The Fab 5 update

The end of the month/quarter action was intense this week, and the Fab 5 basket of stocks was right in the middle of it all. Here is a summary of what occurred:

  • I came into the week was just 3 positions and so I was looking to fill out the basket by adding 2 positions.
  • On Tuesday, June 26 2012, I finally had a good day to consider adding and ultimately chose $ALXN & $DVA (1/2 pos to start). In addition, I put $COST on as a 6th man as it looked promising as well. On 6/28/2012 I was able to finish out the $ALXN position. The $DVA position remains at 1/2.
  • $EW did complete the $100 Roll and is left in since it has a July collar in place. Letting it ride.
  • $COST was added on 6/28/2012 as a 6th man entry
  • $SXCI was so close on Friday to completing the $100 Roll but gave up into the close. The 1% trail stop that I had set earlier in the day was set incorrectly and did hit – this position was sold at 99.30 (that’s what I get for my Kazoo comment on twitter, lol). Will look to re-enter.

Here is the summary of the Fab 5 with Rules:


Looking for an entry in American Capital

As a person that puts a lot of preparation time into Stock chart review each week, one thing I often see are stocks that are in “no man’s land” – there is no easily definable edge to be seen at the moment for entry (long or short). There are however, many that offer a clear picture of a stock that has reached an inflection or pivot point.

For an example, I bring you the Monthly chart of $ACAS:

In this chart above, what you have is price arm wrestling the $10 price level (key psychological area) as it hits a KEY resistance line that has been in place since late 2008. You may also note the massive Volume at Price (VaP) bars down here – a significant floor is now in.

The play here is to play the breakout of $10. If the breakout fails and the stock once again finds sellers, the 2011 low of 6 is solid support.


Saving some Mental Capital in Lululemon

With many things in life, the more a person frets over a situation that is causing angst the more it can affect other parts of their life. This mental drain is not healthy and so it is important to avoid being in this state as much as possible.

With traders this is especially true in that so much is on-the-line when trading. With real money involved, emotions can get the best of a person – and can likely lead to more mistakes (or digging a bigger hole). We all want to avoid that for sure.

I am no exception to this. I found myself doing a LOT of work to manage a position in $LULU (from an earnings trade) and so I took a step back to assess the “goal” of the trade:

To keep the premium collected from being short the July 60 Put option, sold for $2 on June 6.

In order to deal with the Risk Management part of this trade, the plan has been to buy the Weekly 60 Put for $LULU each week – and I have done just that. However, this task of “protecting” the above premium has resulted in a tremendous amount of work monitoring the option chain each week looking for opportune moments to purchase the puts. So far this is what I have accomplished:

BtO June 22w 60 Put for .05; expired worthless BtO June 29w 60 Put for .15 on 6/26 StC June 29w 60 Put for 2.15 on 6/28

With this profit from selling the weekly put this week, it allowed me to consider closing the initial trade entirely. Why would I consider doing this? For one, I have 3 more weeks to July expiration so I have to protect the short puts until then. This means I have to buy puts to protect the initial position at least two more times – thus eating into the premium collected. Secondly, and more importantly, I have the ability to close the  trade entirely with a decent gain – AND save the Mental Capital for other trades that requires a lot less work.

Whew, I feel better already. Done.

The Option Collar – the series

I find myself utilizing an Option Collar more and more in recent months as the market continues to have wide range moves each week. I have published several Blog posts on the use of a Collar, including how I have unwound it, and want to continue that with a post on a current position that I have in $MNST.

Summary of my trade:

  1. I initiated a long position in the stock, in my Long Term account, at an entry of $75.15
  2. I am short the July 77.5 Call
  3. I am long the July 72.5 Put

The above collar (#2 & #3) were put on for a debit of $.22 cents.

Currently the stock is hovering above the $67 price level. The 77.5 call is trading at a bid/ask of .85/1.05 and the 72.5 put is trading with a bid/ask of 7.10/7.40.

The trail stop on the long position hit today on the move under 70 (after a rough day yesterday as well) so what remains now is just the Collar. I will be looking to sell the put soon, once price finds some solid footing, and then will remain short the July 77.5 call.

Update: on July 10, 2012 I bought back the short July 77.5 call on $MNST for $.35 to close out the above trade. The net is as follows:

  • Stock -$5.15
  • July 72.5 Put sold to close for $7.40
  • Short the July 77.5 sold to open at $1.95 & bought back for $.35

Net gain of $3.63 <<  and this only happened due to the option collar protection on the long stock position.

The Bull Risk Reversal (R/R)

First, let me point you to my Glossary of Terms. Review this if you ever have a question regarding my “language” that I use on twitter.

Now, on to the Risk Reversal (R/R). The goal of this trade is:

  • Own a $CALL option on the underlying stock
  • Be short a $PUT option on the underlying stock

If you can do the above trade for a credit, you are amazing – it often requires a small debit however.

So why this approach? When is it appropriate to use this strategy? Well, let’s have a look at a real trade that I just put on:

Let’s break down the above trade:

  1. I am long the June 29 weekly 50 call
  2. I am short the June 29 weekly 49 put

This trade was done for a debit of $.35 and also means that I am at risk of being put the ETF at $49. The goal here is have the $SPX catch a bounce this week so that the 50 strike call increases in value (and thus sell before expiration Friday). If that happens, then I would allow the 49 put to expire on Friday.

Topping Tails on the horizon

One of the stocks enjoying a massive push up in June is $PCYC. However, here is a quarterly chart to show where there may be some trouble ahead for the Bulls:

One thing is for certain – there is no disputing the volume on this up move in 2012 so far. Even the CMF indicator shows a steady move up. Just keep in mind the area of the Topping Tails and also note that there is very little Volume at Price in the box as well.

$86.38 is your all-time high and is just under that $90 price target put out today. Oh boy.

Sticking out like a sore thumb

In viewing the Daily chart of $HTS this morning, it occurred to me that the volume for Friday really stood out. The price action certainly points to a stock that is under some pressure and the volume footprint clearly points to the Bears being in control.

In looking for trade setups, it is nice to find a stock that demonstrates a high probability of where the action is headed. In the chart above, I do have a channel drawn with the lower rail showing a LOT of price pivot action. However, It is my perspective that price heads down to say hello to Mr. 50 day SMA for a test first ($28.84). The reaction of that test will certainly help clear the picture up more as to whether or not it continues down to test the bottom rail again, or bounces.

The Fab 5 – update

There was a lot of activity in this basket of stocks this week. $SXCI looked real promising as it breached the $100 level on Tuesday, but ended up closing under the level and printing a near Shooting * candle for the day.

However, the roughest day came on Thursday as both $SXCI and $UA were exited due to continued or extreme pullbacks. $AGN hit a trail stop as it breached the 50 day SMA. The remaining positions of $EW and $WFM did survive the carnage and held up ok to end the week.

I did make 2 attempts on Friday to start a new position in $SXCI as I feel this stock has real promise to complete the Roll – and more. A look at the current basket:

Exit details on $AGN $SXCI and $UA :

$AGN exits at 92.30 for a small gain of $1.70 and has a Not Completed status.

$SXCI exits at 95 for gain of $2.30 on the stock. The July 100 $PUT is sold for $7.50 for a total gain of $9.80. Has a Not Completed status. There is a new position as of Friday (attempt #3 in June). Attempt #2 resulted in a $.75 loss on Friday.

$UA exits at 99.25 for a small gain of $.40 but did complete the Roll so it has a Completed status. The July 105 $PUT was sold for $7.80 for a total gain of $8.20.

Moving Average congestion in Darden Restaurants

One of the stocks that I have monitoring today is $DRI with a focus on how it trades relative to its 200 Simple Moving Average.

What you will notice however is the congestion created by:

  • 8d EMA
  • 20d SMA
  • 50d SMA
  • 10d VWAP
  • 100d SMA

One big collision. So how do you make sense of it all? Here is the chart:

With a Hammer (Trend Reversal signal) forming for today, it appears that the Bull camp has stepped in to buy this on the pullback today. For a clean entry, look for one of the above moving averages to make a clear move – break out of the congestion.

Otherwise, this is simply a basic channel play (short the top rail, dip buy the bottom rail).