Stock Option Trading | Market Recap SPY SPX USO TLT CAT IWM INTC IBM

Welcome to the weekly
video for Swing Trading Options. Today is Friday, May 4th 2012, and we?re looking at
the market today. Basically, we fell of the cliff after the jobs report this morning.
Expectations came in lower than expected. This was flagged earlier on Wednesday when
ADP numbers were less than expected. I?m not very surprised that this happened.
I was actually positioned for this. We were talking with our members and yesterday I sent
a message to our members that I grabbed some IWM puts. I grabbed some May contracts and
June contracts. (Let?s look at the IWM real quick.)
It is the weaker of the indexes. Yesterday we grabbed some IWM puts ? small position,
just looking for a bad jobs report. That played out well. We closed the May puts today at
a nice gain in that. I?m going to hold the June puts probably through next week. Let?s
just see where this market takes us. The IWM is much weaker than the rest of the
bunch. You can see that we have this large potential head and shoulders here, but we?ll
see if that plays out next week. If this breaks the neckline around the $78 area, then we
would look for a move back down closer to ? (Let me bring in the averages real quick.)
? the $75 area, which is about the 200-day moving average. That?s the plan for the IWM
play. Let?s look at the SPY real quick. Also to
our members, I?ve been talking about this trend line. This is the October 4th low from
last year. We?ve hit it once, twice, and then you can see we did come back to it. We broke
down and now this trend line is basically new resistance. And we came back above here.
I?ve been pointing this out to our members. We?re trying to see if this support was going
to hold today, but the jobs report came out and basically we?ve broken down. The next
target on the downside I think we?re going to probably get to this pivot. I think there?s
going to be strong support here. This is about 134.40, 134.50 on the SPY. I would expect
the bounce. But prior to that (I?m going to switch to
the cash index), I would not be surprised if early next week we got a little bounce,
maybe one or two days early in the week, and then we break down. What I?m looking to do
is short rallies at this point. Maybe we?ll get that in the SPY. Also, I?m actually just
considering buying puts on the SPY and I am looking at June options at this point.
Let?s look at a couple of plays that we might want to look at next week.
One of them is USO. USO had a monster drop today. There was some news earlier in the
week about inventories were very high. And then now that we have the weaker economic
data showing a potential slowdown in the US, Oil is down 4% today.
If you look at the USO, which I?m using as a proxy for Oil, you can see we got to the
200-day moving average, and I think we?re going to bounce from here. The question is:
How big is the bounce going to be? What I would look for next week ? I?m not in this,
but I think I would prefer to do a credit put spread or a bull put spread on this. I?d
probably look at something like the 36, 34. We?ll see how the week opens next week, but
if we get a little sideways consolidation here for a day or so, I would look to put
this on as early as possibly Monday or Tuesday. If we start to bear flag like this early in
the week, when we start getting candles up within this candle, I would probably hold
off on that because that?s ? If we set up for a bear flag and then we push down, that
would go against our position. I don?t want to play straight up calls on this, but I think
selling some put spreads here makes sense. And I would actually look at the May put spreads
because we have 14 and next week it will be 12 days left. We want to see what the premium
is going for at that point. Another play I?m interested in is TLT, which
is inverse to the market. It?s a safety play. I would look for TLT to the long side. And
the setup I would look for here is I would actually look at buying some calls. I would
actually look for some early weakness in the next week and look for a potential pull back
to about the 20-day moving average. (Let me bring in the 13-day with that.) That coincides
with the 13-day as well. Around the 117 (maybe 117 and a quarter area),
I would look at some June calls. Let?s look at the chain here real quick. I would probably
look for delta of 70 on the June calls, so you?re probably looking at somewhere around
the June 116 calls. If we do get a pull back next week, let?s go ahead and just theoretically
price these for Monday. The seventh is Monday. If we did pull back to, let?s just say, 117
(we?re at 118.14) ? Let?s say we get a dollar pull back. What you can do here is go in and
we just say if the stock price drops by one dollar, then these calls would be worth a
theoretical price of about $2.44. I would look to potentially get in those early in
the week for, let?s just say, $2.50. They?re in the money, so you have some intrinsic value
here. And you don?t have a lot of time decay, which is important.
I would look for a move to retest. These are very clear targets here. You have this pivot
here. (Let me change my tool real quick.) You have this pivot. This will be first target,
which is around 119.20. Second target I?d probably take it off, but I would look for
a move up there. But I would actually wait for a small pull back first. You do have this
little gap that happened today. Maybe you?d come back to 117.47 or potentially gap fills
117.23. You could even potentially scale in a little bit here and a little bit at the
13-day EMA. We?ll see some of the things I?m looking at
for next week. Some major players really broke down today.
A couple of the names that I have been watching on the long side was Intel. Intel was holding
up pretty well but it had a huge outside reversal day yesterday (very bearish engulfing candle),
at a follow through today. You are going to get to the 50-day probably, but you might
get a little bounce before heading lower. I do not want to short Intel, but again, actually,
obviously we?re not going to get long as well. I think IBM is one of the stronger of the
stocks as well. We?ll see if these moving averages can hold.
A couple other names that we had been short: Caterpillar is actually going to run. I think
we?re going to make a run to the 200-day moving average here. I would actually look for a
potential bounce. I don?t know that I would want to short Caterpillar anymore because
this is going to act as heavy support around this $98 area. I would actually look at potential
bull put spreads as well on Caterpillar. But let?s see how next week opens.
If you guys have any questions, let us know. We?ll see you next week!

Leave a Reply

Your email address will not be published. Required fields are marked *