The Superleverage Power of Call Options

Avengers Endgame poster

Avengers Endgame Chinese Poster h/t Disney/Marvel

Disney June $115 call

Options Hotline, March – April, 2019

The Superleverage Power of my method was on display this week, as Options Hotline subscribers multiplied their money with our call recommendation on shares of Walt Disney Co.

On Friday, DIS soared like Captain Marvel going full binary.  Following the unveiling of its streaming service, DIS rose 11% from the previous day.  This action helped shares reach our $130 per share price objective (see 03-10-19 Options Hotline and 04-12-19 Options Hotline Alert).

Our recommended DIS June $115 call, triggered 03-11-19 at $4.50, with DIS at $114, traded 04-12-19 at $17.00, with DIS at $130.  That’s +278% in a month, on a 14% move in the underlying shares, with an always known and strictly limited risk!

We’re always seeking to stay a step ahead of the crowd.  Here’s what it looks like on my daily candlestick chart for Disney:

Disney price chart

My daily candlestick chart for Disney, h/t stockcharts.com

So Sarnoff, what is Superleverage?

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Your Daily Bit of Wall Street Wit & Wisdom

Captain Marvel poster

h/t IMAX

“If you can dream it, you can do it.”
— Walt Disney

In Friday’s trading, Disney shares soared like Captain Marvel going full binary.

Shares gained 11% after Disney unveiled its streaming service.  That move helped the stock price reach our $130 per share objective.

I emailed Options Hotline subscribers a Profit Alert closing our recommended position in the DIS June $115 call, triggered 03-11-19 at $450 and closed 04-12-19 at $1,700, +278% in a month, with an always known and strictly limited risk!

That is the power of Superleverage on display.

Enjoy a super weekend!

Best regards,

Steve

Your Daily Bit of Wall Street Wit & Wisdom

“A put might more properly be called a stick. For the whole point of a put — its purpose, if you will — is that it gives its owner the right to force 100 shares of some godforsaken stock onto someone else at a price at which he would very likely rather not take it. So what you are really doing is sticking it to him.”
— Andrew Tobias

Puts options are extremely useful for both traders and investors.  They can provide safety, but are also dangerous for those who don’t understand how they work.

Options (puts and calls) allow you to control a large amount of an underlying instrument (stock, index, or futures) with much less of your own money than you would need to buy or sell that amount outright.  Options give you the ability to profit from price movement up and down.

The buyer (owner or holder) of a put option has the right, but not the obligation, to sell a specific amount of an underlying instrument at a specified price (strike price) within a specified time (expiration).  Put buyers have unlimited profit potential with an always known and strictly limited risk at all times.  This is known as Superleverage.

The seller (writer) of a put option has the obligation to buy a specific amount of an underlying instrument at a specified price by a specified time.  Put sellers take in a limited return with unlimited risk.

The option price which buyers pay and sellers receive is known as the option’s premium.

Put options may be purchased by sensible speculators seeking to profit from down moves and investors looking for portfolio protection.  Put options may be sold by investors to earn instant income and to position to buy shares below their current market price.

Exchange-traded put and call options are powerful tools for traders and investors.

Understand their risks and rewards, then use them wisely.

Best regards,

Steve

 

Goodyear Deflated

Goodyear Blimp Deflated

Goodyear Blimp Deflated

Goodyear Tire issued an earnings warning and shares drove south.  Today the overall market extended its rally, albeit on light volume.  As I recently wrote, we may be approaching a turn.

When the market is up and the shares you’re watching are not, that is a sign of weakness.  The opposite is true, as well.  When individual shares are up in a down market, it’s a sign of their strength.

As you can see below, Goodyear literally left a skid mark on my daily candlestick chart.

Chart by Steven Sarnoff

Chart by Steven Sarnoff, h/t stockcharts.com

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On the Lookout to SPY a Turn

Owls looking out

Owls on the lookout, h/t NatGeo

This morning, SPY (S&P 500 ETF) continues its rebound on light trading volume. Buyers are following through from Friday’s strength, extending their immediate-term edge.  But until proven otherwise by price, this may be considered a countertrend rally.  Sellers are laying in wait.

Volume indicates the force behind a price move.  Low volume questions the staying power of this action.  Where can we expect sellers to be enticed?

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Your Daily Bit of Wall Street Wit & Wisdom

David and Emily from David Copperfield

David and Emily from David Copperfield – Art by Frank Reynolds, h/t Wikimedia Commons

“Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness.  Annual income twenty pounds, annual expenditure twenty ought and six, result misery.”
— Charles Dickens, David Copperfield

Yep.

Options can often be inexpensive.  But before you trade, be sure you have the financial tolerance for risk required to participate.

You should only speculate with risk capital.  That’s money you can afford to lose without changing your lifestyle.  Do not trade with money you need to live.

Speculate based on what you can lose, not what you can gain.

You may then vie for fun and profit using the service of Options Hotline and the tools of sensible speculation, exchange-traded put and call options.

Wishing you and the San Diego LA Chargers good luck and a Sunday Funday!

Best regards,

Steve

Options Hotline 2018 Performance Review

by Steven Sarnoff

With 2019 trading just underway, let’s take a moment to review Option Hotline’s 2018 performance record.

2018 was a tough year for many market participants, but not too shabby for Options Hotline readers who followed a complete game plan for trading success.  The S&P 500 was -6.20%, its worst year in a decade.  This included the worst December since 1931!

As you can see from our track record below, Options Hotline recommendations were +36.50% in 2018.  Nearly 7x better than the S&P 500 is commensurate for the high risk options buyers take on.

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All ATwitter

Latest Options Hotline Reco, +42% In A Single Session

by Steven Sarnoff

This past Sunday, I emailed our great subscribers my Options Hotline bulletin.  As to the market I wrote, “We could see exaggerated swings in both directions…,” and recommended buying the Twitter January $32 call option for $1.90 or less good this week.  As usual, I included my Candlestick chart, info on support, resistance, price objective, and rationale for the reco.

When trading resumed, Trump’s tweets bout his lovely dinner in Argentina with Xi had Financial talking heads and buyers all atwitter.  Bulls ran the market up early on Monday, but reality ensued and stocks started to slip.  Twitter fared well and our entry price was not met.  The low trade in the option was $2.25.   Tuesday saw the option trade up to $3.30, before shares of the global self-expression platform declined with the overall market.  Sellers stepped up and buyers stood aside.  I only consider a recommendation triggered if it trades at or below our recommended price during the week.

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A Step Ahead, Covering Our XLF Play

Grabbing Great Gains Before Financials Fall

by Steven Sarnoff

Japanese Candlestick charts are a superior way to depict market price movement, because they vividly depict and reveal the human behavior (buying and selling) that drives price direction.  They often send up early warning signs of coming turns in price.  The chart is never wrong, only the analysis.

On a day when the Financial sector took it on the chin and fell hard, our readers are glad they were able to grab their gains (+82% in a little over a month) before many market participants felt the pain.  With markets closed tomorrow, here’s a walk through how we exited a step ahead of the crowd.

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