You Make The Call...

Alright...case study #1. This will be your homework for the weekend. I have a stock chart listed below, the symbol is AT, which is Alltel Corporation. Take a look at this chart, and think to yourself what you would do with this. Would you buy? Would you sell? What would you buy or sell? An option? Which one? What do you expect the stock to do? Why? Based on what? What would your rules be? Rather than send me an e-mail about it, leave your comments below along with your name if you'd like to participate. Have a great weekend folks, we'll revisit this on Monday.

At first glance, this gets exciting. We have an ascending triangle breakout (after a small but still intermediate uptrend). The measurement is about a $3 move up to $61 or so, which lines up nearly perfectly with prior support. With the triangle measuring about 2 months, i'd look at a january $60 call, looking to sell back the last month.

HOWEVER, earnings are in a week, so I wouldn't be buying anything. I am curious why implied volatility has been falling all week if there's an earnings announcement coming up so soon?

The above post was me, by the way.

LOL. I actually bought a call on this stock today around noon. Anyway, what I saw is the following: An ascending triangle (est. 4 pt move) with very good volume and increasing MACD. It looks to have resistance at $60 and a earnings release on the 10/27 BMO. Anyway, I entered today, and plan on exiting after a 4 point move, or exit before they announce earnings next Thursday. If the stock retraces back into the triangle at EOD, I'm will also exit the trade.
-M

The first thing I noticed was an ascending triangle with about a 3-4 dollar target. I would like to see it break a little higher above resistance, although volume is increasing which I like. What I don't like is the idea of buying over earnings because I don't know enough about this company. Acc Dist is a little low also. Why does the investools chart not show the large GAP the interactive shows?

What I see is an asymmetrical triangle forming at 65.55 to yesterday and 53 to yesterday with a nice breakout today.
Target price would be @68 in 3 months.
I would get out at a break of the diagonal support of the triangle.

I see the gap on the corporate and interactive charts in the new toolbox.
The previous moves up have taken less than two weeks. I would buy the Nov 60 call @ $.90 and get out before earnings. Even though Alltel beat the estimates 4 out of 5 past earnings, I will not take a chance.
John

ascending triangle base from 54 to 57.5. break out with 150%+ volume, move size 3.5, stop at 57.3 (since it is so close to earnings), entry 57.8 (Monday morning) Target 61. buy Nov $60 call for .90 ( I do not want to play too much for time since I expect to get out by earnings i-e 10/26.

Now I would like to see your take on this. This is a very good exercise and I would appreciate more of this on an on going basis. This should us hone our chart reading abilities.

Mahmood

looks like an ascending triangle or bull penant , which both are continuation patterns resuming same trend , i would buy nov 60 call on a move to 61ish. im new to ta , but this is what i see, thanks , mark

I'd buy the common with buy hands.

I see a breakout of an ascending triangle with a target at 60. I'd buy the $55 November call, expecting the move to be very quick. Exit if it closes inside the triangle pattern. i wouldn't go with the $60 OTM call because I feel like the ask/bid spread would cut into too much of my profits.

I seems like if we are expecting good earnings. Look at volume of the 60 jan 07 call and the open interest of the 60 nov call. Also, there is less open interest for the nov 55 puts which means that if the stocks makes a strong move to the upside, bears might have to cover (sending the price up). I would not be worry about the spread and place my order .10 lower than the mid price. What worries me is that IV is in the 90%.
My conclusion is a bull put (buy nov 55 sell nov 60 ). We may be able to unwind the spread if the stocks goes down.

I like the delta on the Nov. 55's but the implied volatility is a little high. But for a short term trade the the percentage gain would be double of the 60's. See 58.41 as resistance, after that a move to 60.

Eventhough the volatility is relatively high, there does not seem to be a lot of time value with the ATM options. For that reason I would go for the Nov 55 straddle.

Randall

There is a very definite problem with conflicting data on IT basic chart as compared to Prophet Chart data. I'm assuming the Prophet data is correct since it matches with other chart services I compared it to.

Using Prophet chart I note that the stock had a huge gap down (approx. 10 pts) in July. Unsure what news that came from; it was not an earnings date. It has a current AT. It has been in a tight Bollinger Band squeeze for two months. Given these factors and the upcoming earnings it is possible for a big move to occur in either direction. I would look at doing a strangle; Nov.$60 call and $55 put for a cost of 1.60. Break even points are $61.60 and $53.40 respectively.
Loretta

"Gap" was a spinoff of WIN which is why some charts show the gap and others do not.

I, too, noticed a discrepancy in the IT charts. I thought the corporate snapshot (without the gap) was the correct chart because when I looked at the historical quotes there was no gap down on 7/18/06. I would not trade this due to the uncertainty of the info.

I see a breakout from recent resistance with increasing volume on a current uptrend.... there is also an ascending triangle formation.....therefore....this is a potential buy.....I would wait until Monday for confirmation before buying.....I would want to see a continued uptrend with increasing volume before I jumped in....

Since the stock gapped back in July....I am anticipating that it will fill in the gap in the future....therefore...I would want to buy a call option further out....Looked at the delta and implied volatility and decided that I would consider the Jan 55 call...Noticed that earnings announcements are due this week....therefore....I would also buy a one month out protective put to cover myself over the earnings.... probably the Nov 60 put....just in case the EPS does not come in as expected....

I expect 3 or 3.5 point moves as the stock uptrends.... Since the stock has already moved about 2 points on its recent move...I am anticipating an additional 1.5 move before it consolidates....and then continues up....I would watch to see what happens around 59-60.....

I am anticipating that this stock will eventually reach around 65 or 66.....an 8 point move from the current price of around 58 to make up for the gap....that would be the eventual target price or level of resistanc I would be looking for.....

I would set a mental stop at 56....and because I would be purchasing a put....I wouldn't set an actual stop so that I could give this stock lots of breathing room in case things turn around with the EPS announcements....I set the stop 2 pts below 58 based on the ATR chart...

This stock could have a nice uptrend....if the EPS is good news...

This homework assignment is great!....I hope you give us more of these....How about once a week???....What a great way to learn....I love reading other students comments and their various approaches and thoughts....I can't wait to see how you will analyze this stock....
Danuta

I like your homework assignment. At first glance, it looks like the stock is trying to "fill the gap" down. Itried to get news info why it gapped down in july but the nwews doesn't go back that far. I would expect the stock to re trace up since the long term trend is up. I would buy a cal option.

I see 2 years of negative earnings
velocity meaning they have been falling
short of previous years same quarter
eps. they are offering a 12.5 cent divadend, which will cost them, they
just finished a buy out of midwest wireless for 1.075 billion. they are also recently going through a new system and have gone solely wireless
cutting some bus. revenue. My prediction is a 2-3 point rally up to
earnings then a nasty gap down another
ten points. I am buying an itm put.
If i'm wrong i eat crow, i play with real money. steve.L

Jeff,
I had some trouble leaving a comment earlier, so you will see this in an email as well.

Some people are bullish because of a pattern breakout and like otm calls.
Some people are bearish (or just worried) because of earnings and like otm puts.

Would it ever make sense to buy both? The gains in one would have to offset the losses in the other, so you would probably need a big move... say three points in either direction. If $3 is the pattern target the bulls would be okay. If they have a sore earnings announcement the bears should be okay. Buying the dec 60 call and 55 put could be a decent trade to cover the pattern and hedge for earnings would it not?

In fact, would this be a good strategy for earnings altogether? You don't know which way it's going to move, it just has to move big. If one were to implement this strategy (if it is indeed one) what would the most important factors in the selection of options? Delta? Vega? Option price? On the other hand, if this is not a strategy for earnings, you can ignore the question altogether and sorry for wasting your time!!!

As always Jeff, I thank you for your willingness to help an infant trader.

Ab

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  • From Saratoga Springs, Utah, United States
  • I am a professional trader and an instructor for Investools. I've had relations with the markets for 9 years. Born in Concord, CA, but reside in Saratoga Springs, Utah. Father of THREE, Husband of one.
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