Friday, July 30, 2010

Dark Pools and an FCX Trade

Yesterday, Cisco Systems breifly halted after triggering a circuit breaker according to the Nasdaq, causing a 10% move in 5 minutes. Brian gave his theory of what caused this issue yesterday on the Fast Money Final Call. Brian explained what dark pools do and what people don't understand about them. Basically, traders belong to a brokerage group and they send their order in, the dark pool attempts to match the order up with someone else on the opposite side at the same time and then the order is put up on the exchange. Brian explains the old style way where there was one central specialist creating liquidity on both sides but now there is dislocation because nobody knows exactly where the best bidder offer is coming from. He feels that we need to have one central location because everybody knows and understands where the order is coming in, which gives us more liquidity. Brian feels the stock market could get a nice rally if that were to happen because investors would feel more confident if we improve the system. There needs to be some sort of liability, you should be obligated to bid or ask at some certain level where you can't just pull away from the market if something doesn't look right. This way, we are obligated to provide liquidity.

Danger of Dark Pools

Later, Brian has a trade on FCX using a great overwrite strategy. The top end of the range price target for FCX is around $80 a share. Brian wants to give himself an exit point to the stock so he sells the Jan. 80 call for $4.75, if Freeport gets above $80 he is willing to be out of the stock. Here you will collect $4.75 which is about 6.5% of the value of the stock, you will collect a nice dividend or premium and lower the value of where you own the stock. Brian also mentions that in todays times, traders need to establish entry and exit points.

FCX Trade

Thursday, July 29, 2010

What is the Death-Cross?

Earlier this morning on Chart Talk, Dan Deming suggested the market may be looking at a death-cross where the 50 day moving averages cross below the 200 day moving averages. Often times when we see this, the market is lower 6 months after this kind of activity takes place. The S&P500, the Dow, and the Nasdaq could all be looking at a death-cross sometime in the near future.

Dan Deming on Chart Talk

Brian - Fast Money 360: Merck

Yesterday on Fast Money 360, Brian talked about the option side to Merck. Volatility has moved over the last 8 quarters and it is averaging a 6% move after earnings. We are seeing traders buy put protection to the downside. At this level, Brian is not a huge buyer, he wants to see a super spike in volatility in the options market before he starts to buy Merck.

Brian on Merck

Wednesday, July 28, 2010

Dan Deming - In the Money

Earlier today on In-the-Money, Dan Deming talked about the VIX popping up with some buyers but nothing major is happening at this point. What we are seeing is the back month futures at a very large premium. We are seeing wide spreads up to $6.00-$6.50 in the back months right now which could indicate further volatility. The market seems to be at a key inflection point and we came in to the 200 day moving average over bought. We have also seen confirmation in transports and the tech sector. The SMH is looking at possible new highs. The long-term is still a concern where we could be looking at a death cross in a lot of indexes where the 50 day average crosses below the 200 day moving averages which means we will be looking at momentum to the downside.

Dan on In-the-Money

Tuesday, July 27, 2010

Stutland Volatility Group Overview

Why overlays – why now?
2008 market downturn exposed fundamental weaknesses
-Hedge funds did not provide a hedge.
-Fund of Funds did not provide diversification.
-Decoupling held true for only a short period.
-When global markets sank, correlation across all asset classes went to one.
-Not enough managers used dynamic hedging and volatility indices to control risk across asset classes.
-Minimal expertise and trading acumen available for using these instruments effectively

Monetizing Volatility - Management Strategies
-Volatility is typically negatively correlated with market movement and can be an important asset to manage. When done so effectively, volatility management may enhance overall portfolio returns
-Equity portfolio managers could use volatility strategies to implement long and short directional views in volatility.
-Credit managers can use volatility strategies as a diversifying hedge against broad market exposure.
-Based on these characteristics, VIX option strategies can be structured to provide a “catastrophe hedge” within stock portfolios

Strategy for Large Cap Long Term Holds as Yield Enhancer
-MSFT is one of the largest firms in the world and by most pension plan, index funds, ETF’s they must own a certain percentage of the stock. These people cannot sell out of the stock entirely due to investment guidelines.
-If as an investor you think MSFT is dead money or will not have huge up side or down-side moves
-With MSFT at $25.70, the September 27 calls are trading at $0.40. Sell that call; receive the premium for ~1.5% return on your money every 2 months. Area you would average in and buy more of stock, you Sell Sep 23 put at $0.30 for total of ~1.2% yield every 6 months.
-Net, if MSFT is range bound, then yield enhancement 2.7% x 6 = 16.2%

Pre-Market Buzz with Dan Deming

This morning on CNBC, Dan talked about momentum in the market place. After breaking the 200 day moving average on the S&P 500 yesterday and confirmation from the transports and the Dow, short-term momentum seems to be high. At this point, Dan feels you can't fight the market because there are significant signs the S&P 500 index could push up to possibly 1130 or 1150. Short-term, you have to be a little bit bullish on this market place.

Pre-Market Buzz

Fast Money 360: Options take on Boeing

Yesterday on Fast Money 360, Brian talked about the options side of Boeing. He mentioned the bullish activity as 30 planes were purchased by Emirates Airlines. There have been a lot of out of the money call buyers and out of the money put sellers which is a lot of bullish activity. A few weeks ago when the stock dipped, there was not much volatility and that is bullish options flow. Brian is bullish on the stock, buy Boeing.

Options take on Boeing

Friday, July 23, 2010

Bank Excess Reserves and a 'Rock' Hard Trade

Yesterday on Fast Money Final Call, Brian talked about bank excess reserves being at extremely high levels. Banks are borrowing at a discount window of zero and they are continuing to build excess reserves. Brian thinks banks need to start lending again. Banks just having the reserves sitting there isn't helping the market, he feels once they start lending, the market will rally big time. If the banks continue to collect reserves and not lend them out, we could see a sideways market similar to what Japan experienced. The banks have almost a trillion dollars sitting in excess reserves, they are taking it as free money and keeping long term rates low. They must start lending again. Also, we have saw a huge move yesterday due to great earnings and a lot of company's raising there outlooks. Brian feels this is sustainable due to the large number of company's with positive earnings.

Bank Excess Reserves

Brian also has a play on BlackRock. Yesterday it was up nicely and the fundamentals looked great. He suggests selling a put to get long in the stock instead of simply buying the stock. The play is to sell the Jan. 120 put for $4.50, which is about a 3% yield vs. the value of the stock. Below 115.5 we are forced to get long in the stock and we are put to the stock at 120. You break even at 115.5 and above there is where you will make money.

Trade on BlackRock

Thursday, July 22, 2010

Dan on First Business News

This morning on Chart Talk, Dan Deming talked about the down move we experienced yesterday as Ben Bernanke drove the market lower and really rattled the market. The S&P hit its 50 day average in the morning and the VIX bottomed out at 23.40 which is the 200 day moving average on the bottom of the VIX. Now the market is moving back to the middle of the range and Dan explains where he wants the market to stay.

Chart Talk 7/22/10

Wednesday, July 21, 2010

Dan Deming talks Earnings

Today on In the Money, Dan Deming talked about the big reversal in the VIX due to the market reversal yesterday. He also touched on the market's reaction to recent earnings reports, specifically strength in earnings reports from the banks.

Dan on Earnings

Monday, July 19, 2010

Cutting Risk in an Extremely Volatile Market

Last Friday on CNBC, Brian talked about volatility numbers, mainly how they have come down since the panic numbers that we saw in May. Right now volatility is around 27 and one of the reasons for this is because the credit market has improved since May. The better the credit market, the lower volatility goes. However, in the month of July we have seen some increased volatility compared to the rest of the year and Brian thinks one of the reasons for this is banks are borrowing at the discount rate, causing volatility in the market because we aren't getting the liquidity that we normally see from banks. Brian also touched on the correlation between the VIX and the market. The VIX will spike about 4% for every 1% down move in the market. Brian's trade here takes advantage of the volatility and relative rise in option prices. Taking a look at Visa, he suggests selling the Jan. 80 call for $4.40, taking in 5% premium in stock, capping your upside and getting called away at $80. In the meantime, you collect 5% income and you can still participate 10% on the upside. This is a good play to reduce risk in your portfolio in volatile times such as these.

Limiting risk in the market

Friday, July 16, 2010

Is fear creeping back in?

Yesterday on CNBC, Brian talked about the possibility of fear creeping back in to the market. After 7 straight days of gains, the market struggled to make it in to the green. Brian feels there might be a little bit of worry because the VIX futures are trading significantly higher which leads us to believe people think volatility will rise. Although there is fear, Brian notes that much of it is to the upside right now because there has been a huge move off the bottom. He recommends taking a look at the VIX to give a gauge of where the market is going. Brian's example on how to play it is Southwest Airlines. Here he wants to define his risk and buy a slightly in-the-money call. His only risk here is at much as he paid for the call and you can still participate in the upside.


Fear back in the picture?

Thursday, July 15, 2010

Dan on Chart Talk

Today on Chart Talk, Dan touched on SMH and Intel. He mentions the great earnings and the positive outlook on Intel and the SMH holding up well. Dan mentioned that the SMH will not be affected so much by the numbers, although they will be good, but more on if the economy can sustain growth going in to the 3rd and 4th quarters.

Check it out here

Wednesday, July 14, 2010

Dan Deming on In the Money

Earlier today on In the Money with Angela Miles, Dan touched on the reaction of the SMH and the XLK. Dan also talks about the implied volatility of the big ETF's as well as the expectation on more earnings coming in. Check it out here...

Dan Deming on In the Money

The Coin Toss Trade - Bank of America

With Bank of America's earnings due Friday, Brian talks about how to game the stock ahead of the results. He feels that financials will have a nice move off these earnings and and we'll get a nice move up. Bank of America off the last 8 quarters has moved 3% so Brian wants to go ahead and replace his stock and go out and buy a call spread of Bank of America to limit some risk. The trade is to buy a Nov. 15 call, pay $1.80 and sell a Nov. 19 call for $0.35. Here you have a net that paid $1.45 and you will start making money at $16.45. You would get called away at 19 but Brian feels in the 15 and 19 call range you will have a nice little profit.

Trade on Bank of America

Monday, July 12, 2010

Limiting Risk to Kick Off Earnings Season

Earnings season is upon us and Brian has a safe play to limit your risk in the Options Market. Last Friday on CNBC, Brian took a look at replacing a stock. He feels YUM! is a good play here because it has seen plus or minus 5% moves post earnings for the last 4 quarters. The play here is to sell the Aug. 38 put and with those profits buy the Aug. 42 call. Here you collect 30 cents on the trade. You will profit if YUM! gaps above $42. If YUM! is below 38 you will be put to it and have to own the stock there, but Brian feels very comfortable in doing that because he feels $38 is a good area to get in.

Brian's Play on YUM!

Friday, July 9, 2010

Brian's Play on Visa

Live from New York this week on Fast Money, Brian explained an earnings trade in regard to Visa. The target date for this trade is July 28, Visa's earnings. Brian takes a look at selling the August 70 put at $2.10, thus collecting a 3% interest on yourself giving you a little dividend and extra interest. He also mentions that if you want to get a little risky, take a look at possibly using your put collection and buying the August 75 call to participate even more on the upside. Recently we have seen Visa bouncing off the $70 level and it seems like there is a lot of support in the stock. Overall, Brian feels this is a great trade to the upside and he thinks $70 is the range where it will have some good support.

Earnings trade on Visa

Friday, July 2, 2010

Response to VIX and a Play on the Bond Market

Brian Stutland, contributor to CNBC's Fast Money on Thursdays, touches on the holiday weekend and how to respond to the VIX being at its low point on the year. Brian recommends buying protection to protect against your portfolio. Brian feels although a relief rally in the S&P is possible, it's time to play defense. He thinks it might be time to buy a Call spread on the VIX to protect your portfolio as the market may have a long way to go on the downside. In regard to the Euro rallying, Brian says he would have expected the market to rally as well, following the trend of the past few months. He thinks it might be time to search for a bottom here in the market because the classic correlation has broken between sell the euro sell the market or buy the euro buy the market.

Hedging Bets in a Down Market


Later in Fast Money,"Spymaster Brian" has a play on the bond market. He thinks it's time to mitigate risk in a very volatile market. Brian looks at a covered call in the TLT. Here, he suggests adding yield to his portfolio by selling a Sept. 105 call for $1.50 against a long position in the TLT. Here you are taking in the premium plus you are getting the yield. He is more than happy to get called away on his stock as he is in cash and the market will be significantly lower at that time.

Brian's Play on the Bond Market

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