Market Recap Feb 29, 2016

Traders received an extra day this year but could do little with it. After opening near unchanged, it looked like buyers were taking charge again through 2 PM as there was a nice intraday rally – but a slew of selling in the last 2 hours led to moderate losses. The S&P 500 dropped 0.81% and the NASDAQ 0.71%. And with that, the major indexes have their first 3 month losing streak since…

Read the full article at StockTradingToGo.com


Stock Trading To Go

29 February = Leap Day! Let’s learn about LEAPs

Today we “celebrate” Leap Day. Leap years occur every 4 years, perhaps not coincidentally in U.S. presidential election years to give politicians an extra day to convince us that they are the obvious choice to become our next leader. Yikes! I hope not.

In reality, Leap Day is added to correct the Gregorian calendar which uses 365 days when it actually takes 365.2422 days for the Earth to complete an orbit of the sun. The additional day keeps our calendar in sync with the Earth and its seasons.

Leap day made me think about LEAP options. LEAP options are the name for options with long lifespans or days to their expiration date. LEAP is actually an acronym. Long TErm AnticiPation Security. LEAPs are listed on over 2,500 equity symbols and 20 indexes and can have expiration dates up to 3 years in the future. So today there are options with expiration dates in the SPY broad-based ETF as far out as December 2018 (1,027 days).

The risks and rewards of using long dated options are similar to regular options. Trading in Options allow investors to change the risk profile of straight stock ownership in any of 4 ways.

  1. Options allow users to HEDGE a stock or ETF position
  2. Options allow users to SPECULATE on the future price action of another security
  3. Options allow users to employ LEVERAGE and gain exposure to a security with a smaller amount of capital used
  4. Options can allow investors to generate INCOME on stock they own or stock they are willing to purchase in the future.

Options involve risk and are not suitable for all investors. Before entering into any option position, it is critical that the user understands the risks and potential rewards of the strategy they are employing. In fact, the SEC mandates that investors read and understand the Options Disclosure Document before they are allowed to open a trading account approved for option trading.

LEAP options may be appealing to investors if they desire to hedge, speculate or employ leverage over a longer term position without having to trade and roll a shorter expiration option. With the additional time, the premiums of the LEAP options are higher and the amount of 1 day decay, or theta of a long LEAP option position will typically be less than an options with a shorter lifespan. Be aware that the bid/ask spread of LEAP options can be considerably wider than shorter dated, more liquid options. This can potentially cost you more in execution costs. Using limit orders is an important consideration when trading in LEAPs

One popular strategy using LEAP options is called a Diagonal Call Spread. It entails buying an ITM (in the money) LEAP call option as a proxy for long stock ownership, while simultaneously selling a shorter term OTM (out of the money) call option against it. Some have referred to this strategy as a LEAP Covered Call.

An example of this strategy:

Buy 1 SPY Jan18 175 Call + Sell 1 SPY Mar16 200 Call = Net Debit 30.00

02292016-spy-call-diagonal

tradeLAB

02292016-tradeLAB-spy

You can observe in the PnL risk graph that this position gives you long exposure to upward price movement in the stock to the strike price of the short call option.

This LEAP Call option (Jan18 175 call ~ 31) will cost less than buying the stock outright employing leverage and the shorter dated OTM call option sold (Mar16 200 call ~ 1.00) will reduce the overall premium outlay. The idea is that the short option will decay more quickly and the trader will be able to continue to roll the short option throughout the life of the long LEAP call option purchased. As the value of the short March call approaches 0, you buy back that call and sell the next month’s OTM call option and continue to repeat this until January 2018.

The PNL risk graph looks similar to a calendar spread where the max profit occurs at the short strike price at the first expiration and the maximum loss if the total premium paid originally. Additional considerations of this trade are that LEAP options do not collect dividends as a long stock position would. If the long option is sufficiently ITM, it could be more advantageous to exercise your right to buy long stock prior to ex-div date to receive the dividend or simply sell out of the long LEAP option and buy back the short call prior to the ex-div date.

The above is only one strategy available to be employed by trading in LEAP options. The CBOE website outlines several other trades to employ leaps.

OptionsHouse Blog – OptionsHouse

GE is ready to light up the market

Written By: DragonFly Capital

16

General Electric ($ GE) is 123 years old, or just over 30 if born on Leap Day. Back then General Electric actually meant something. A guy you may have heard of, Thomas Edison (that guy who invented electricity, well you know what I mean) had a hand in the company’s formation. It was one of the original 12 Dow Jones Industrial companies and the only one still there. When you think of light bulbs and GE it brings you to about 6 miles down the street from me to their NELA Park Lighting Headquarters above (incidentally my college roommate’s father ran the Lighting business at that time).

What does any of this have to do with anything? This is an old company with a rich history. Investments in these types of companies are supposed to be reserved for for your parents and grandparents who are looking for dividend income. But this stock looks ready to make a big move to the upside.

ge

This stock was drifting until it was pulled down with the August market dump. But like a Phoenix it rose from the ashes over the last quarter of the year. The pullback with the market to start 2016 resulted in a near 61.8% retracement of that last leg higher. Now it sits at resistance at 29.50.

The momentum indicators are not full on bullish but rising and the Bollinger Bands® are turning higher. These support an upside move and would likely get more strongly bullish if it occurs. A break over 29.50 would give a target of 34.20 on a Measured Move or AB=CD. That is a 15% move. Not bad for someone 123 years old.

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Leap Day Trading Plan Levels for Eminis

It’s hard to believe it’s Leap Day 2016 already!

Let’s jump right in to our Monday Trade Planning Levels for the S&P @ES (E-minis) and trade the movement toward or away from these key levels.

I’ve been highlighting these levels each day to our Daily Planing Members (join us for access).

A quick glance reveals the key importance of the 1,940 @ES pivot.  It’s the rising 20 EMA on the Hourly Chart and – more importantly – the 50% Fibonacci Retracement of the 2016 swing as drawn.

We’re seeing – as expected/logical – an initial bounce or rally “up away from” 1,940 toward 1,960 and probably 1,971 our short-term upside swing target.

The alternate or breakdown thesis triggers under 1,940 which opens a sell pathway back toward 1,920 then 1,907.

Whatever other strategies you’re using, print out and focus your attention on the 1,940 pivot and the upper/lower targets accordingly.

We trade the movement (usually in the form of intraday retracement trades) toward or away from these levels.

Corey


Afraid to Trade.com Blog

How did so many losers get enough money to go to Disney in our winner-take-all economy?

Politicians and the media are relentless in reminding us that the U.S. is a winner-take-all society where the Top 1% or 0.1% have collected all of the money. If the top 1% are “winners” that makes the bottom 99% “losers”. “Disney Introduces Demand-Based Pricing at Theme Parks” (nytimes) is hard to square with this picture:

Disney tends to increase ticket prices once a year — recently, at well above the rate of inflation … Disney’s price increases have been modest considering the soaring demand, analysts say. During the company’s last financial quarter, which ended on Jan. 2, domestic park attendance rose 10 percent from a year earlier, setting records. Attendance in the final quarter of 2014 rose 7 percent from the same period in 2013.

Are the Disney parks packed with foreigners (Orlando Sentinel says it is only about 20 percent)? If not, how did tens of millions of people manage to afford to take a week off work, travel to Orlando, and spend at least $ 100 each day for each family member? (Orlando Sentinel)

Philip Greenspun’s Weblog

What would President Donald Trump do that would actually be so bad?

As a resident of Massachusetts I am purely a spectator of the U.S. political scene. Though I will try to get down to the local school to vote for Bernie on Tuesday, our votes generally don’t count; most candidates on our ballots are running unopposed and, for the rest, the outcome is seldom in doubt.

Tomorrow is Super Tuesday and people have been in a tizzy for months over the prospect of Donald Trump as President. My Facebook feed is about 30 percent comparisons of Donald Trump to Adolf Hitler.

Stupid Question of the Day: What could Trump actually do that would be so bad/dramatic?

Let’s assume that Trump isn’t going to start a nuclear war. He has too much property to protect, even if much may be mortgaged.

Now what? The President can travel around the country making fine speeches (if Obama) or blunt ones (if Trump), but the President doesn’t make laws, set tax rates, or determine the budget. Maybe Trump wants to build a 100′-high wall somewhere but if Congress doesn’t fund it then he will have to pay for the wall himself, just as you or I would.

President Trump would appoint federal judges. Is there any evidence that he would do a worse job at this than anyone else? His own sister is a Federal appeals court judge, nominated to that job in 1999 by President Clinton. Presumably Trump, like other Presidents, would delegate the grunt work of finding good candidates for various positions. Are we afraid that Trump will hire inferior advisors somehow? Why wouldn’t he just ask his sister for help with judges and similarly qualified people for help in other areas?

Barack Obama has said that he was going to do a bunch of stuff that never got done. He was going to close Gitmo. He was going to tax oil.  Politifact has a longish list. In retrospect it seems that it didn’t make any difference what Obama said since Congress has the real power. What’s the practical downside of President Trump for those of us who don’t watch TV and who don’t pay close attention to what the current President says?

He’s not a candidate that I have ever considering supporting, but I would like someone to explain why does the sky fall if Donald Trump is elected?

[And, separately, what if Barack Obama were to nominate Donald Trump’s sister to the Supreme Court?]

Related:

Philip Greenspun’s Weblog

Top Trade Ideas for the Week February 29, 2016: Bonus Idea

Written By: DragonFly Capital

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Here is your Bonus Idea with links to the full Top Ten:

CF Industries, $ CF, had a long run lower from a peak at 70.32 in July 2015. The stock lost over 62% of its market cap in that span. That stinks. But seems just as we are entering the spring farming season the stock may be ready to sprout a new leg higher. The initial bounce off of support to 34.50 resulted in a slight pullback. This made for a higher low. And the push back higher Friday added a higher high. This is the genesis of an uptrend. The Measured Move higher would give a first target of about 39.5.

This would be just under resistance at 40 with resistance higher at 43.50, near a 38.2% retracement of the down leg, and 46.50 followed by 48.20 and 50.55 before 53.50, and a 61.8% retracement. The momentum indicator, RSI is bullish and pushing higher with the MACD also bullish and rising. Even the Bollinger Bands® are opening to allow a move higher. Short interest is moderate in the stock at 5.3%. The company is expected to report earnings next on May 4th.

Looking at the options chains shows weekly expirations for this name. This week sees minor open interest but biggest size at 31 below and 35.5 above on the call side. The monthly March contract shows very large open interest on the put side at the 30 strike, and the some size but much smaller at 35 on the call side. The April chain has big open interest at the 35 strike on the put side. And moving to the May chain, beyond earnings, sees the biggest open interest at the 40 and 45 strikes on the call side.

CF Industries, Ticker: $ CF
cf

Trade Idea 1: Buy the stock as it holds over 34.25 with a stop at 31.

Trade Idea 2: Buy the stock as it holds over 34.25 with a May 30/35/40 Put Spread collar (85 cents).

Trade Idea 3: Buy the May 35/ March 37.5 Call Diagonal ($ 2.60).

Trade Idea 4: Buy the May 30/40 bullish Risk Reversal (7 cents).

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After reviewing over 1,000 charts, I have found some good setups for the week. These were selected and should be viewed in the context of the broad Market Macro picture reviewed Friday which with just a Leap Day left in February sees the Equity markets looking ready to spring higher.

Elsewhere look for Gold to continue to consolidate in its uptrend while Crude Oil consolidates the recent move higher. The US Dollar Index also looks to continue to move sideways but with an upward bias short term while US Treasuries are showing signs of topping in their uptrend. The Shanghai Composite seems ready for more downside, at least in the short term, while Emerging Markets are biased to the upside next week.

Volatility looks to continue the move lower towards normal levels easing the pressure for the equity index ETF’s SPY, IWM and QQQ. Their charts all look better to the upside in the short term, with very constructive movement higher out of the 2016 range for the SPY and IWM. The QQ lags behind but only just slightly. Use this information as you prepare for the coming week and trad’em well.

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More Charts to Ponder

Continuing with what I started yesterday………. One thing that made me think the bears were totally finished was the explosive move crude oil may early on Friday. However, the rally completely fizzled, and by day’s end oil was in the red and sporting a rather impressive gravestone pattern. All eyes this weekend will be on […]
Slope of Hope

Sex worker with more fiscal prudence than the best American politicians

Here’s an excerpt from an article by a sex worker:

I arrived in New York City from Chelyabinsk, a city right in the middle of Russia, when I was 19 years old, with $ 300 in my pocket. I turned 24 in March and have managed to save $ 200,000…

If she continues to save at this rate ($ 40,000 per year), she’ll have put away $ 1.44 million in today’s dollars by the time she is 55 years old (a standard retirement age for a government worker). If we assume that her funds are invested in securities that are actually available in the market (the current yield on TIPS is 1.06 percent real; source), she’ll still have adequate retirement funds (though likely nowhere near as large a cashflow as a retired police officer or firefighter who uses the overtime system thoughtfully).

If only we could get our politicians to exhibit this much fiscal prudence! (good first step: laws prohibiting politicians from giving public employees defined benefit pensions, unless they first get a letter from God telling them (a) how long all of their workers will live, and (b) what actual market returns will be for the next 50 years).

This is why I can’t be enthusiastic about someone like Michael Bloomberg as a presidential candidate. He kept ladling out the pension promises to New York City workers. The city won’t become insolvent as long as the following conditions hold: (1) there is no major innovation in medicine that allows retirees to live longer, (2) Wall Street continues to be the world’s money center, and (3) markets continue to boom. That’s a lot of risk to impose on future residents and taxpayers.

Related:

Philip Greenspun’s Weblog

Top Trade Ideas for the Week of February 29, 2016: The Rest

Written By: DragonFly Capital

Here are the Rest of the Top 10:

Ashland, Ticker: $ ASH
ash

Ashland, $ ASH, has been in a downtrend since the beginning of December. That morphed into consolidation at the end of January as it bounced along under resistance. With the bottom in mid February it is back at resistance coming into the week. Momentum is building as the RSI is rising and near the bullish zone while the MACD is rising. Watch for a push through resistance to participate in a new leg higher.

BioMarin Pharmaceuticals, Ticker: $ BMRN
bmrn

BioMarin Pharmaceuticals, $ BMRN, has been trending lower since July in a series of steps. The recent bounce though is making it attractive to look at for a short term (at least) reversal higher. Consolidating the move with a rising RSI and MACD it has momentum on its side to continue through the consolidation higher. Look to participate if it does.

Capital One, Ticker: $ COF
cof

Capital One, $ COF, fell on volume in July but then consolidated for several months. In December it started lower again though, reaching a bottom in late January. It retested that bottom, for a double bottom, and is now finding resistance at the gap from the start of the year. The RSI is rising and near a turn into the bullish zone, with the MACD rising as well. These support more upside. Look for a push through resistance to participate higher.

Fifth Third, Ticker: $ FITB
fitb

Fifth Third, $ FITB, fell from consolidation to start the year, eventually losing over a third of its market cap in 6 weeks. It has bounced along since finding that bottom with resistance sitting just below 16. The RSI is rising and moving toward the bullish zone, while the MACD is bullish and rising. Look for a break of resistance to the upside to participate in the move.

Tyco, Ticker: $ TYC
tyc

Tyco, $ TYC, started higher in July 2011. But that ended June 2014 when it started the recent down move. That found a bottom in late January and a strong bounce in a gap move higher. The price action since has been consolidation, until the price broke higher Friday. The RSI is in the bullish zone and the MACD is turning back up for a cross, both supporting more upside. Consider adding this stock as long as it holds that break out level.

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After reviewing over 1,000 charts, I have found some good setups for the week. These were selected and should be viewed in the context of the broad Market Macro picture reviewed Friday which with just a Leap Day left in February sees the Equity markets looking ready to spring higher.

Elsewhere look for Gold to continue to consolidate in its uptrend while Crude Oil consolidates the recent move higher. The US Dollar Index also looks to continue to move sideways but with an upward bias short term while US Treasuries are showing signs of topping in their uptrend. The Shanghai Composite seems ready for more downside, at least in the short term, while Emerging Markets are biased to the upside next week.

Volatility looks to continue the move lower towards normal levels easing the pressure for the equity index ETF’s SPY, IWM and QQQ. Their charts all look better to the upside in the short term, with very constructive movement higher out of the 2016 range for the SPY and IWM. The QQ lags behind but only just slightly. Use this information as you prepare for the coming week and trad’em well.

Want to learn more about Dragonfly Capital Views?
Dragonfly Capital Views Performance Through February 2016 and sign up here

Dragonfly Capital

Canon being beaten bloody by Sony, Zeiss, and Sigma

Those of us with big collections of Canon EOS lenses have had to watch enviously as cameras with Sony sensors outclassed all of the Canon bodies, regardless of price. The Nikon system, anchored by Sony sensors in camera bodies such as the D800, inspired the most envy. Sony’s own systems didn’t seem that awesome, however, due to the lack of lens choices. The latest DxOMark tests, however, show that the lens options for Sony mirrorless systems are not to be sneezed at. Some of the better lenses ever tested are the Zeiss 25/2 and Zeiss 21/2.8, both designed for the Sony A7 camera. If you want an awesome 50/1.4 it seems that the Sigma 50/1.4 “Art” lens is the best mixture of optical quality and price/weight and it is available in a Sony mount (but for their DSLR cameras rather than the mirrorless? This would then require an adapter).

Even Pentax is now crushing Canon in the DSLR image quality area with its K-1 body that includes the Sony 36 MP sensor lifted from the A7.

So… Canon doesn’t make bodies with competitive image quality and most of the great new lenses are coming from third-party makers such as Sigma and Zeiss. How does this happen to a market leader?

Philip Greenspun’s Weblog