• Daily Game Plan – Digestion Day

    by  • October 21, 2013 1:53 pm • Broad Market Analysis, Bryan Sapp’s Daily Game Plan, Charts to Watch


    After making fresh all-time highs last week, markets are taking a bit of a breather today.  Price action was fairly volatile near the open, but has since simmered into a narrow range.  Newsflow over the weekend was very light, and it appears that stocks are taking some time to digest the big move we saw last week.  Markets are trading near breakeven on the day, but technology is the big leader today as AAPL is significantly higher.  The Nasdaq is up by about 0.3% for the session.  Bonds are slightly lower, down about 0.3%, while gold and silver are slightly higher.  There is some significant movement in select momentum names, as NFLX, TSLA, SCTY, and FSLR are all seeing big moves despite the lack of volatility in broad-market indexes.



    Transocean (RIG) – The offshore drilling concern has been weak since making a significant move early this year.  In fact, RIG has retraced the entire 30% rally and is now near a year-to-date breakeven level.  This key technical area could provide a springboard for a big move in either direction.  Short interest on RIG has recently spiked to fresh two-year highs–this greatly increases the potential for volatility going forward.  RIG is slated to report earnings at the beginning of November, and the results of this report could lead to a big move by the stock.  Lastly, options on RIG are currently very cheap, as they’re currently priced in the bottom fifth of all readings taken over the past 52 weeks.

    I like buying a December 46-strike straddle here for about $3.80.  Subscribers to Schaeffer’s Volatility Trader received this recommendation earlier today.  This trade will profit on a move above $49.80 or below $42.20 by December 20.

    courtesy of stockcharts.com



    The S&P 500 has come very close to the 1750 level today and Friday.  This is an area that I think could cause a speed bump or two in the near term.  I would look for a slight pullback in the index(albeit above the 1700 level) before a rally into the end of the year.  Given recent fund underperformance, it’s likely that we’ll see a performance chase into 2014.


    Bryan Sapp is a Senior Trading Analyst at Schaeffer’s Investment Research, where he has specialized in volatility-based options trading since early 2010. With Bryan at the helm, Schaeffer’s Volatility Trader generated a 2012 portfolio return of 70% for subscribers. This real-time option recommendation service exclusively trades short-term straddles. Prior to joining the research team at Schaeffer’s, Bryan honed his skills as a speculator by trading his own account, and playing poker professionally to pay his way through college. Bryan attended the University of Louisville, where he received his Bachelors in Economics and an MBA with an Entrepreneurship focus.