TradeKing Midday Market Call Recap: SPX, VIX, MSFT

TK All-Star posted on 10/03/12 at 10:17 AM

Recap for Tuesday, October 2 by Kevin Corrigan

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Analysis on SPX:

S&P 500 (SPX) – at the time of this broadcast, SPX was around 1,441.79 down about 2.70 from Monday’s close. It is still within its Trendline Channel since around late May, early June. It is also trending in a smaller “channel within the channel” going back to around Mid-July. It hasn’t seemed to break out of this channel to the upside or downside and this could be seen as a negative sign in an overall up trending market. Also, the MACD chart on the bottom shows a crossover recently that may indicate there’s not a lot of momentum in this market.

Discussion from TradeKing Options Analyst Brian Overby:

VIX – at the time of this broadcast, CBOE Volatility Index (VIX) was about 16.37 flat from yesterday. VIX has been trading real close its 50 day moving average of about 15.90. It has pulled back off its recent lows. Last week the notable trades were in the January upside call contracts. There were 20,000 January 25 calls traded on the ask last week.

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

Quick Take Pro Chart of the Day is Microsoft - (MSFT)

Discussion from QuickTakesPro’s Michael Kahn -  At the time of this broadcast, MSFT was 29.60 up about .11 from yesterday. Microsoft is now trading below both the 50 day and 200 day moving averages of about 30.36 and 30.20 respectively. It just recently had a break down through its trendline. Going further back to about 2009, there seems to be a support level of just below 28. It has had a steep down side move recently, so you have to be wary short term of a small bounce back, but overall Michael is bearish on the stock.

Technical tools used:

Support / resistance
- Trendlines
- Moving Averages

Brian Overby’s possible short term strategy based on Michael’s chart – MSFT – Back Spread with Puts AKA Pay Later Put

Microsoft is expected to announce earnings on October 18th, the day before the October expiration. That earnings report has caused a bump up in the implied volatility (IV) level for the October expiration. Currently the IV is round 22-23%, with the Historical Volatility not too far from its lows of the year, around 15%. We have to respect this bump up in IV so Brian would like to do something a little different this week.

Possible Trade - Back Spread with Puts AKA Pay Later Put

- Sell 1 MSFT Oct 30 Put
- Buy 2 MSFT Oct 29 Puts
- Bid 0.07, Mid 0.09, Ask 0.10
- 18 Days to Expiration
- Total net credit is 0.07 if we take the Bid

- Maximum potential loss is .93

- Maximum potential gain is substantial if the stock went to zero - 28.07.  (Keep in mind, however, stocks usually don’t go to zero.)

- Total commission to enter this trade is $6.90

Possible alternative trade - Long Put Spread

- Buy 1 MSFT Oct 30 Put
- Sell 1 MSFT Oct 28 Put
- Bid 0.65, Mid 0.65, Ask 0.67
- 18 Days to Expiration
- Total net debit is 0.67 if we take the ask

- Maximum potential loss is 0.67
- Maximum potential gain is 1.33

- 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
TradeKing Back Spread with Puts
- TradeKing Long Put Spread
TradeKing Volatility Charts
- TradeKing Profit and Loss Calculator

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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 10/03/12 at 10:17 AM


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