TradeKing Midday Market Call Recap: SPX, VIX, CSCO

TK All-Star posted on 09/18/12 at 05:12 PM

Recap for Tuesday, September 18 by Kevin Corrigan

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Analysis on SPX :

S&P 500 (SPX) – at the time of this broadcast, SPX was around 1,459.51 down about 1.68 from Monday’s close. It has recently rallied due to last week’s European Central Bank (ECB) and Fed comments pledging to do whatever it can to save the world economies. We had a true breakout to a new high and then a pause and then another strong up day later in the week. Michael thinks you have to give this trend the benefit of the doubt, even though we are having turmoil in the Middle East and the jobs picture isn’t too rosie. Michael thinks Fed’s announcement of QE3 means more “free money” pushed the market higher.

Discussion from TradeKing Options Analyst Brian Overby:

VIX – at the time of this broadcast, CBOE Volatility Index (VIX) was about 14.29 down about 0.31 from yesterday. There is very little volatility in general in the market even though September and October are typically volatile months. It is still trading well below its 100 and 200 day moving averages. Also, there’s not too much activity in the October options recently despite record volumes in the VIX pit for the month.

Brian recently blogged about what to know when trading VIX options here.

Quick Take Pro Chart of the Day is Cisco - (CSCO)

Discussion from QuickTakesPro’s Michael Kahn -  At the time of this broadcast, CSCO was 19.11 down about .05 from yesterday. CSCO has recovered from a significant breakdown over the summer and has been hovering around resistance levels of about 19.75 again. This 19.75 number is significant because it has been a resistance/support level for years with Cisco. The fact that volumes are waning recently leads Michael to believe this resistance level will hold again. If it does start to break down, the next stopping point would be down around the 17.75-18 level. This area on the chart is where the recent gap-up started.

Technical tools used:

Support / resistance
- Trendlines
- Moving Averages

Brian Overby’s possible short term strategy based on Michael’s chart – CSCO – Long Put

Since Michael has a bearish outlook on CSCO, we will look at a possible long just out-of-the-money put. Positive earnings news on CSCO had an effect on both this Historical and Implied Volatilities. The implied volatility dropped near its year lows around 25%. It dropped significantly because it was a price move that was mostly positive. However, Historical Volatility levels have jumped and are around 35%. This could be considered a good volatility picture for buying a long put.

Possible Short Term Strategy - Long Out-of-The-Money Put

- Buy 1 CSCO Oct 19 Put
- Bid .48, Ask .49
- 32 Days to Expiration
- Total debit is .49 if we take the Ask

- Maximum potential loss is the debit paid of .49
- Maximum potential gain is 18.51 if CSCO goes to 0 (but unlikely)

- Total commission to enter this trade is $5.50

Possible alternative trade - Short Term Strategy - Long In-The-Money Put

- Buy 1 CSCO Oct 20 Put
- Bid 1.10, Ask 1.12
- 32 days until expiration on the October
- Total debit is 1.12 if we take the Ask

- Maximum potential loss is the debit paid of 1.12
- Maximum potential gain is 18.88 if CSCO goes to 0 (but unlikely)

- Total commission to enter this trade is $5.50

**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
TradeKing Long Put
TradeKing Volatility Charts

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Kevin Corrigan
VP Content and Social Media

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

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.
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Posted by TK All-Star on 09/18/12 at 05:12 PM


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