Monday, December 20, 2010

New Equity Trades: DLTR, PFE, MO, SPY

I started today with just one position but ended up with seven. In addition to new trades in bond and nat gas futures I also found four equity plays I liked. I kind of started today with a blank canvas and had a number of ideas I found over the weekend I was interested in. A few of them turned out to no longer be available during the trading day today but these four I played.

DLTR This trend is my friend until broken. Even though I feel the market in general is topping or consolidating before future moves higher, there are always individual names that can continue their trend regardless of overall market direction. I hope this is one. In addition to the technical trend, IV is at a 6-month low and earnings are already out of the way. I like the risk/reward of getting long here. I bought the JAN11 50 ITM calls for 6.90 with the stock at 56.70, so paid just .20 time premium. If we break that channel to the downside I would expect IV to increase which would lessen my losses. I would look to exit this trade with a break of the channel. The gold line represents some possible overhead resistance so I might be exiting this trade soon. Some TAs would feel the most recent resistance is a stronger Que than the longer term up-trending channel, but I'll stick with the trend until broken.

PFE This is a similar play to DLTR above. I like the combination of the technical pattern and low IV. In addition, I also like the dividend yield on PFE and consider this trade to be just getting long with no exit point. I bought the JAN11 15 Calls for $2.08 with the stock at $17.06, so paid almost no time premium. If these finish substantially OTM but above 15 I will probably just exercise and get long, then sell covered calls and take the dividend while I wait.

MO Though IV is low on this name as well, I felt I missed the move already and RSI is high so I didn't really want to buy ITM calls. I do like the dividend yield on this name and would like to get long at a lower price, so even though IV is low I went ahead and sold the 25 strike puts for .50. That's still a 2% yield on risk for 30 days on a strong name that I wouldn't mind getting long so I'm comfortable with this trade and will take possession and write covered calls if assigned.

SPY Now since IV is low on just about everything across the board I looked in to buying some VOL. This is rare for me as my psychological profile usually prohibits me from buying premium. However, the markets is suggesting I do so. The total range for the last seven trading days on the SPX has been just 17 points, that's ridonkulous. I bought the Q4 SPY straddle that expires in two weeks. Playing with the analysis tool on TOS, if I can get just a 2% up move in IV and a 10 point move in either direction by the end of the week, this trade breaks even. Now I'm not looking to break even, I'm looking for either a nice 2-4% uptick in VOL and/or a 15-20 point SPX move, but I liked the risk/reward here so I took a shot with a small defined risk of just $660. If this things doesn't perform at all by Thursday morning then I will have to consider closing it out since there is no trading on Friday and I will basically lose two days premium by the end of that day. So Kim Jong Il, make something happen buddy!!

1 comment:

  1. I closed out the SPY straddle the next day for a $40 gain, just lost my nerve on being long double premium. I also just closed out the PFE calls, full post to follow.