Navivest Stocks and Options Blog

Making Money Selling Options

Jul 16, 2010 Options

On June 25, we sent out a trading alert to subscribers of our Navivest Options Writer service, recommending they sell (write) the Goldman Sachs (GS) July 155 calls. From a technical analysis standpoint, we felt the stock would have a hard time clearing the $140 area and if that happened, $150 would also prove to be a strong resistance area as well, before the options expired, making the stock a very good candidate for writing options on. There was also the overhang of the fraud charges by the SEC over the company.

We got $2.04 for each call we sold and the recommendation proved correct, as through July 13, the stock never broke above $141.

Towards the end of the trading session yesterday, during the last thirty minutes, the stock started surging on word that the company had reached a settlement agreement with the SEC over the fraud charges and the stock ended up climbing $6.16 to close at $145.22.

After hours, the stock kept rallying, touching $152. Today, in early going, the stock is now at $149.55, up $4.33. With July options expiring today, even with the big gain in the stock, it looks unlikely that the stock will climb above $155 and get called away on us, making this another winner for the Navivest Options Writer service.

With 80% of all options expiring worthless, writing calls is a great way to put the odds in your favor when trading options, as highlighted by this trade.

Tags: goldman sachs, Options, sell calls, writing options

Profiting From The Wild Market Volatility

Jun 2, 2010 Options

With the stock market currently undergoing an extreme case of volatility, individual investors are no doubt very nervous and debating whether they should be in the markets at all. If you are a trader, the answer is yes you should be in the markets. For a trader, these are the best of times.

Yesterday, with the pre-market indicators suggesting that the Dow Jones Industrial Average would open lower by more than a hundred points, we sent out trades for the day to subscribers of our Options Capitalist service.

Being that we were going to be seeing major moves to the downside in individual stocks, we sent out three trades instead of our usual one, in case one opened outside of our entry range. The trades consisted of two puts and one call and with stocks looking to open much lower, we knew the puts would open much higher and we did not want to be shut out for the day. By sending out three trades we were hoping that at least one would pan out. As it turns out, we were able to get into all three.

The trades were the Freeport McMoRan (FCX) June 65 puts, which we got into at $1.70, the First Solar (FSLR) June 100 puts, which we bought at $2.25 and the Randgold (GOLD) June 90 calls, which we entered into at $2.95.

We were looking for a much lower close from where we entered, but at 2:50 PM, we sent out an exit alert to close out all the trades. Not all our subscribers use auto trading and we were worried that if we sent out the exit alert after 3 PM, some of our subscribers might miss the email before the market close.

We closed out the FCX puts at $1.87, the First Solar puts at $2.74 and the Randgold calls at $3.43, which gave us decent gains of 10-20% in the trades. Not bad for one day, thanks to volatility. Of course, just as soon as we exited, the markets fell off a cliff and had we been able to hold on, we would have had over 25% gains in the put trades. But we did want to be out to avoid an up day today and as it stands, in the early going, FCX and FSLR are up.

While the volatile moves are scary, traders willing to brave it, can make very good money.

Tags: first solar, freeport mcmoran, Options, randgold

Two Day Profits of 51% On Goldman Sachs Puts

Apr 30, 2010 Options, Trading Idea

On Tuesday April 27, we sent a buy alert out to subscribers of our Options Capitalist subscription service for options traders, recommending that they purchase the Goldman Sachs (GS) May 2010 145 puts. We entered into the trade at $3.80. We also posted the trade right here on the Navivest blog, for the benefit of our readers.

This morning at 10:53 AM, with Goldman Sachs down over $12, we sent out an exit alert, recommending subscribers put in a good til cancel order to sell the puts at $5.75. The order was filled soon thereafter, giving us profits of 51% in just three days.

The Options Capitalist is a twice a week service for option traders. More info on the service can be found here.

Tags: goldman sachs, Options, outs

Trade Of The Day – Buy Goldman Sachs Puts

Apr 27, 2010 Options, Trading Idea

The following trade is from the latest issue of The Options Capitalist, Navivest’s subscription-based trade recommendation service for option traders. More info on the service can be found here.

After dropping more than twenty points on April 16 from $183.62 to $160.70 on news that the SEC was suing the company for fraud, Goldman Sachs’ stock had held above $150 since then, after finding support. Yesterday however, the stock broke below $150, falling $5.37 to $152.03, violating that support area.

Furthermore, Goldman CEO Lloyd Blankfein and Fabrice Tourre, the employee at the center of the scandal, are testifying in front of the senate today. This may result in some more selling of the shares.

Buy the Goldman Sachs May 2010 145 puts. The closing price yesterday was $3.65 with a $3.70 ask.

Tags: goldman sachs, Options, puts, Trading Idea

Option Trade Of The Day – 03/08/10

Mar 7, 2010 Options, Technical Analysis, Trading Idea

Monsanto - 03/05/10

Shares of fertilizer producer Monsanto (MON) have severely lagged the overall market the past two months. On Friday, with the broader indices all gaining over one percent, the stock lost 2.23%.

However, we are now looking for the stock to hold above $72 and rebound a little, creating an opportunity for some quick profits.  Should we see some further drop, we should hold above $70, with a break below there, creating some shorting opportunities.

With the stock due for a short-term bounce, we are recommending buying call options on Monsanto. Buy the March 2010 75 calls, which closed on Friday at $0.55 by $0.57.

With the stock in a downtrend, we want to enter into this trade ONLY if the stock is moving to the upside. If MON starts an upward move, then initiate the trade. We also want to take quick profits, as these are the March options, which expire on the 19^th and again, the stock is in a downtrend. When the options are up at least 15% after entry, exit.

RISK PROFILE:

Assuming we enter only when MON is moving to the upside, this is a low risk trade that should pay big. However, do not get greedy. Once up about 15%, do not hold the trade overnight beyond that point.

The stock market had a great week last week and as such, some profit taking this week would not be unexpected. Keep that in mind. Take early profits and once again, enter into trade only if Monsanto is moving to the upside. We will follow up on this trade here on the blog, so check back often and or subscribe to our RSS feed here.

Tags: monsanto, Options

Buy Big Lots Options On Upcoming Earnings

Feb 26, 2010 Earnings, Options, Trading Idea

The following is the latest trade from our Options Capitalist service.

Closeout retailer Big Lots (BIG) reports its latest earnings news on Monday. There is a very good likelihood the company beats estimates, which should send the shares higher.

Buy the Big Lots March 2010 32.50 calls. They are now trading at $1.90 by $2.05. Enter to $2.40. There is a fifteen cents spread between bid and ask, which is larger than what we prefer, but with a beat, we should see a $2-$3 pop in the stock.

The Options Capitalist is a subscriptions-based options trading recommendation service. More information about the service can be found here.

Tags: big lots, calls, Earnings, Options

Option Trade of The Day – 02/26/2010

Feb 26, 2010 Uncategorized

The following is the latest from our subscription-based Navivest Options Writer service. It is a very compelling trade that we are making freely available to readers of the Navivest blog.

Shares of InterMune (ITMN) are trading at $13.84, currently down $0.14 on the day. The stock in in a downtrend, after rallying from $13.46 on January 22nd, to a high of $17.81 on February 3rd.

The options on the stock are very richly priced and the March 20 calls are asking $2.00! Selling these, translates into a 14% potential in just three weeks on a covered basis. We will be selling uncovered calls, making it a 100% proposition if the stock does not get called away on us.

As a biotech company, there is the risk that the comany could announce some news that sends the shares soaring, but those risks, in the three week time frame we will be in the trade, are limited in our opinion.

THE TRADE:

Sell the InterMune (ITMN) March 20 calls.

TRADE FOLLOW-UP:

The First Solar calls are now bidding just $0.05, down about 95%, which is great for us, having sold those calls. Keep position open.

For information on Navivest Options Writer, click here.

Tags: calls, covered calls, first solar, intermune, ITMN, option writer, Options

Option Strategy of the Day – Covered Calls

Feb 24, 2010 Options

Covered calls are call options that are sold by an investor/trader who already owns the underlying stock, hence the writing or selling of the calls, are covered. Keeping in mind that for each option contract sold, the option writer is obligated to sell 100 shares of the underlying stock if the stock is called away, to write a covered call, you have to own a hundred shares of a stock, for every option contract that you write or sell.

In simpler terms, if for example XYZ stock is trading at $50 and you own 500 shares, you could sell 5 of the $55 March 2010 calls, which for the sake of conversation, we’ll say are trading at $1.50. So for selling five contracts, you collect ($1.50*100)*5 or $750.

The options expire on the third Friday of the month or March 19 in this case. If by March 19, XYZ is trading under $55, the stock won’t get called away and your profit is the entire $750 premium that you collected.

If by March 19, XYZ has traded above $55, say $60, then the option buyer will exercise the options, enabling her to purchase a $60 stock for $55 plus the $750 premium. Factoring the premium, her total price for the stock is $56.50. So she can purchase the stock and instantly turn around and sell the shares for a $3.50 per share profit.

Covered calls, is a low risk trade for the option writer. The worst that can happen is the stock makes a major move to the upside, and you lose out on the potential profit. For example, XYZ could run up to $95 and you lose out on all that profit because you have to give up the stock at $60 per share. However, while you’ve lost out on some potential profits, there is no actual loss to your portfolio.

Another benefit of the covered call is that it provides some downside protection to a stock holding. If XYZ drops to $45, ordinarily, you would have lost $5 * 500 shares, or $2,500. However, because you sold the calls and received the $750 premium, you limited your losses to $1,750.

Why Put On a Covered Call Trade:

You already own XYZ stock that you don’t want to sell now, but you don’t think the stock will be moving to the upside in the near-term.

You want to gain some extra profits from your stock holdings.

You want to hold on to the stock, but are worried the stock could move to the downside.

In summation, covered calls are a low risk options trade that you could use to generate regular monthly income. With 80% of all options expiring worthless, this is a trade that puts the odds in your favor.

Tags: covered calls, Options, options strategy

Generate Options Income Selling Calls

Feb 19, 2010 Options

On February 11, we recommended that subscribers to our Navivest Options Writer service, sell calls on solar panel maker First Solar (FSLR). Our rational was that we expected the stock to drop, as European countries such as Germany and Spain, were going to be cutting the subsidies they currently provide to their citizens for installing solar power.

The generous subsidies offered by Germany has made that country the leader among all countries in solar usage. With the planned cuts in subsidy, demand will be lowered and solar pricing, which has taken a hit over the past couple years, will continue to deteriorate. This obviously will impact First Solar’s profits.

When we sent out the recommendation, First Solar was trading at $114. 45. We sold the March 150 calls on the premise that it would be very unlikely the stock would climb that high by March 19, 2010, when the March options expired.The stock actually rallied a bit this week, but today, the stock is down on disappointing earnings news released yesterday and two downgrades, bolstering our contention that the stock will not hit $150 before the March expiration. If the stock holds below 150 and thus is not called away on us, our profit on the trade is 100%, in a month!

Writing options should be a part of every options trader’s portfolio. 80% of all options expire worthless, meaning that for those writing options, they have the opportunity to be right 80% of the time, making a very strong case for why traders should make selling calls a part of their repertoire. With the right stock picking strategy underlying their call writing/options selling strategy, option traders can consistently generate options profit every month.

For more information on our service, visit our website at http://www.navivest.com/services.htm.

Tags: calls, first solar, Options, options writing, selling calls

Hewlett Packard Earnings Options Play

Feb 17, 2010 Earnings, Options, Stocks, Trading Idea

Hewlett Packard (HPQ) reports Q1 2010 after the bell today. Analysts are looking for the company to report earnings of $1.06 per share for the quarter. There is a good likelihood  the company will beat earnings and we are buying calls to profit if the company does beat estimates and the stock moves higher. We are also purchasing some puts to hedge against a downside move in the stock, in the event the news is disappointing.

The Trade:

Buy the Hewlett Packard March 50 calls. The current ask is $1.62

For every three calls you purchase, buy 1 Hewlett Packard March 50 puts, which are currently asking $1.52.

We will post a follow up on this trade tomorrow Thursday February 18, 2010.

Navivest is a trading advisory services firm offering subscription-based trade recommendation services. For more information on our services, visit our website at http://www.navivest.com

Tags: Earnings, hewlett packard, Options