: 347.12K
BUY POINT: $52.02 Volume=450K Target=$56.94 Stop=$48.38
POSITION: BMS AJ - Jan. $50c (66 delta, low OI) and/or Stock
http://www.investmenthouse.com/ct/bms.html
CHIR (Chiron--$40.77; -1.21; optionable): Biotechnology
Play Date: 08/21/2002
http://biz.yahoo.com/p/c/chir.html
STATUS: Breakout over 200 day MVA (40.98). After the breakout over the 200 day MVA Thursday CHIR could not avoid the Friday, moving back down to close at the 200 day. Volume backed off as it should. Now we look for it to hold at this level and then rally further on the breakout. Excellent money flow, and accumulation leads distribution 6 weeks to 2 weeks since March. We are looking for a trade up to the March highs on this move.
Volume: 2.343M Avg Volume: 2.782M
BUY POINT: $41.25 Volume=3.5M Target=$47 Stop=$38
POSITION: CIQ JU - Oct. $37.50c (72 delta) OR CIQ AU - Jan. 37.50c (69 delta) and/or Stock
http://www.investmenthouse.com/ct/chir.html
CELG (Celgene--$20.3; -0.75; optionable): Biotech
Play Date: 08/17/2002
http://biz.yahoo.com/p/c/celg.html
STATUS: Testing break over resistance. CELG successfully tested the move and broke higher last week. Friday it sold back with the rest of the market on lower, below average volume. Looks as if it may start again from the 20 range after testing lower early in the week. With money flow still way out ahead of the price, we still see a good move up to the 200 day near 24.
Volume: 610.189K Avg Volume: 1.01M
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
DNA (Genentech--$36.00; -0.90; optionable): Biotech
Play Date: 08/03/2002
http://biz.yahoo.com/p/d/dna.html
STATUS: Ascending wedge. Gapped lower Friday but did a nice job of recovering to recoup a chunk of the losses. It is still holding up well in its pattern, and the quick bout of selling Friday often triggers the next move up particularly with the way DNA came back off of the lows.
Volume: 1.89M Avg Volume: 2.613M
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
ISLE (Isle of Capri Casino--$21.93; +0.18; optionable): Resorts and Casinos
Play Date: 08/19/2002
http://biz.yahoo.com/p/i/isle.html
STATUS: Cup w/handle. ISLE continues to trade in the handle of the 3.5 month base (4 to 3 accumulation). It is trades lower intraday and then recovers, normally bullish action, but the intraday lows are wedging higher, one of the situations where we don't like to see stocks wedge higher because it is not shaking out the last sellers as well. Again we are going to let it make its move and see if it holds through the close; that is when we move in. Money flow is still moving up ahead of the price move in the stock.
Volume: 234.847K Avg Volume: 266.117K
BUY POINT: $22.02 Volume=392K Target=$26.15 Stop=$20.25
POSITION: QEP AW - Jan $17.50 c (77 delta, low OI) and/or Stock
http://www.investmenthouse.com/ct/isle.html
MIK (Michaels--$41.61; -0.64; optionable): Hobby stores.
http://biz.yahoo.com/p/m/mik.html
STATUS: Double bottom. MIK continues to test the strong move up through the 50 day MVA (38.25), pulling back Friday on another decrease in volume that took trade well below average. It looks as if it is going to come back and test the 10 day MVA (40.51) before continuing the move. Excellent sales and earnings, a leader in most every sense. Accumulation is outstanding at 5 up weeks on rising volume to 2 down weeks on rising volume. Money flow continues to rally ahead of the price as it moves laterally and slightly lower to form the handle to the pattern.
Volume: 340.1K Avg Volume: 632.626K
BUY POINT: After a test of 40.50 to 41: $41.25 on the way back up. Volume=800K Target=$45.75 Stop=$38.36
POSITION: MIK LG - Dec. $35c (66 delta) and/or Stock
http://www.investmenthouse.com/ct/mik.html
TTWO (Take-Two Intera--$25.48; -0.62; optionable): System software
Play Date: 08/17/2002
http://biz.yahoo.com/p/t/ttwo.html
STATUS: Cup w/handle. Forming another lateral consolidation/handle here at the prior high, setting up for another breakout move, this time to an all-time high. We like those all-time highs as the stock has no overhead resistance to hold it back. As long as the market overall stays together, then these early leader, breakout stocks perform very well.
Volume: 420.631K Avg Volume: 1.021M
BUY POINT: New positions on new breakout: $26.61 Volume=1.5M Target=$31.94 Stop=$24.75
POSITION: TUO LD - Dec. $20 c (73 delta) and/or Stock
http://www.investmenthouse.com/ct/ttwo.html
UNTD (United Online--$12.2; +0.07; optionable): Internet service and software
Play Date: 08/17/2002
http://biz.yahoo.com/p/u/untd.html
STATUS: Trading rang/flat base. Big breakout last week from the flat base but fell quickly test the move showing doji's Thursday and Friday on lower volume. Holding up on the close right at the breakout point; it needs to hold and start the move up here. Looks as if it will do it.
Volume: 1.501M Avg Volume: 702.623K
BUY POINT: $12.32 Volume=785K Target=$15.65 Stop=$11.15
POSITION: QAB LB - Dec. $10 c (72 delta, low OI) and/or Stock
http://www.investmenthouse.com/ct/untd.html
VFC (VF Corp.--$41.66; -0.55; optionable): Cloth for clothes
http://biz.yahoo.com/p/v/vfc.html
STATUS: Cup w/handle. Continuing in the handle to the 15-week base. Friday the stock tested back right to the 10 day MVA on the close as volume continued to run well below average, just the kind of action you want in a handle. Money flow is excellent and accumulation is good. Now all it needs to do is give the breakout on strong volume. Patience.
Volume: 180.7K Avg Volume: 385.504K
BUY POINT: $42.25 Volume=400K Target=$47.55 Stop=$40.65
POSITION: VFC KG - Nov. $35 c (81 delta, low OI) and/or Stock
http://www.investmenthouse.com/ct/vfc.html
VARI (Varian--$34.08; -0.69; optionable): Scientific and technical instruments
http://biz.yahoo.com/p/v/vari.html
STATUS: Still moving in that very flat consolidation of the early August breakout, holding the 10 day MVA as volume continues to dry up as you want in a consolidation. Money flow is still very strong and way out in front of the movement of the stock.
Volume: 239.952K Avg Volume: 423.166K
BUY POINT: $35.25 Volume=415K Target=$40 Stop=$32.78
POSITION: IUA KF - Nov. $30 c (70 delta) and/or Stock
http://www.investmenthouse.com/ct/vari.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
APOL 08/15 A Wedge 40.34 -0.66 40.65 48 1.7M 3.3M 39.94
Current. Testing the big breakout move with a low volume pullback to the 10 day MVA where it closed Friday. Needs to hold here.
BMS 08/21 BO 52.06 -0.53 52.02 56.94 206K 450K 48.38
Current. Testing the move.
BRCD 07/17 BO 16.32 -0.44 19.8 25 11M 17M 19
Holding at the 18 day MVA.
BRCM 08/17 CCall 19.43 -0.79 19.2 19.8 6.6M 9M 17.25
Current. Lower volume test of 10 day MVA.
CAO 08/24 Test 50 13.2 -0.14 13.55 17 177K 275K 12.55
New.
CBH 08/19 cup hdl 45.42 -0.94 47.25 54.33 213K 902K 43.94
Buy not hit. Still in a very low volume, good handle.
CCR 08/06 BO 52.87 -2.13 50.55 58.55 1.2M 2M 51.95
Current. Received a downgrade on valuation, but held up relatively well as volume was only slightly higher and still below average. Looks as if it may recover.
CELG 08/17 Test BO 20.3 -0.75 19.85 23.85 610K 1M 18.46
Current.
CHIR 08/21 BO 40.77 -1.21 41.25 47 2.3M 3.5M 39.25
Current. Lower volume test of the 200 day MVA.
CREE 08/15 A Wedge 14.52 -1.16 15.42 18 2.4M 2.9M 15.94
Current. Downgrade hurt it, falling below the 18 day MVA on lower volume. Will most likely bounce up off the 50 day MVA just above 14.
CSL 08/17 A Wedge 45.57 -1.07 45.55 50 120K 275K 42.36
Testing back to the 10 day MVA on lower volume.
CSL 08/10 A Wedge 45.57 -1.07 44.44 50 120K 275K 43.75
CSTR 08/12 cup hdl 31.29 -1.58 32.5 36.65 240K 359K 30.22
Current. Looked so good and then too a hit Friday, breaking below the 10 day MVA on an aggressive point loss. Volume was below average, about the only silver lining. Needs to hold at the 18 day MVA.
DNA 08/17 Test 50 36 -0.9 35.65 39.88 1.9M 3.2M 33.15
Current. Very nice recovery after gapping lower. Still looks solid.
DNA 08/03 Test 50 36 -0.9 33.65 39.88 1.9M 3.2M 33.45
FSH 08/10 BO 28.4 -0.4 28.76 33 133K 350K 27.85
Current. Slipped down toward the 200 day MVA, but on lower volume. Still looks as if it will bounce, but with the news re RSH, needs to hold here.
GDT 08/22 A Wedge 36.49 +0.34 36.45 40.35 1.6M 3.3M 33.85
Buy not hit. Tried to make the move Friday, but it was not a big upside session for stocks. Still looks good.
HGSI 08/14 Test 18 17.29 -1.36 18.15 23 1.3M 3.5M 16.94
Current. Had a rough finish to the session but volume was lower.
INLD 08/03 A Wedge 2.75 -0.25 3.45 5.05 115K 1.1M 2.95
Buy not hit. Fell out of the pattern.
ISIS 07/31 BO 10.58 -0.51 9.05 12 430K 936K 9.94
Current. Testing back more than we wanted, down to the 10 day MVA after teasing near the target. Needs to hold from here to 10.
ISLE 08/19 cup hdl 21.93 +0.18 22.02 26.15 235K 392K 20.25
Buy not issued. Still in the handle, but wedging higher.
IVGN 08/03 BO 36.64 -0.93 36.1 39.88 601K 1.5M 33.57
Friday got to it a bit as most biotechs sold back on lower volume.
IWM 08/17 A Wedge 79.65 -2.15 79.02 82.65 1.7M 2M 77.25
Current. Turned back after Thursday's test of the 50 day MVA. Volume rose as the small caps did not look as good.
MAN 08/24 Put 35.12 -1.68 34.96 32 649K 900K 36.74
New.
MCO 08/24 Test BO 49.31 -0.6 50.25 60.25 522K 800K 46.73
New.
MIK 08/10 DB hdl 41.61 -0.64 38.85 44.25 340K 800K 39.88
Current. Forming another handle on lower volume.
NBIX 08/08 Cup 40.1 -2.05 39.65 45 701K 800K 37.25
Current. Reversed Thursday's move on average volume. Hit the high and turned right back. Still okay but curious action; it has, however, done this before just recently and that did not stop the climb.
NWRE 08/19 Test 18 16.94 +0.54 15.05 17.94 755K 410K 14.55
Current. Continued up to a new high on stronger volume. Nice.
OSTE 08/10 cup hdl 10.4 -0.2 9.42 12.5 174K 195K 9.85
Current. Tested the 10 day MVA on the low and bounced back up. Volume lower. Normal action: rally up, test on low volume.
PDX 08/10 Test 50 32.2 -1.04 30.55 34.55 128K 425K 28.41
Buy alert not issued. Pulling back on some very light volume after a light volume rally. Without the volume on the up move it could test back to near 31.
PRX 08/20 cup hdl 27.46 -0.27 28.91 34.65 288K 525K 26.89
Buy not hit. Still in the pattern. Had some volume Thursday on an up move, so it is showing signs it may try a break this week.
SIE 08/08 Test 50 22.12 -0.58 23.35 27.96 259K 500K 21.98
Current. Testing back in the pattern, holding the 18 day MVA. Still looks good.
SSNC 08/24 cup hdl 13.43 -0.19 14.05 17 46K 139K 13.07
New.
TELK 07/25 Flat 13.08 -0.78 13.35 16 179K 200K 13
Current. Rolled over big Friday; no volume, but not a good price move.
TEVA 08/12 DB hdl 66.9 -0.06 68.25 77.85 470K 1.2M 66.50
Buy alert not issued. Teva is now showing a doji on the 18 day MVA. Perhaps now it is ready to move on some volume.
TTWO 08/24 cup hdl 25.48 -0.62 26.61 31.94 421K 1.5M 24.75
New buy point.
TTWO 08/17 cup hdl 25.48 -0.62 24.75 29.85 421K 1.5M 23.55
Current. Forming another handle.
UNTD 08/22 Test BO 12.2 +0.07 12.32 15.65 1.5M 785K 11.15
Buy not hit.
UNTD 08/17 cup hdl 12.2 +0.07 12.03 14.65 1.5M 785K 11.19
Current. Testing the 10 day MVA with solid intraday recoveries.
USPI 08/05 DB hdl 30.35 -1.35 30.22 34.35 882K 575K 29.85
Current. Turned a good Wednesday breakout into heavy selling Friday. Ready to exit.
VARI 08/24 Test BO 34.08 -0.69 35.25 40 240K 415K 32.78
New buy point.
VARI 08/07 Rv H&S 34.08 -0.69 34.95 40 240K 363K 33.95
VFC 08/24 Test BO 41.66 -0.55 42.25 47.55 181K 400K 40.65
New buy point.
VFC 08/10 DB hdl 41.66 -0.55 40.65 45 181K 440K 41.55
Current. Still in a nice handle, testing the 10 day MVA on low volume.
WSFS 08/10 Rv H&S 30.6 +0.1 26.25 30.25 44K 65K 27.75
Current. Still rising, gapping up and showing a doji on the session as volume backed off. Hit the target.
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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us stock market
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