• Daily Game Plan – Volatile Chop

    by  • May 29, 2013 2:25 pm • Broad Market Analysis, Bryan Sapp’s Daily Game Plan, Charts to Watch • 0 Comments

    MARKET CHECK

    Markets are all over the place today, as we’ve seen huge swings between the highs and lows.  Despite any major overnight news, stocks gapped lower on the open as European markets were off significantly.  After a sharp move downward from there, markets were met with aggressive buying near mid-day, and currently sit near the highs of the cash market session.  However, despite this recent spike higher, stocks still sit well in the red.  At present levels, the Russell 2000 is today’s relative laggard, down about 0.8%.  All other major market indexes are around 0.5% lower.  Bonds are seeing a bid after yesterday’s massive selloff, but they’ve only recouped 0.6% of the 3% they lost on Tuesday.  Metals are also higher, as gold and silver are up nearly 1% each.

     

    CHART OF THE DAY

    HollyFrontier Corp (HFC) – The refining concern has entered a period of volatility contraction after selling off sharply since peaking in March.  During this time, short interest has spiked dramatically to a new all-time high.  This creates an increased potential for volatility going forward.  In addition to this, the chart is setting up a symmetrical triangle formation, which indicates the potential for a big move going forward.  Lastly, options on HFC are priced in the bottom third of all readings taken over the past year, making a multi-legged option strategy attractive.

    I like buying a July 49.50-strike straddle here for about $5.50.  This trade was given to our Volatility Trader subscribers earlier today, and will profit on a move above $55 or below $44 by July 19th.

    courtesy of stockcharts.com

     

    WHAT I’M EXPECTING

    Continued volatility.  There has yet to be any resolution to the recent range we’ve seen in markets, but headlines and global markets will continue to have a significant effect on the next course of direction for markets.  The next two days are heavy with economic data, so that too could have a significant effect on price action.

    About

    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.

    http://www.schaeffersresearch.com/

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