Trading Blog Archive( February)

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February 28th 2014 15:16PM

The market was up sharply for most of the day, then it reversed and now its only up slightly, and could close in the red. The 1 hour charts got very overbought, so the sell off is probably profit taking. The selling will unwind the o/b charts and could provide some good lower risk plays next week. When I put out the alert to sell YHOO this morning, it was up about 60 cents. Now it is down 16 cents as I write this blog entry. You can see how quickly things can change and if we would have held YHOO we would be at a loss again.

Our new covered call play ECYT has dropped about 60 cents since the alert. DO not worry as it will come back up, just like KNDI and YHOO did. The implied volatility is extremely high at around 180%. This is the reason why the option premium is $1.60. As we get closer to March 22nd expiration, the harder the premium will fall and we will get to keep the $160 profit if held until expiration. I will add this calculation to the Covered Call calculator so you can see how it works and what potential profit or loss we could see.

 

February 28th 2014 11:35am

The market is rallying today after good economic data. YHOO is up again and is very overbought on the 1 hour chart, so I decided to sell. YHOO started off poorly, but ended up being a winning trade, like I said many times on this blog. VECO is up slightly and we will hold it until I feel its time to sell. This stock will perform eventually just like YHOO.

A Look at My Favorite Sector

A Look at My Favorite Sector

This is by far my favorite sector…

By Jay Peroni, CFP®

 

Last week I racked up a couple of huge wins in a couple of my portfolios. Forest Labs was up 27% in a day while Chelsea Therapeutics soared 30% the next day. Both stocks were in my favorite sector and in one of my favorite portfolios.

Investors often ask me what my favorite sector is.  It takes me less than a second to answer because my favorite sector continues to be health care.  In fact at Faith-Based Investor & Wall St. Renegade, I manage 15 different strategies ranging from conservative to aggressive and my health care portfolio has been the biggest winner by far through the end of February.  As of the end of February the portfolio is already up over 31% this year and rose almost 15% in February.

Health&Life

The Health & Life Portfolio is up 95% since in was created in Dec of 2012. Now the portfolio invests in a combination of large and small cap health care stocks and has great potential as Obamacare expands and investors continue to bid up promising companies providing life saving cures.

One company from the portfolio that is a larger company with huge potential is Shire Plc (NASDAQ: SHPG). Shire is an Ireland-based specialty biopharmaceutical firm with six business units: rare diseases, neuroscience, gastrointestinal, regenerative medicine, internal medicine, and a research & development group. It is focused primarily on two therapeutic areas: central nervous system disorders and metabolic bone diseases.  It has fueled growth over the past 18 years through strong product development and major mergers and acquisitions as its completed 12 major acquisitions and continues to grow by leaps and bounds.

Here are three reasons I believe this stock will be a long-term winner:

  1. Its ADHD drug (Vyvanse) is experiencing strong growth in both pediatric and adult ADHD markets with double-digit growth in the U.S. combined with strong pricing power.
  2. As it expands into the European markets growth could be furthered as its ADHD drug and its treatment for binge-eating disorder could have strong sales.
  3. Outside of ADHD, Shire’s rare-disease business and growing sales for many of its other drugs offer stability and diversification. In other words this isn’t a one trick pony!

When I look at it using my 5-point Stock Inspection, Shire ranks favorably in all 5 categories:

5-Point Stock Inspection on SHPG:

 

Financial Strength:                      Positive – Very Strong

Valuation:                                         Positive – Buy up to $200

Momentum:                                     Positive

Risk:                                                     Positive – Low Risk

Earnings Trend:                            Positive

12-month price target:               $230-$240

 

Take a look at its chart:

shpg chart

 

Bottom Line: Shire PLC (SHPG) is a good buy up to $200/share. My 12 month price projection is $238, representing a 40%+ gain from current levels. If you would like to get in on the Health Care Portfolio, give me a call today at 866-594-9919.

Splunk Inc. (ticker SPLK)

Splunk Inc. (ticker SPLK)

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Company: Splunk Inc.
Ticker Symbol: SPLK
Action: Buy up to $95

2/27/14 Update… Today I am adding a high risk/high reward to play on a catalyst that has worked out well for us in the past – earnings reports.

Please note this trade is not for those who are risk averse.

Trade Alert:
I am adding a 10% position to Splunk, Inc. (SPLK) with a buy up to $95. It is a part of our Contrarian Strategies Portfolio and has done quite well since we added it (+38%). It reports earnings today after market close and the last time it reported earnings shares surged 23%. With a good report we could expect a 10-20% rise. Option activity has been quite bullish and analyst earnings estimates have been consistently rising. All good signs.

The stock also looks good from a technical perspective as it is above 21,50, ans 200 day moving averages:

21 Day Moving Avg: $82.59
50 Day Moving Avg: $77.15
200 Day Moving Avg: $60.51

Take a look at the chart:

splk

Splunk provides software solutions that provide real-time operational intelligence. It offers Splunk, an engine that collects, indexes, and harnesses machine data generated by physical, virtual or in the cloud IT infrastructure; and Splunk Storm, a cloud version of Splunk to analyze cloud based applications. The company also provides services, such as implementation, system health optimization and best practices review, deployment workshop, upgrade, and augmentation for administration and development. In addition, its solutions include operational intelligence, application management, IT operations management, security and compliance, business analytics, cloud, and Microsoft. The company serves cloud and online services, education, energy and utilities, financial services and insurance, government, healthcare, manufacturing, media, retail, technology, telecommunications, and travel and leisure industries. This is a high risk trade as earnings could come in weak and shares could tumble. I am adding a 12% stop loss.

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Options Trading 101

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Options and Intrinsic Value

Call Options:

Intrinsic value = Underlying Stock’s Current Price – Call Strike Price

Time Value = Call Premium – Intrinsic Value

Options that are in the money (ITM) have intrinsic value. For example, you own a Call option for ABC stock and the stock is currently trading at $105/share. You bought the $100 strike Call premium for $8.

Intrinsic Value=$105-$100= $5

Time Premium=$8-$5= $3

At the money (ATM) and out of the money (OTM) have no intrinsic value, so the option value is just pure time premium.

 

Time Decay

Options are a wasting asset because they lose value over time. When you buy an ATM or OTM call option  you are paying for the time premium. Most of the time decay occurs from 30 days before expiration and increases the closer it gets to expiration. If the underlying stock closes below the strike price then the Call option is OTM and will expire worthless. Implied volatility also has an affect on time premium. If a stock has a large move up or down, the IV will go up or down , respectively. When IV is very high, it is good for the option seller. If it is very low, it is good for the option buyer. Writing covered calls when the IV is high can yield higher income at expiration. You still make money on the covered call, even if the IV increases,  as long as the option is OTM at expiration. You don’t want to buy a Call option when IV is very high and it is close to expiration and OTM. If you buy call options , you should go out 30-45 days to give the underlying stock time to move.