TradeKing Midday Market Call Recap: SPX, VIX, RUT, BRK.B
Recap for Tuesday, June 19 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 1358.81, up about 13 from Monday. It is trading well above the 50-day moving average. If it breaks through the current resistance level, new target could possibly be as high as 1400. But, Michael Kahn is not as bullish because this rally could be speculative. There seems to be an expectation the Fed will announce it will begin printing more money again.
Russell 2000 Index (RUT) - at the time of the broadcast, RUT was near 785.48 up about 12 from Monday. Trading right at the 50-day moving average. Again, it seems to be on a bullish trend hoping the Fed announces it will resume printing money. If it does, and it breaks through the current resistance level right now, we could see a new level of 820-830. Overall, however, Michael Kahn is not as bullish as the market is at this time.
Discussion from TradeKing Options Analyst, Nicole Wachs:
VIX – at the time of this broadcast, VIX was about 17.82., down about .50 from yesterday.
VIX dropped well below the 100 day moving average of about 18.91.
The drop off is pretty sharp. Not what we’ve been expecting in recent weeks. Looking forward, July at-the-money options indicate contracts are about 19, August is about 21, September is 22.50 and October is 24, with November and December even higher. The expectation is this will continue to tick up.
Quick Takes Pro “Chart of the Day” - Berkshire Hathaway - symbol (BRK.B)
Berkshire Hathaway - At the time of this broadcast, BRK.B was 82.90, up about .75 from yesterday. It is above its 50-day moving average of about 80.34 although Michael Kahn does not think it is much of a factor right now. It had been in between a range of about 78 to 82.50. We are now above the resistance level just today. Technically, it is a breakout, but the concern is the volume is pretty low. Everything is held hostage until the Fed announcement. If it is a real breakout, the next level could be about 87. If it falls below 82.50, we could see it around 78 to 79.
Technical tools used:
- Moving averages
- Support / resistance
Nicole Wachs’ potential strategy based on “Chart of the Day” – BRK.B Long Straddle
BRK.B – if we go by Michael’s possible targets of 78 or 87, we will try a Long Straddle option strategy. The implied volatility level on BRK.B is about 15%, which is pretty low when looking back over the past few months. Nicole Wachs is also not as bullish on BRK.B as the market has shown. If you expect a breakout to either side, you can trade a long straddle. If you do not buy into the bullish expectation, you can just buy a long put. One way to trade on this that can play it on both an upside or downside movement is the Long Straddle.
To learn how to do this analysis on your own, please check out Nicole’s webinar series on How to Choose Your Strategy:
- Part 1: Your Outlook on Direction and News;
- Part 2: Your Outlook on Implied Volatility;
- Part 3: Aligning Your Outlook with the Greeks;
- Part 4: Option Strategy Cheat Sheet (download Playbox handout)
BRK.B - Long Straddle: if you believe the stock can move strongly to either side before July expiration
- Buy 1 BRK.B Jul 82.50 Call
- Buy 1 BRK.B Jul 82.50 Put
- Long straddle market was Bid 2.55 Mid 2.58, Ask 2.62
- At the time BRK.B was 82.88
- 32 days till expiration
- Max potential loss is $2.58 (mid price) if BRK.B is at or between 79.92 and 85.12
- Max potential gain is $79.88 if BRK.B goes to zero (unlikely) or unlimited if BRK.B goes to infinity (even more unlikely)
- Possible gains would be around $1.88 if the straddle value increased from $2.62 to $4.50, as a result of hitting either one of Michael’s targets before July expiration.
- Multi-leg commission to enter is $6.25
Another way to potentially trade this is if you are bearish and the earnings announcement is further out than the next expiration is to do a Long Put.
BRK.B – Long Put Option: if you do not believe the stock can break through and move up from resistance
- Buy 3 BRK.B Jul 82.50 Put
- Bid 1.08, Ask 1.12
- At the time BRK.B was 82.88
- 32 days till expiration
- Max potential loss is debit of $1.12 per contract (ask price)
- Max potential gain is $81.38 if BRK.B goes to zero by July expiration (unlikely).
- Possible gains would be around $3.38 if the put value increased from $1.12 to $4.50, as a result of hitting Michael’s downside target before July expiration.
- Possible losses would be around $0.55 if you exit when the put value loses 50% from purchase price, or when the stock trades between 83 and 84, or higher.
- Reward/Risk evaluation: possibly make $3.38 by risking $0.55
- Possible trade management for profit taking is to sell 2 contracts if stock trades under 79; sell the final contract as you determine is appropriate.
- Commission to enter or exit is $6.90 for each, but only if all contracts are traded at the same time. Scaling out would increase commission costs.
**NOTE: option prices are given as a per contract amount. Multiply loss and gain figures by 100 shares and by the number of contracts traded to determine the amount of the full potential loss or full potential gain. No additional calculations are needed to determine commission costs.
TradeKing Options Tools used:
- TradeKing Options Chain
- Detailed Quote / Earnings Calendar
- Moving Averages
- TradeKing Long Straddle
- TradeKing Long Put
- TradeKing Volatility Charts
- Option Playbox
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