Thursday, April 1, 2010

2 new trades

Basic materials and Energy more specifically are breaking out and could be ready to play a little catch up with the some of the other industry groups. There has for sure been tons of rotation in the markets and each industry seems to want their turn. Take a look at the 3 month industry performance from below:

Notice Basic Materials is 3rd from the bottom. If this industry can keep buyers interested I think a few stock could be poised to go higher with a kicker in the form of earnings. The two names that I put on today are AA and DRYS (now drys has bee a piece of crap forever and I have tried to play it many times). I may have to black ball DRYS after this trade if it fails me yet again.


They report on 4-14.

Last earnings they rallied all the way up to 17.60 before crashing when reports were disappointing. Last QTR I bought puts going into earnings for AA. But this time my gut tells me it could be different this time. So with that said I am going to trade with a risk reversal.  So I have sold the 3 April $15 puts for $0.75 or $225 and purchased 10 May $15 Calls for $0.64 or $640. Total debit for this trade is $415. AA is currently trading at 14.66 so I am anticipating a move above 15 before options expiration. I am anticipating that AA will close at $15 or higher by option expiration and plan to hold these until expiration as a way to generate some income. I chose to buy the May call options as opposed to the front month April Calls because from experience I have observed that back month options seemed to move better than the front month. I recall last QTR when I bought puts on AA before earnings and ended up making only $100 on the front month options when the back month options were up about $300 or so.

Entry: 14.50

Target: 16 (where it gapped down after last earnings)

Risk: Hard to quantify if my plan is to hold through earnings, but I want to take the trade. But it is better than 1:1.

Reward: $1,000 (If we get that move to 16)

Stop: below 14 if it sells off after earnings.

I know this one is a bit cloudy compared to most of my trades. But this is one of those gut trades that I have to take.


They report on 4-29-2010.

This one has been a thorn in my side the past few trades. But I feel like I need to give it another chance. For a few reasons. Beside the chart patter setting up nicely this one has a few things going for it: Basic material are on the rise, rising oil prices (they have oil exposure with deep sea drilling), and earnings coming up at the end of the month. Top all of that off with a continued uptrend in the equities market and that could lead to some long awaited upward momentum. Still to be seen. Nonetheless I am long 10 Jun 6 calls for $0.53 a contract. DRYS is currently trading at $6 even.

I am risking about $300 to make a potential $1,000. But I really want to see a close above $6 over the next few days or I might have to cut the position. And it needs volume.

Oh and for fun here is a chart for Crude:


  1. Correction AA reports on 4-12 after the close on Monday. This actually works out better because I am leaving on vacation on the 4-14. This will give me less anxiety while I am in the air. I would love to desolve of the calls of this position before I leave on vacation. So we will have to see how it trades by Monday to see if I will hold through earnings. If we can catch a bid and trade up to around $16 I will take my profits and run, maybe leave 2 contract on for further upside.

  2. DRYS is trying to catch a bid. Also AA is also contenting with a downgrade this morning on concerns that they might miss Q1 expectations on Monday. But I think it has held up relativly well on the news trading close to flat for the session.

  3. I took off half of the DRYS calls for a 33% gain. I am now in a position of strength in this position and will hold the other 5 contracts for now.

    AA is moving past short term resistance at 14.82. May look to take half off at around 15-15.25 if it gets here.

  4. AA got to 15 so I sold half of my calls and bought back the short puts. I will hold the remaining 5 calls. Again now I am in a position of strength. I know you can look at it as I am giving up profits but I don't need to make the full profit potential on every contract. Plus if I hold the entire position I most likely would close the entire thing out before it reaches my target on the slightest of pull backs. Now I can withstand any normal pull back in the stock.

    It just seems like the prudent thing to do.