Cool Profits for the Summer Heat Wave
It has been a volatile summer, as investors have been faced with debt woes here and abroad. And we’re now in the midst of a corporate earnings season, which always has the potential to rock the boat.
But if options trading is your game, volatility is hardly a negative. On the contrary, it can turn an average options trade into a real game-changer.
We asked our options experts to give us their top trading ideas. Each of these trades was selected because it has the potential to double your money by the end of the year!
Trade #1 – AOL Puts
By: John Jagerson, Options Coach, Turbo Trader Live
AOL (NYSE:AOL) is a stock traders love to hate, because the company struggles with endless management overhauls, soft advertising sales and a product strategy that is focused on untested ideas like hyper-local blogging. The stock has clearly taken a beating, and the last two earnings reports have been none-too-kind to shareholders. We seriously doubt this company has figured it out yet, and its upcoming earnings report in August should be accompanied by another selling frenzy.
From a technical perspective, a rising wedge pattern has just recently broken out and could reach one of two price targets by the end of August. If most of the bad news is already priced into the stock, momentum would result in a moderate drop to $16. If the news just keeps getting worse, which seems likely, the stock could lose up to 35% and drop to $12 before the end of the third quarter.
We recommend buying to open the AOL Oct 17 Puts for 60 cents or less. This provides plenty of time for the move without giving up too much in time value if the current channel extends a little further. Reaching our first objective would be a money-doubling options trade, but the second objective is a real game-changer.
Trade #2 – AET Calls
By: Sam Collins, Chief Technical Analyst, InvestorPlace.com
Aetna (NYSE:AET), a leading provider of health care, disability and long-term care insurance, is expected to earn $4.30 per share in 2011 vs. $3.68 in 2010, and more than $4.65 per share in 2012. Pricing discipline, cost-control initiatives and diversification, including increased penetration of the Medicaid market and international expansion, all contribute to a higher earnings estimate and stock price.
Fundamental analysts target the stock at $51 over the next 12 months. But AET has been trading in a narrow range of $42.50 to $45 since May, when it topped at $45.63. An agreement to increase the U.S. debt ceiling should benefit holders and run the stock to at least its May high and possibly higher.
Buy the AET Sept 44 Calls at $1.50 or less with a target of $3.50.
Trade #3 – AVB Calls
By: Chris Johnson & Jon Lewis, Editors, The Winning Edge
The real estate sector remains one of the hotter performers through this summer as a powerful combination of pessimistic investor sentiment and positive technicals are combining for a classic “wall of worry” bullish scenario for the group. As of last week, 31% of the stocks that comprise the iShares Dow Jones US Real Estate Fund (NYSE:IYR) were trading at new one-year highs compared with only 13% of S&P 500 companies, yet no one is talking about the bullish real estate trade.
Among the companies pressing to new highs is AvalonBay Communities (NYSE:AVB), an operator of multifamily communities in the U.S. Short-sellers have been hammering this stock lately, despite a history of better-than-expected earnings results and a decidedly positive trend in the stock’s price. The company is set to announce earnings today after the close, offering potential for another catalyst to shake the shorts out of this stock. We think a short-covering rally is poised to move this stock higher.
The AVB Sept 140 Calls, currently trading around $4.50, could be a great money-doubling options trade to take advantage of the next wave of buying as the stock continues its trek higher. (The price of these calls will almost surely fluctuate with earnings, but we think this is a good trade whether earnings surprise or disappoint.)
Trade #4 – TSO Calls
By: John Jagerson, Options Coach, Turbo Trader Live
Buyers have been holding their breath in the market since February. They have been simultaneously unwilling to let sellers take control or bid the broad indexes above long-term resistance. This creates a coiling-effect that could result in a big shift in assets as some of the major sovereign debt issues are resolved.
When growth improves, energy commodities tend to follow. Stocks in the oil sector took a small hit with the failed intervention in June, and many are showing compelling bullish reversal patterns as they recover. In a situation like this, we focus on stocks with the best relative fundamental performance and potential for a rally in the short term, like Tesoro (NYSE:TSO).
We recommend buying to open the TSO Nov 27 Calls for $1.80 or less. The stock has been surprisingly durable over the last several months and is just breaking out of a bullish inverted head-and-shoulders pattern. We conservatively estimate that the stock will rally another 16%-20% as it reaches longer-term resistance levels in the next two to three months.
Trade #5 – APA Calls
By: Sam Collins, Chief Technical Analyst, InvestorPlace.com
Apache (NYSE:APA), a large, independent exploration and production company, explores, develops and produces natural gas and crude oil in the U.S. and abroad. Analysts expect APA to earn $11.70 a share in 2011, up from $8.92 a share in 2010, and they are looking for a bigger increase in 2012 to $13.25 a share. Additionally, the declining dollar should benefit the stock.
Technically, the stock has been in a flat trading range since late last year, with support at $113 and resistance at its high of $134. But upside volume is increasing as the likelihood of a lower dollar increases. A budget agreement could result in a quick break above this year’s high and a run to $140-plus.
Buy the APA Sept 130 Calls at $4.70 or less with a target of $10.
