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us stock market, stock watch
Begin part 2 of 2
SUBSCRIBER QUESTIONS
Q: I have been a faithful reader of the daily newsletter for years. You've taught me a lot about trading. My question is about options. Do you set stop limits on your option trades or trailing stops? In the stock splits newsletter, when you highlight a stock, you mention a reasonable stop limit. How do you determine the stop limit for the option? Do you go through the delta calculation?
A: The stock price is the major influence on the underlying option's movement, so typically we use the stock's price to determine when we buy and sell. If a stock holds support, then that is good for the option because the stock typically rebounds from there and the option price does the same. Therefore, when the stock hits a stop point, that is generally a sell on the option position. That requires just watching the stock and then acting with the option accordingly, and, of course, the percentage loss on the option would be greater than the stock as the option's move is magnified compared to the stock. We are usually content to let our options work along with the stock price as long as we have sufficient time left before the option expires. Remember, 60 days out you are okay, but time starts to become a factor the closer you get to 30 days out from expiration. Thirty days or less, time becomes very important.
If you are more interested in putting a stop on the option itself as opposed to watching the stock, you can calculate the what the value of the option will be when the stock hits a certain price. You use the option's delta to do this. This way you can put in a stop order (stop loss or stop limit) directly on the option position as opposed to having to watch the stock. We will often do this when we have a good gain built into the option that we want to keep regardless of what the stock is doing. Many times we will have a 50+% gain on our option position even before the stock hits the target. With time value as our enemy on options we buy, we don't want to lose that gain if the stock decides to make a test.
To make the calculation with respect to a stop point, subtract the stock price that you bought at from the stock price that is the stop loss point. Multiply that result by the option's delta. The result of that calculation will tell you how far the option will move given the stock move to the stop point. Subtract that amount from the bid price at the time you entered the play and that will give you the bid price for the option at the stop point. To determine the target, you do the same calculation with respect to the target stock price, but you add the result to the bid price to get the figure out the dollar move the option will make by the time the stock hits the target.
Formula for calculating option target price on an upside play:
(Stock target price - Stock buy price) x option delta + option bid price = option bid price when stock hits target price.
Formula for calculating option stop loss price on upside play:
(Stock buy price - Stop loss price) x option delta + option bid price = option bid price when stock falls to stop loss point.
THE PLAYS
Good movers Friday: BRKT; SMTC; SYMM; TQNT; CYTC; IVIL; ONNN; PRGO; RWY
Thursday night play results:
PRGO: Continued the surge on another strong volume shot.
YHOO: Volume backed off as it did not participate in the Friday bounce. Still very solid overall and will move when it is ready.
AVID: Making the low volume 200 day MVA test as we thought it would. Getting ready.
New plays for Monday:
Upside:
Play Date: 02/07/2004
CATS (Catalyst Semiconductor--$8.91; +0.74; no options): PC networking
http://biz.yahoo.com/p/c/cats.html
STATUS: Cup w/handle breakout. CATS surged Friday on excellent volume, breaking out of a 10 week base sporting solid excellent 4 to 1 accumulation (4 up price weeks on rising volume to 1 down price week on rising volume). The accumulation indicates that money was moving into the stock as it based, and the fact that the base formed on the 50 day MVA (7.57) is another sign of support. Money flow is surging up ahead of the price and relative strength is moving for a breakout. The latter shows CATS is performing better than most of the market.
Volume: 297.481K Avg Volume: 98.681K
BUY POINT: $9.12 Volume=150K Target=$10.97 Stop=$8.48
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/cd/cats.html
Play Date: 02/07/2004
GILTF (Gilat Satellite--$7.71; +0.20; no options): Telecom equipment
http://biz.yahoo.com/p/g/giltf.html
STATUS: Testing the breakout. GILTF is moving laterally over the 10 day MVA (7.50) after breaking out from a 6 month cup with handle base in mid-January. It rallied up the 10 day MVA on strong volume to 8.66 and has now pulled back on very low volume to test the 10 day. The low volume shows that there are not many sellers as it makes the test, a good sign while the overall market has shown distribution during the same period. Accumulation in the base was an outstanding 9 to 1, setting up the foundation for a strong breakout and run. This is the first substantial consolidation for GILTF since the breakout. Looks solid and with the money flow moving up ahead of the price we are looking for GILTF to follow it and continue the breakout.
Volume: 93.611K Avg Volume: 181.772K
BUY POINT: $7.88 Volume=250K Target=$9.48 Stop=$7.38
POSITION: - Stock (no option chian)
http://www.investmenthouse.com/cd/giltf.html
Play Date: 02/07/2004
SFE (Safeguard Scientific--$5.65; +0.56; no options): Internet service
http://biz.yahoo.com/p/s/sfe.html
STATUS: Breakout test. This is a blast from the past, coming back the last year with three good bases off of the bottom. The last base was a 2.5 month cup that SFE broke from in early January. It rallied to 5.90 and then pulled back to the 18 day MVA (5.22) on lower volume. The past week it has held that level on very low trade. Wednesday and Friday volume was spiking back above average as SFE jumped off the 18 day to end the week. Money flow continues to move up ahead of price and relative strength that broke out in mid-January is ready to do so again.
Volume: 1.085M Avg Volume: 790K
BUY POINT: $5.88 Volume=1.2M Target=$7.12 Stop=$5.47
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/cd/sfe.html
Downside:
Play Date: 02/07/2004
FRED (Freds Inc.--$28.38; +1.28; optionable): Discount variety stores
http://biz.yahoo.com/p/f/fred.html
STATUS: Put. FRED peaked in late October and has since traded lower in a steady downtrend. It tried to buck up at the 200 day MVA (29.77) for over a month, but gave that level up in late January. It is making a low volume recovery from that thud through support, coming close to the 10 day MVA (28.17) on the Friday intraday high. It may rally on up to the 200 day, but with the declining volume we think it is going to turn at the 10 day.
Volume: 489.073K Avg Volume: 501.909K
BUY POINT: $28.22 Volume=600K Target=$26.05 Stop=$28.88
POSITION: FMU OF - Mar. $30p (-70 delta)
http://www.investmenthouse.com/cd/fred.html
AVID is ready to make the 200 day MVA test and then fall back.
SUBSCRIBER PORTFOLIO: These are stocks subscribers suggest by vote that we put in a portfolio to track and move into the stocks if they perform well. If you have any suggestions for additions or deletions, email us. We don't cover them all each report, just when something interesting is developing.
AVID, COH, DIS, GTRC, KKD, LPNT, OCR, TGT, UTSI, XMSR
AVID: Same condition as FRED, i.e., a low volume bounce back up to test the 200 day MVA breach. Looks ready to roll over after it taps near 45.
UTSI: Looks ready to fail below the 200 day MVA.
XMSR: Bouncing up toward the 10 and 50 day MVA. Looking for it to roll over at that point.
SUBSCRIBER WATCHLIST
We continually receive ideas for potential plays from subscribers. Many times they are already on our watchlists, other times not. We always take a look and sometimes find a gem or two, or more. We don't necessarily endorse these, but want to provide a forum for subscribers with ideas that may appeal to other subscribers. We may just put on the ticker or we might describe our thoughts as to why or why not we think it is a buy or sell. This is a way we can all learn a bit more and maybe find a few more candidates to make us some good money.
SNDK: Making a low volume bounce back up to test the 200 day MVA breakdown. After a test of the 200 day MVA or the lower 10 day MVA it looks ready to fade again.
CONTINUING PLAYS
* * SPREADSHEET DOWNLOAD * * *
The following link is to a spreadsheet download of the continuing play table. It will allow subscribers to sort the data for your personal investment use. This is a service to our subscribers only, and no other use of the information is authorized. Simply click on the link, enter your username and password, and download the spreadsheet!
http://investmenthouse.com/daily/table.php
You will need your password. If you need help click on this link and our automated system will email it to you immediately once you fill in your email address:
http://www.investmenthouse.com/rescue/rescue.php3
LEGEND FOR CONTINUING PLAY TABLE
DATE: date play first appeared on report.
PLAY: Denotes the type of pattern or play.
Upside play types: A Wedge=Ascending triangle/wedge; BO=Breakout; Cup=Cup base; Cup hdl=Cup w/handle; DB hdl=Double bottom w/handle; Dbl btm=Double bottom; Flat=Flat base; FlyPlat=Flying Plateau; Pennant=Pennant; Rv H&S=Reverse head & shoulders; Saucer=Saucer base; Test 18=Testing 18 day MVA; Test 50=Testing 50 day MVA; Test BO=Testing the breakout (could be 10 day MVA test, etc.)
Downside play types: CCall=Covered Call; DWedge=Descending triangle/wedge; Dbl Top=Double top; H&S=Head & shoulders; Put (generic downside);
PIVOT=Buy point
Tgt=Target stock price for the play. Applies to stock and options.
Vol=Volume for the most recent session.
TgtV=Target volume to enter the play.
Stop=Stop advisory point. This is advisory and we may or may not exit a play if it hits this level depending upon market conditions.
Upside Plays
Stock Date Play Close +/- Pivot Tgt Vol TgtV Stop
ADAT 01/24 Test BO 16.14 +0.81 17.59 21.15 514K 1.2M 15.98
Current. Moving up on lower volume after testing the break out.
ATML 01/17 Rv H&S 7.14 +0.40 7.69 9.24 7.2M 15M 7.08
Current. Gapped up at the open and continued to rally for a nice move on higher but still below average volume. Rebounding after testing the 50 day MVA.
BRCM 01/24 Test BO 39.64 +1.8 40.24 46.25 8.7M 11M 39.25
Current. Moving up after testing the break out to hold at the 10 day MVA on average volume.
BRKT 01/12 Cup 16 +1.74 16.55 19.72 129K 188K 15.74
Current. Bounced off the 50 day MVA for a nice move on average volume. Moving up after testing the break out.
CYTC 01/29 Cup hdl 16.87 +0.39 16.09 19.25 1M 1.6M 15.92
Current. Nice move up the 10 day MVA on slightly below average volume.
DIS 08/09 Test 50 23.35 +0.15 22.06 26.48 10M 9M 24.12
EBAY 12/12 Test 18 67.76 +0.53 34.72 46 4.9M 12M 65.96
Current. Tested the 10 day MVA and rallied up the 10 day on below average volume.
EBAY 10/15 Test 50 67.76 +0.53 31.22 46 4.9M 12M 65.96
Current.
FL 10/11 A Wedge 23.7 -0.16 17.38 20.88 1.7M 1.4M 23.94
Current. Bounced up off of the 50 day MVA on stronger, above
average volume, so we let it continue after this quick
support test.
FMTI 01/17 Cup hdl 4.75 -0.21 3.48 4.35 372K 228K 4.35
Current. Continue to pull back on lower volume showing a tight doji. Continue to test the break out.
GEB 02/02 Cup hdl 1.68 0 1.74 2.28 524K 1M 1.58
Current. Showing a tight doji as the stock continues to make a low volume lateral move.
IONA 12/20 Test BO 7.18 +0.23 5.96 7.58 142K 600K 6.88
Current. Moving up on lower volume holding above the 10 day MVA. Still in good shape.
IVIL 12/23 Flat 5.7 +0.47 3.59 4.52 1M 340K 4.88
Current. Great move up the 10 day MVA on stronger above average volume.
JNPR 01/31 Test BO 29.47 +1.25 29.48 35.45 11M 15M 27.48
Buy Not Hit. Bounced off the 10 day MVA on below average volume after testing the break out
LPNT 08/09 Rv H&S 34.73 +0.84 0 0 298K 1.3M 33.88
MANU 01/12 Cup 7.96 +0.15 7.84 9.41 756K 1.7M 7.99
Current. Bounced off the 18 day MVA and rallied holding just above the 10 day MVA. Still in good shape.
MLNM 02/03 A Wedge 18.23 +0.45 18.44 22.14 2.6M 6.7M 17.25
Buy Not Hit. Tapped 17.57 at the low and rallied for a nice move on below average volume.
NABI 01/27 Test BO 15.08 +0.72 16.06 19.28 694K 794K 14.78
Buy Not Issued. Moving up on lower, but average volume. Moving up after testing the break out.
NANO 01/27 Test BO 19.64 +1.56 21.62 25.88 542K 1M 19.78
Current. Tapped support intraday and rallied for a nice gain holding at the 10 day MVA on below average volume. Moving up after testing the break out.
NANO 01/05 Rv H&S 19.64 +1.56 17.18 20.58 542K 500K 20,55
Current.
OMCL 02/03 A Wedge 19.58 +0.08 20.68 24.72 525K 450K 19.23
Current. Tapped 18.55 at the low and rallied showing a tight doji on lower, but still strong volume. Making a lateral move.
ONNN 12/16 Test BO 7.4 +0.38 7.42 8.88 3.4M 3.4M 7.25
Current. Moving up for a nice gain on rising volume after testing the 50 day MVA.
PKI 01/27 DB hdl 21.22 +0.82 20.07 24.06 377K 1M 19.94
Current. After testing the break out the stock bounced off the 10 day MVA and rallied on low volume.
PRGO 02/05 Test BO 18.35 +0.35 18.21 21.85 491K 516K 17.32
Current. Another nice move on much lower, but still strong volume.
RWY 11/04 Cup hdl 8.85 +0.2 6.24 7.85 231K 146K 8.57
Current. Tested the 18 day MVA and rallied for a nice move on strong volume.
SBUX 07/30 Cup 37.25 +0.49 30.35 36.75 2.5M 6M 35.58
Current. Continue to move up the 10 day MVA on slightly below average volume.
SBUX 07/01 Cup 37.25 +0.49 26.3 30.94 2.5M 6M 35.58
Current.
SINA 01/07 DB hdl 42.51 -0.42 43.62 52 3.8M 12M 44.88
Exited. Pull back further below the 18 day MVA on low volume.
SMTL 01/15 Test 50 14.32 +0.81 11.79 14.19 145K 120K 13.38
Current. Bounced off the 18 day MVA and continued to rally for a great gain on average volume.
SNIC 02/04 Dbl btm 20.22 -0.56 21.32 25.58 623K 807K 19.72
Buy Not Issued. Pull back on average volume holding the 10 day MVA.
SYMM 01/08 Cup 10.85 +0.71 8.28 10 981K 346K 10.02
Current. Explosive move up on excellent volume surge.
TGT 08/09 Flat 39.44 +0.34 41.45 50 3.9M 5.7M 38.74
TQNT 01/10 Cup 9.03 -0.61 9.38 11.06 11M 3.6M 8.72
Current. Gapped up at the open and made a great move up the 10 day MVA on very strong volume surge. Moving up on strong volume after testing the break out.
TSCO 01/24 Cup 42.09 +0.95 45.22 55 468K 719K 42.05
Buy Not Hit.
TSCO 07/29 Test BO 42.09 +0.95 28.06 31.44 468K 494K 39.88
Current. Moving up on rising volume after testing the break out.
TSCO 06/03 Rv H&S 42.09 +0.95 23.42 27.62 468K 603K 39.88
Current.
TSCO 04/24 Cup hdl 42.09 +0.95 21.88 26 468K 603K 39.88
Current.
TSCO 04/03 Rv H&S 42.09 +0.95 19.3 22.19 468K 577K 39.88
Current.
WMS 11/21 Dbl btm 28.65 +0.35 25.83 31.22 358K 650K 28.05
Current. Continue to move up on stronger above average volume after testing the 18 day MVA.
WWCA 01/29 Test BO 24.23 +0.93 23.06 27.72 4.2M 2M 22.37
Current. Nice move up the 10 day MVA on very strong volume surge.
YHOO 02/05 Test 50 46.49 +0.39 46.75 53.75 7.3M 12M 44.96
Buy Not Hit. Moving up to hold the 10 day MVA on low volume. Still in the pattern.
Downside Plays
Stock Date Play Close +/- Pivot Tgt Vol TgtV Stop
^OEX 02/04 Put 556.06 +6.45 558 546 0 1.3M 561.25
Current. Jumped through the short term MVA, closing at high,
but volume was low. Waited to see the rally fail Monday
& will look to add to positions when that happens.
AVID 02/05 Put 44.11 +1.11 44.45 40.35 417K 600K 45.25
Buy Not Hit. Making that low volume move to test the 200 day MVA,
and then when it fails we move in.
CYPB 02/04 Put 12.15 -0.08 11.55 9 143K 634K 12.12
Buy Not Hit. Pull back holding the 10 day MVA showing a doji on very low volume.
HAR 02/03 Put 72.35 +0.78 69.35 65.92 362K 1M 71.72
Current. Continue to rally holding above the 50 day MVA. May rally up to resistance at 73, but should turn over from there.
MDC 01/28 Put 65.93 +2.42 61.55 58.25 188K 315K 63.12
Current. Low volume up to resistance at 66. Expecting it to fail
here and at least test 64.
SMH 02/02 Put 42.5 +1.8 40.98 38.45 17M 13M 42.28
Current. Rallied on strong volume. Held just above the 18 day MVA. May rally up to resistance at 43.
XMSR 01/31 Put 22.86 +1.41 0 0 7.1M 10M 0
Setting up for the next put play after a test of the
10 day MVA (23.24).
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.
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