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Trade of the Day: Gray Television (GTN)

Options on small-caps offer great speculative trades


Stocks continued their bullish ways over the past week, and the return of a key indicator into bullish territory bodes well for stock and options trading that more gains are ahead.

Our index indicators continue to give bullish readings, unchanged from last week. How long ago the mini-correction in January seems!

Since bottoming in late January, the indexes have nearly made a straight line upwards and all three are now comfortably in primary bullish trends relative to their key moving averages. The Dow needs to stay above 16,100 to maintain that trend, the S&P 500 must stay above 1,825 and the Nasdaq above 4,190.

Our internal indicators are also all bullish. The Advance/Decline Index and Cumulative Volume Index have been bullish for several weeks, but the key development is that the 200-day Moving Averages Index has moved back into a primary bullish trend for the first time since last June. While this indicator was out of step with other indicators for most of last year, it has been a very reliable indicator over the longer term, especially for predicting potential market weakness. That it has returned to a bullish trend is a very good sign for market stability.

Following a week of strength, long-term Treasury bonds (TLT) reversed course yet again and have fallen back below their 200-day moving average. In fact, barring another reversal and show of strength, TLT may be in the process of forming a “double top” pattern. To prevent that, TLT must decisively rally back above $109. However, with the recent global “flight to safety” momentum waning, TLT will more likely be testing support in the $106 area soon. This will become even more likely to happen as the weather improves and the U.S. economy returns to more normal output. Generally, stronger economic growth is bearish for bonds.

With our indicators continuing to reside in bullish territory, options trading strategies should continue to lean more toward bullish positions such as buying calls. Pull back on put purchases but, as always, don’t ignore owning puts altogether. It never hurts to have some portfolio insurance in your pocket.

For today, I’ve found an intriguing options trading opportunity in a small-cap that may not have come across your screen before: Gray Television (GTN). The firm is an active broadcast company based in Atlanta, Georgia. It owns and operates television stations in 31 U.S. markets, broadcasting more than 85 channels of programming. It also operated dozens of local digital and mobile platforms.

GTN jumped from around $2 at the start of 2013 to a high of $15.17 on the last day of the trading year. My system’s analysis has indicated there’s more room for it to run.

Buy the GTN May 12.5 Calls at $1 or lower. After entry, take profits if GTN stock price hits $13.50 or the option price hits $2.00. Exit if the stock price closes below $10.70 or the option price closes below 60 cents.

While my system highlighted this options trading opportunity largely because of the technical picture, it should be noted that the company reports earnings on March 11. It has an inconsistent history of hits and misses, so I’d recommend taking a smaller-than-normal position.

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