Ken Trester’s Fast Options
Recommended Fast Options Trading Strategy: MIPS Technologies (NASDAQ: MIPS)
MIPS is breaking out of a “right triangle” formation, which is a very bullish move. Here is the best way to play more strength in MIPS Technologies…
I recommend that you buy the MIPS Apr 20 Call in the range of .90 cents or $90 per contract.
After taking the position, enter a good-til-cancelled contingent order to sell this option if the stock hits its target price of $19.40. That should give you an option price of about $1.80, for a 100% profit. Close this position and cut losses if the stock closes below $16.30, when the option price should be about .60 cents. The stock is currently trading at $17.34. The computer-simulated probability of this option hitting its target price is 24%.
Recommended Fast Options Trade: Rock-Tenn Co. (NYSE: RKT)
RKT has been in a slowly rising uptrend and is attractive on a stochastic and relative strength basis. Here is the best way to play more strength in Rock-Tenn…
I recommend that you buy the Rock-Tenn (RKT) Apr 60 Call in the range of $1.90 or $190 per contract. After taking the position, enter a good-til-cancelled contingent order to sell this option if the stock hits its target price of $59.40. That should give you an option price of about $3.50, for an 84% profit.
Close this position and cut losses if the stock closes below $53.40, when the option price should be about $1.20. The stock is currently trading at $55.49. The computer-simulated probability of this option hitting its target price is 24%.
** All of our short-term recommendations can be taken for up to three days after they are recommended. Make sure the stock and option prices are close to where they were when we made the recommendation. If after three days you still have not gotten the position filled, cancel the order and wait for our new recommendations, as the profit probabilities may no longer be valid.
Market Outlook
Our indicators are giving bullish readings, unchanged from two weeks ago. These bullish readings are confirmed by our internal indicators as the 200-day Moving Averages Index, Advance Decline Index and Cumulative Volume Index are all in bullish trends. And volatility readings continue to trend lower.
The most notable chart occurrence over the past few weeks has been a potential “triple top” being formed by Treasury yields. Treasury yields had been rising steadily since November but as of about a month ago that rise appears to have halted. Now, it is an open question which way yields might move, and they might even stay steady right where they are.
The direction Treasury yields eventually take is of course important for stocks. Stocks can withstand an initial rise in interest rates as many times that signals better economic times ahead. But there is a limit to how far interest rates can rise before inflicting damage. Money that had been leaving the bond market would have a renewed incentive to return. And higher borrowing costs would eventually eat into corporate profits and also consumer spending.
Given the still tenuous, though improving, global economy, policy makers no doubt would like to see interest rates put an end to their recent rise. So in that regard, the “triple top” formation brings hope that they might. But the jury is still out, and all eyes will be on not only Treasury yields but commodity prices as well. Nothing spells higher interest rates faster than a sudden whiff of inflation.
For now, options traders should continue to lean toward bullish positions. While we have just come out of one of the most bullish calendar periods of the year, the first couple weeks of January historically have also had a bullish bias. So call options and put credit spreads should still be your focus, especially if Treasury yields react to their triple top by breaking lower.
Ken Trester is editor of the popular Maximum Options program. As the nation’s foremost professional options trader, Trester is not just another “options educator.” He is a pro who has been trading options since the first exchanges opened in 1973 with a winning streak that goes all the way back to 1984 and money-doubling average annual profits since 1990.
