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Options

What's Trading: RUT


 

CBOETV - Russell Rhoads, CFA, Director of Education, CBOE Options Institute, shares his risk/reward analysis of a June bear call spread in RUT.

Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies are available from your broker, or at www.theocc.com. The information in this program is provided solely for general education and information purposes. No statement within the program should be construed as a recommendation to buy or sell a security or to provide investment advice. The opinions expressed in this program are solely the opinions of the participants, and do not necessarily reflect the opinions of CBOE or any of its subsidiaries or affiliates. You agree that under no circumstances will CBOE or its affiliates, or their respective directors, officers, trading permit holders, employees, and agents, be liable for any loss or damage caused by your reliance on information obtained from the program.

Copyright © 2016 Chicago Board Options Exchange, Incorporated.   All rights reserved.

This video is from CBOE and is being posted with CBOE’s permission. The views expressed in this article are solely those of the author and/or CBOE and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


13332




Options

A Simple GE Trade for Long-Suffering Investors


General Electric stock is near a multiyear low but this classic trading strategy can boost returns.
 

When GE gets into a funk, so do legions of investors.

As one of America’s most-widely held stocks, General Electric’s (ticker: GE) recent drop below $30 to near a 52-week low is causing pain. (Investors who have held the stock since its 2000 peak are in profound pain, as shares have tumbled more than 50% since then.)

One way to deal with the latest weakness – and it does seem the stock will be stuck near $28 for a while – is to sell upside calls against shares. The strategy is called overwriting, an odd name that merely means someone owns a stock and sells calls against the position. This classic trading strategy is widely used to generate returns on moribund stocks.

Here’s how it works.

With GE at $28, investors would sell the September $30 call for 26 cents.

If the stock is below the call strike price at expiration, investors can keep the money received for selling the call. The company pays an annual dividend of 96 cents (the stock yields 3.4%) so within that context the call premium is a meaningful number. If the trade is done four times a year, investors can collect a conditional dividend of $1.04. What is the condition of the dividend-like payment? A willingness to sell the stock at the strike price, and give up any potential gains.

The trade has some key drawbacks. The amount of money received for selling the call is not huge. Some would say that the premium does not do enough to offset the risk that anyone who sells a call is obligated to sell the stock at the call’s strike price. If the stock trades at $30 or higher when the options expire, the stock will be exercised and sold. To prevent the exercise, investors can buy back the short call to close out the position.

Though the stock has ranged over the past 52 weeks from $27.10 to $33, and charts suggest shares could drop into a lower trading range, the stock has upside potential.

The trade has some event risk. GE is scheduled to report second-quarter earnings on July 21. A good report – even though it may seem unlikely today – could move the stock through the call strike price. The company also will participate in a series of bank conferences that provide ample opportunity for executives to say something that moves the stock.

GE also has attracted an activist investor. Trian Fund Management is pressuring GE’s management to improve performance. Subsequently, GE has cut $2 billion of expenses. Still, the stock has dropped despite Trian’s interest, suggesting that the risk of selling calls is somewhat tempered as it is hard to imagine an activist investor, even one well respected like Trian, can do much to unlock value in a $242 billion international conglomerate that is confronting profitability pressures. Moreover, the analyst community is turning on GE.

To be sure, it is hard to make a convincing bull thesis for why anyone would want to initiate a new position in GE – a point that points back to managing existing positions with options to increase returns. It is perhaps possible that the stock price would jump if the company were broken up into a bunch of smaller, listed stocks, but who knows if that is even realistic.

The facts are that the stock is behaving weakly, options trading patterns are mixed, and the sale of a well-placed call should help investors incrementally increase the returns of a stalled stock.

 
 

Steven M. Sears is a Senior Editor and Columnist with Barron's. He is the author of "The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails." Mr. Sears previously reported for Dow Jones Newswires and The Wall Street Journal. He has reported upon most major modern financial events, including the Asian Contagion, the bursting of the Internet Bubble, the Credit Crisis, and Europe's sovereign debt crisis. He also was part of exchange executive teams that modernized the U.S. options market, and introduced electronic trading. Interact with him on Twitter @sm_sears.

Get investing analysis that moves stocks and markets—Subscribe to Barron’s for just $1 a week.

This article is from Barron's and is being posted with Barron’s permission. The views expressed in this article are solely those of the author and/or Barron's and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

 
 

13331




Options

Volatility 411


CBOETV - Michael Palmer, Group One Trading, gives an overview of the volatility heading into the long weekend.

 

Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies are available from your broker, or at www.theocc.com. The information in this program is provided solely for general education and information purposes. No statement within the program should be construed as a recommendation to buy or sell a security or to provide investment advice. The opinions expressed in this program are solely the opinions of the participants, and do not necessarily reflect the opinions of CBOE or any of its subsidiaries or affiliates. You agree that under no circumstances will CBOE or its affiliates, or their respective directors, officers, trading permit holders, employees, and agents, be liable for any loss or damage caused by your reliance on information obtained from the program.

Copyright © 2016 Chicago Board Options Exchange, Incorporated.   All rights reserved.

This video is from CBOE and is being posted with CBOE’s permission. The views expressed in this article are solely those of the author and/or CBOE and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


13330




Technical Analysis

Equity Fundamentals Rely More on Capex than the Consumer: Industrials a Major Beneficiary


The GDP equation (C+I+G+X) has been engrained in students beginning with their first high school “econ” class.  Any student today would (should) be able to tell you that Consumption makes up ~70% of the total in the U.S. calculus.  To a point, however, that is slightly misleading to equity-minded investors, inasmuch as healthcare expenditure makes up ~17 pct. points of the total and is accounted for in the C term.  (An amended equation could look more like: C+H+I+G+X.)  The remaining consumer term or what we generally think of as Consumption, the “things we need” – Staples – and “things we want” – Discretionary – is more than twice as large a weight in GDP, 51.7% (or, 68.9%-17.2%), as the two sectors represent within the broader S&P (21.6%, or CD 12.3% + CS 9.3%).  While the consumer, measured in economic terms, may be doing OK (retail sales up +0.39% in April and +1.8% over the past six months), index gains will be far more reliant on the Investment term, of which capex makes up 75%, or 12.5% of GDP.  Here the data have also been improving (non-residential fixed investment up 3.1% Y/Y).  Remember one company’s capex is another company’s revenue, and the two sectors which are the largest beneficiaries of capex, Industrials & Technology, make up ~33% of the Index weight. 


Industrial Companies Have Under Invested During the Past Decade

 

Last Time Fixed Assets Were As Old As They Are Now Was in the 1960’s

 

Industrials Earnings Expected To Accelerate in the Back Half of the Year…


 

…Extending the Secular Improvement in Industrials Margins

Strategas Research Partners' Institutional Investor-ranked Research Team works to identify the major themes with broad implications for global financial markets. Strategas covers the broad investment landscape, with published reports discussing Investment Strategy, Economics, Washington Policy, Quantitative and Fixed Income research. The team's thematic and macro-driven approach relies on empirical data as well as fundamental and technical research to provide readers with an integrated investment strategy for a variety of time horizons.

This article is from Strategas Research Partners and is being posted with Strategas Research Partners’ permission. The views expressed in this article are solely those of the author and/or Strategas Research Partners and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


13328




Stocks

Nasdaq Market Intelligence Desk - Equity Market Insight May 25, 2017


As of 11:04am:

  • NASDAQ Composite 0.58% Dow 0.37% S&P 500 0.43% Russell 2000 0.58%
  • NASDAQ Advancers: 1323/ Decliners: 792
  • Today’s Volume (100day avg): +1.5%

With Trump away and a lack of drama out of Washington DC, the markets continue drifting higher and the S&P and Nasdaq Composite opened at record highs.  Most sectors are fractionally higher with consumer discretionary (+0.9%) in the lead, but energy (-0.1%) is down on lower crude oil.  The dollar and treasuries are flat, gold is up 0.1%, while oil is down following OPEC’s extension announcement. 

§  As expected OPEC extended their production cut agreement by nine months.  There was hope in some camps that OPEC might do something more dramatic, but that is not the case and Crude prices are lower this morning.  OPEC is set to hold a press conference today with their formal announcement.

§  FOMC meeting minutes out yesterday afternoon support expectations for a June rate hike.  The minutes include a comment that a hike “would soon be appropriate.”  The Fed also indicated that it plans to begin shrinking its balance sheet later this year.  The market is assigning a 100% expectation for a hike on June 14th, up from 93% this time last week. 

§  Weekly unemployment numbers released by the U.S. Department of Labor continue to show strong demand in the US.  Reported Initial Jobless Claims were 234,000 vs polled expectations of 238,000, which is just 1,000 more than the previous week’s revised 253,000 claims. Reported Continuing Claims were also better than expected at 1.923 million claims vs estimates of 1.925 million.

§  On the corporate front Best Buy (+16%) beat on bottom line and guided higher; William-Sonoma (+3.9%) beat expectations, Dollar Tree (+2.3%), Net App (+2.9%) and Aerie Pharmaceuticals (+36%) on positive phase III trial data, and Sears Holdings (+25%) on top line beat.

§  Nasdaq welcomes Appian (APPN), who priced 6.25 million shares last night and opened for trading moments ago with a 25.1% gain.

Technical Take:

It has been 12-weeks since the S&P 500 peaked at 2,401 back on March 1st.  While there have been a few minor tests of this 3-month resistance level, the large cap index is today seeing its first convincing breakout with a 0.5% gain to a “last sale” of 2,415.  Despite historically high multiples, weakening economic data, flailing presidential policies, negative geopolitical events including independent investigators and threats of impeachment, the Fed raising rates and suggesting balance sheet reduction, etc. etc. etc., “the most hated bull market in history” continues on.  The size of the consolidation pattern the SPX is now emerging from has an upside measured move towards 2,479.   Note a number of Elliot wave theorists are counting this uptrend as a “wave five” of a 5-wave impulse (i.e. uptrend) which began in the fall of 2016.  Expected to then follow is an ABC 3-wave decline.  

Nasdaq's Market Intelligence Desk (MID) Team includes: 

Michael Sokoll, CFA is a Senior Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.

Jeffrey LaRocque is a Director on the Market Intelligence Desk (MID) at Nasdaq, covering U.S. equities with over 10 years of experience having learned market structure while working on institutional trading desks and as a stock surveillance analyst. Jeff's diverse professional knowledge includes IPOs, Technical Analysis and Options Trading.

Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.

Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.

Brian Joyce, CMT has 16 years of trading desk experience. Prior to joining Nasdaq Brian executed equity orders and provided trading ideas to institutional clients. He also contributed technical analysis to a fundamental research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Airline companies among others understand the trading in their stock. Brian is a Chartered Market Technician.

This article is from Nasdaq and is being posted with Nasdaq’s permission. The views expressed in this article are solely those of the author and/or Nasdaq and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


13329




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