After a long, rewarding win streak, the last few weeks have been “interesting.”
But I’m not changing the strategy. The oil names may have been bought a bit too early, but remain on hold, as oil begins to show signs of life again. The game stocks (TTWO, ATVI, and EA) are still elevated at overbought levels, too.
In fact, ATVI has pulled back substantially after failing at double top resistance. Our ATVI February 20 put now trades at $1.60, which gives us a gain of 33%. If you’re happy with the current gain, consider selling to close half to secure the gain. Hold the second half.
Our Coca-Cola (KO) calls are coming back very nicely, as KO screams above $41 a share in recent days.
And our American Airlines (AAL) May 46 put is showing good signs of life, as the airliner begins to fall from excessively overbought conditions. AAL is down another $1.09 today, bringing the bid-ask price to $5 x $5.65 as of 11:40 a.m. If you’re happy with the current gain, consider selling to close half. Hold the second half.
As for new trade ideas, the Dow may have just found its bottom, marked by oversold RSI and MACD just under the 50-day moving average. If this holds, which it could, volatility could pull back substantially. The VIX is a bit elevated at $24, challenging a previous high. Once this falls apart, we could do very well with a put on the VXX.
Consider buying to open the VXX March 2015 32 put up to $6.
Also, consider buying the Velocity Shares Daily Inverse VIX Short (XIV) up to $32. Options are not available on this stock but it’s a great way to trade a potential reversal in volatility.
Ian L. Cooper
Forgotten Profits