TradeKing Midday Market Call Recap: SPX, VIX, RUT, EBAY
Recap for Tuesday, June 12 by Kevin Corrigan
Did you miss Tuesday’s TradeKing Midday Market Call? Here’s a quick recap. Don’t miss another session, register here today!
Analysis from QuickTakesPro founder and Barron’s columnist Michael Kahn, CMT:
S&P 500 (SPX) – at the time of this broadcast, SPX was around 1318, up about 8 from Monday. There was a big reversal at resistance near 1335 yesterday. This is an important level. Also, another thing to point out and what is not usually noted on a standard daily chart, is where the SPX level traded during the premarket session. The high before the open was much higher than it was during the regular trading session from 9:30am to 4pm. This means the failure that occurred was even worse. Current market resistance is around 1360, where there is the potential for a lot of sellers to come in. The RSI most recently is increasing, while prices are decreasing. This means there is bullish divergence. If you are a bear (like Michael is) keep this is mind as there may be a change coming.
Russell 2000 Index (RUT) - at the time of the broadcast, RUT was near 756 up about 5 from Monday. Similar pattern to the SPX but has been hanging around the 200-day moving average a lot longer. This is a more bearish set up with regards to the 200-day MA as compared to the SPX. It broke through the recent head and shoulders neckline of around 782. Since then it has tried three different times to break above a resistance line (around 779) and has failed. Some are saying this could be an inverse “Head and Shoulders” pattern, but I don’t agree. But with the RSI momentum indicator increasing, potential bullish movement should not be ignored.
Discussion from TradeKing Senior Options Analyst Brian Overby:
VIX – at the time of this broadcast, VIX was about 22.45, down about a point from yesterday. VIX has been trading in a range between the 100 day and 200 day moving averages, between about 18.81 and 24.60 respectively. The VIX contracts have been trading around the 22, 23, 24 levels, as we have been expecting. The August contract is trading around 26.70. Not a whole lot of movement expected outside 20-26 levels throughout the summer.
Quick Takes Pro “Chart of the Day” - EBAY - symbol (EBAY)
EBAY - At the time of this broadcast, EBAY was 40.94, flat from yesterday. The important thing is the trading level is where it has been since April, roughly 38.25 to 41.65. Here we see several failures to break above the 41.65, even this week when the market gave a run at a new high. If we draw a line between these levels and drop it from the 38.25 mark, we could see a drop to below 35 and near its former resistance level from 2011.
If we use the upper resistance line as a stop out point to take a trade in the stock going short, and we compare it to a potential target of 38.25, the risk-reward ratio is attractive. If it continues to decline, and breaks current support at 38.25, EBAY could head lower to under 35. Keep in mind, potential losses are unlimited when shorting stock.
Technical tools used:
- Moving averages
- Support / resistance
Options Guy’s potential options trade based on “Chart of the Day” – EBAY Long Put Spread (Bear Put Spread)
EBAY – the volatility chart shows there is a spike in implied volatility. This could be the result of activity ahead of the earnings announcement on 7/18. Because of this, I will focus on the spread trade instead of a straight put purchase. There are only 4 more days until June expiration, so we will look at the July strikes.
EBAY - Long Put Spread (Bear Put Spread):
- Buy 1 EBAY Jul 41 Put
- Sell 1 EBAY Jul 38 Put
- Long put spread market was Bid 0.98, Mid 1.00, Ask 1.02
- At the time EBAY was 40.96
- 39 days till expiration
- Max potential loss is $1.00 debit (mid price) if EBAY is at or above 41.00 at July expiration.
- Max potential gain is $2.00 if EBAY is at or below 38 (calculated by the $3 difference between the strikes, less the net debit paid of $1.00)
- Multi-leg commission to enter is $6.25
EBAY – Long put option as a possible earnings-based trade:
- Buy 1 EBAY Jul 41 Put
- Bid 1.88, Ask 1.90
- At the time EBAY was 40.96
- 39 days till expiration
- Max potential loss is debit of $1.90 (ask price)
- Max potential gain is $39.10 if EBAY goes to zero (quite unlikely)
- Commission to enter is $5.60
TradeKing Options Tools used:
- TK Live
- Options Strategy Workbench
- Detailed Quote / Earnings Calendar
- Moving Averages
- TradeKing Long Put Spread
- TradeKing Long Put
- TradeKing Volatility Charts
Get solid market analysis and potential trading ideas. Take 15 minutes of your lunch with Barron’s columnist and Chartered Market Technician, Michael Kahn of Quick Takes Pro, and TradeKing Option Guy Brian Overby, as they analyze the market during this live online session. As an added bonus, Michael shares the Quick Takes Pro “Chart of the Day” and Brian discusses at least one option trade. This might be the most valuable thing you do all week! Every Tuesday midday from 12:00 - 12:15pm ET.
Don’t miss the next TradeKing Midday Market Call. Register here: www.tradeking.com/events
VP - Content and Social Media
Learn new trading strategies from the Options Guy, hone your skills at TradeKing All-Stars, or catch up on TradeKing’s latest with our CEO. You can also follow us on Twitter or fan us on Facebook.
At the time of publication and in the preceding month, TradeKing and/or Michael Kahn did not have ownership greater than 1% in any stocks mentioned; did not have any other actual, material conflict of interest known at the time of publication; have not received compensation from a public offering nor from investment banking services related to any companies mentioned within the past 12 months, nor expect to receive any in the next 3 months; nor engaged in market making in the securities mentioned.
Options involve risks and are not suitable for all investors. Prior to buying or selling options, an investor must receive a copy of Characteristics and Risks of Standardized Options, sent to you in previous communication. Additional copies may be obtained by calling TRADEKING at 877-495-KING or by visiting www.TradeKing.com/ODD.
System response and access times may vary due to market conditions, system performance, and other factors.
Multiple leg options strategies involve additional risks and multiple commissions, and may result in complex tax treatments. Please consult a tax advisor.
Any strategies discussed and examples using actual securities and price data are strictly for illustrative and educational purposes only and are not to be construed as an endorsement, recommendation, or solicitation to buy or sell securities. Past performance is not a guarantee of future results. Consider the following when making an investment decision: your financial situation, your risk profile and transaction costs.
Market timing is a complex investment strategy which involves risk and may incur additional commission costs.
While implied volatility represents the consensus of the marketplace as to the future level of stock price volatility, there is no guarantee that this forecast will be correct.
TradeKing charges $4.95 for online equity and option trades, add 65 cents per option contract. TradeKing charges an additional $0.35 per contract on certain index products where the exchange charges fees. See our FAQ for details. TradeKing adds $0.01 per share on the entire order for stocks priced less than $2.00. See our Commissions + Fees page for commissions on broker-assisted trades, low-priced stocks, option spreads, and other securities.
The projections or other information generated by TradeKing's tools regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. The calculations do not take into consideration all costs, such as commissions and margin interest which may impact the results shown. It is the user's sole responsibility to select the criteria to enter in the TradeKing's tools, or to choose among the pre-defined screens, and to evaluate the merits and risks associated with the use of the tools before making any investment decisions. TradeKing is not responsible for any losses that occur from such investment decisions.
TradeKing Webinars and All-Star Blogs are provided for educational and informational purposes only. All investments involve risk, losses may exceed the principal invested, and the past performance of a security, industry, sector, market, or financial product does not guarantee future results or returns. TradeKing provides self-directed investors with discount brokerage services, and does not make recommendations or offer investment, financial, legal or tax advice. You alone are responsible for evaluating the merits and risks associated with the use of TradeKing's systems, services or products.
TradeKing Webinar guest speakers and TradeKing blog authors are solely responsible for their content. TradeKing may maintain a cross marketing relationship with TradeKing guest speakers and TradeKing blog authors. In some instances, TradeKing compensates guest speakers and authors for their participation.
TradeKing selects and defines as All-Stars certain independent market commentators who are recognized industry personalities and experienced traders and who provide timely market commentary via the TradeKing All-Star Blog and/or TradeKing Webinars. Each All-Star commentator's bio, related qualifications and disclosure as to their relationship with TradeKing can be found on the All-Star Roster. The selection of All-Star commentators is solely based on the quality and style of the content provided. TradeKing does not measure, endorse, or monitor the performance or correctness of any statement or recommendation made by independent All-Stars commentators. Supporting documentation for any claims made by TradeKing All-Stars will be supplied upon request by the author of the post, who is solely responsible for the views expressed. Contact TradeKing All-Stars by sending an email message to TKallstars@tradeking.com.