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| Optionetics.com Earnings continue to be the focus, but the bulls were unable to remain in control this past week. The Dow (^DJI) fell.23.73 points, or 0.24 percent, to close the week at 9,972.18. The S&P 500 (^SPX) lost 8.08 points, or 0.74 percent, to 1,079.60. The Nasdaq (^IXIC) gave up 2.33 points, or 0.11 percent, to 2,154.47. This past week was abundant in earnings announcements with most exceeding estimates. Nonetheless, the overall market has struggled to gain ground thanks to very high expectations. The major market indices are up very sharply since their March lows, but despite the lack of gains, the bears have been unable to gain much traction either. This coming week will be the heaviest for earnings reports in the third quarter and this is likely to keep intraday volatility high. At the same time, there are some key economic reports on tap including data on durable goods orders, new home sales, GDP and personal incomes. With little net change in the major market indices, the fear indices also saw little movement. The CBOE Market Volatility Index (^VIX) added 3.92 percent to 22.27 while the Nasdaq Volatility Index (^VXN) gained 1.80 percent to 22.62. Historically, the 20 level has been a point of key support and resistance. However, the sharp drop in fear since the March lows has some analysts concerned about complacency. Usually, stocks need to climb a wall of worry, which has been the case until the past few weeks. Many analysts have thrown in the towel, stating that they just can't bet against the bulls. However, it is when this happens that we tend to see declines.
High Volatility: TEVA shares have been in trading in a narrow range for the past couple of months. The stock closed Friday's session at $50.30 and has been trading between $50 and about $53 for several months. IV remains high on the stock's options with TEVA set to report earnings on Nov. 3. When TEVA announced for the third quarter in 2008, the stock remained in a sideways pattern for several months. Traders can enter a butterfly on TEVA that would provide a very nice reward to risk ratio. Remember, we normally want to use short term options when trading butterflies to benefit from time decay and to not allow time for the stock to move out of its current range.
Low Volatility: BAC shares have shown a lot of volatility this past year, but have shown some moderate consolidation the past few months. This has helped push IV down on BAC options, which opens the door for traders to enter a strangle to take advantage of a sharp move in either direction. There is support near $15 and resistance near $18, so a strangle using the 15-17.50 options could work well. The stock has suffered this past year, down nearly 30 percent compared with a gain of nearly 5 percent for the XLF. With a strangle, we are buying two options, so make sure to buy enough time and to get out before the options have less than 45-days until expiration. Jody Osborne Visit Jody's Forum For more information on learning how to make money with options, go to the Optionetics.com full site! We empower investors through knowledge.
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