EOT Position Update – September 9, 2009
September 9, 2009
Market Snapshot
Happy 09-09-09! I hope you enjoyed your holiday weekend. I know I ate and drank my fill of barbeque and frosty beverages.
Now that the Labor Day holiday’s in our rearview mirror, we’ll see some of the big market players returning from vacation. I’ll be keeping an eye on volume to see where the big money is flowing.
Today I’m going to change things up a little and answer a subscriber’s question.
This question comes from R. Sahai.
“Could you please explain ‘Break-Even On Stock At Expiration’ that appears on the trade alerts?”
I’d be happy to Mr. Sahai. It’s the underlying stock price where an option’s cost is equal to the proceeds from exercising the option on the day the option expires. (Now that’s a mouth full.)
Here’s what you need to know.
For a call option, it’s the strike price plus the premium paid. For a put option, it’s the strike price minus the premium paid.
For example, let’s look at the most recent trade alert on 3M. We recommended the Jan 2010 $75 call option at $3.20 or better. The strike price is $75 and the premium is $3.20. The “Break-Even On Stock at Expiration” is $75 + $3.20 = $78.20.
This means if 3M’s stock price is $78.20 on the third Friday of January 2010, we’ll get $3.20 when the option is exercised and break-even on the trade.
If you’ve read the Elite Option Trader Operating Manual, you already know we don’t intend to hold options through to expiration. We’re looking to lock in profits, or cut our losses, when the stock price reaches support or resistance levels.
However, on the rare occasion you do hold an option through to expiration, the “Break-Even On Stock At Expiration” is a useful benchmark.
Thank you to Mr. Sahai for the question. I hope this sheds some light on the subject.
We’d love to hear from you too. Please e-mail any questions or comments to: customerservice@hyperionfinancial.com.
Now for the updates…
Position Updates
Just a quick note: Remember, we won’t update every open position every week. I try to focus on the positions that have some significant news or price movement.
MMM Jan 2010 $75 CALLS (MMMAO)
3M’s been moving higher over the last week. Our options swung into positive territory and are showing a nice 15% gain. This week, management confirmed their full year earnings guidance of $4.10 to $4.30 per share. They also said they’re stepping up plans to acquire new businesses with growth potential. Everything’s looking good so far. Hold tight for another move higher. Resistance is at $75 and $80. Support is at $65 and $60.
UEPS Oct 2009 $17.50 CALLS (QBSJW)
Net1’s another big winner. Now we’ve broke above both resistance levels. Our options are up 217%! Congratulations on a successful trade. Everyone but the most aggressive traders should have locked in gains already.
GT Jan 2010 $20 CALLS (GTAD)
Goodyear is moving higher again. The hangover from the Cash-for-Clunkers binge appears to be over. The technical indicators show the stock has been oversold lately. It’s due for a big bounce higher. Hold tight for now. Resistance is at $22 and $25. Support is at $14 and $12.
MRO Oct 2009 $35 CALLS (MROJG)
MRO continues to chop around. Investors haven’t been interested in oil and gas companies. The result is cheap valuations for many companies in the industry. I wouldn’t be surprised to see some big players take note of the valuations and start to build positions in the industry. Hold tight for a breakout from current prices. Resistance is at $35 and $40. Support is at $26 and $25.25.
Category: EOT Update
