TradeKing Midday Market Call Recap: SPX, VIX, UPS
Recap for Tuesday, September 11 by Kevin Corrigan
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Analysis on SPX :
S&P 500 (SPX) – at the time of this broadcast, SPX was around 1,435.72 up about 6.64 from Monday’s close. It has recently rallied due to last week’s European Central Bank (ECB) comments that pledged to do whatever it can to save the Euro. It has rallied past its previous resistance levels of around 1422 to new highs. Right now it is in a pause awaiting more news from the ECB announcements tomorrow and Thursday. Two things to look out for is the 200 day moving average is well below current levels (could be a warning sign) and the momentum in this recent rally is fairly light.
Discussion from TradeKing Options Analyst Brian Overby:
VIX – at the time of this broadcast, CBOE Volatility Index (VIX) was about 15.87 down about 0.41 from yesterday. There is very little volatility in general in the market, the 30 day historical for the SPX is close to 12%. The VIX continues to trade near its 52 week lows, although there has been a recent large purchase of October 30 - 32 bull call spread. The buyer paid a dime for 55,000 spreads. September and October historically have been the most volatile months for many of the past trading years. So far for this September that definitely has not been the case.
Brian recently blogged about what to know when trading VIX options here.
Quick Take Pro Chart of the Day is UPS - (UPS)
Discussion from QuickTakesPro’s Michael Kahn - At the time of this broadcast, UPS was 73.51 up about .46 from yesterday. Last week it gapped down even further from a recent selling trend. This is related to the news last week with its competitor, Fedex. Fedex got beat up pretty bad and UPS took a hit as well. It looks like an exhaustion gap because it was trending down, then had the gap down further. It dropped below its support level around 72 down to 71.50 level. One thing to be leary of is it looks to be near a “death cross” pattern. The death cross pattern, is when the 50 day moving average drops below the 200 day. Just something to look out for, the 50-day has not crossed the 200-day yet. Because of the exhaustion gap recovered and the fact that is stay back well above the 72ish support level, it could be UPS has shaken off the bad news from bad Fedex news and could be on the move higher - even up to the 75 - 76 level.
Technical tools used:
- Support / resistance
- Moving Averages
Brian Overby’s possible short term strategy based on Michael’s chart – UPS – Long In-The-Money Call
Both the Implied and Historical Volatility levels on UPS are near the year lows. Earnings are scheduled to be announced 10/23, well after the September expiration. The September expirations expire in 11 days. Since we are looking for a small, quick bump in this time period lets look at an just in-the-money call option.
Brian Overby’s possible longer term strategy based on Michael’s chart – UPS – Long Calendar Spread
If you did want to look at a longer term trade, the fact that earnings are announced just after the October expiration leads us to a long directional calendar spread with calls. We want to be out for sure though before the October expiration. We do not want the potential volatility the earnings report could bring with it. We are looking at this trade because of the technicals, not the fundamentals.
UPS – Possible Short Term Strategy - Long In-The- Money Call
- Buy 1 UPS Sep 72.50 Call
- Bid 1.48, Ask 1.51
- 11 days until expiration
- Total net debit is 1.51 if we take the Ask
- Maximum potential loss is the debit paid of 1.51
- Maximum potential gain is unlimited (but highly unlikely)
- Total commission to enter this trade is $5.50
UPS – Possible Longer Term Strategy around earnings - Calendar Spread
- Buy 1 UPS Jan 75 Call
- Sell 1 UPS Oct 75 Call
- Bid 1.09, Ask 1.17, Mid 1.13
- Earnings after October expiration - 10/23/2012
- 39 days until expiration on the October
- 130 days until expiration on the January
- Total net debit is 1.17 if we take the Ask
- Maximum potential loss is 1.17
- Maximum potential gain is limited to the premium received for the back-month call minus the cost to buy back the front-month call, minus the net debit paid to establish the position. NOTE: You can’t precisely calculate your risk at initiation of this strategy, because it depends on how the back-month call performs.
- Total commission to enter this trade is $6.25
**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:
- Detailed Quote / Earnings Calendar
- TradeKing Long Call
- TradeKing Long Calendar Spread with Calls
- TradeKing Volatility Charts
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