It’s been a flat day on Wall Street as both the bulls and bears seem reluctant to make big bets ahead of Fed Chairman Ben Bernanke’s update on interest rates. The Fed will make its decision on monetary policy in just under a couple of hours and nothing will change except the wording. Traders will look for clues on what is being said about the economic recovery, the labor market, real estate and inflation. And yes, any hints on QE3, QE2.5, etc.
There will likely be some action after the news which could sway direction for the rest of the week. A small rally by the bulls would be enough to push the major indexes past resistance and would bring our next set of targets into play. However, a slight pullback or selloff could lead to frustration and another test to the downside.
The Dow is currently down 10 points to 12,180 while the S&P 500 is lower by a point to 1,295. The Nasdaq is off by 2 points to 2,686.
We mentioned Adobe Systems (ADBE, $30.12, down $1.89) this morning and the company’s earnings but we wanted to take a quick look at the options. We have played the options on Adobe’s earnings in the past and our subscribers did really well with a strangle option trade we profiled in September 2010 when the stock was at $33. At the time, we were telling our subscribers Adobe would be making a huge move because of their product cycle and uncertainty over earnings but we weren’t sure which way which is why we bought protection.
The trade returned over 200% when the stock fell from $33 to $26 after Adobe announced their results. The call options we recommended surged 525% while the puts expired worthless. This time around we didn’t think Adobe would make a 20% move or even a 10% pop or drop because their new software has been selling well so we decided to sit out. However, we did highlight the stock in our Weekly Wrap as an earnings trade and some of our subscribers who have ordered our trading course, How to Trade Options on Momentum Stocks, emailed us and said they went with the puts just because of the current market environment we are in.
There was an opportunity to make a little cash with the Adobe July 30 puts (ADBE110716P00030000, $0.85, up $0.20) which close yesterday at 67 cents. The put options traded up to $1.00 at the open which would have been good for a 50% return and they are still up 30% for a decent gain in less than 24 hours.
Of course, we just closed a monster earnings trade on Research In Motion (RIMM, $28.37, down $0.18) that banked our members 357% on our put option recommendation. We were a little disappointed we were stopped out of the trade on RIMM’s rebound yesterday but the stock could be setting up nicely for another trade.
As far as the overall market, it was just announced there was “no change’ to interest rates. Subscribers, check the Members Area for the updates.