In this post are 16 stocks which I will be keeping an eye on at least until September options expiration. These stocks have showed great strength, breaking out to the upside on extremely large volume. The table below shows the company, ticker, Wednesday’s $ per share and % increase, and Wednesday’s volume increase (% increased compared to 50 day average).

Company Ticker $ / % Change % Vol. Increase
Applied Micro Circuits Corporation AMCC +0.77 (8.61%) 380.83%
Hi-Tech Pharmacal Co. HITK +4.16 (24.10%) 759.25%
MoneyGram International, Inc. MGI +0.33 (11.30%) 168.18%
VIVUS, Inc. VVUS +4.89 (70.77%) 9979.10%
AllianceBernstein Holding LP AB +1.46 (6.25%) 219.53%
Signet Jewelers Ltd. SIG +2.64 (10.76%) 307.75%
Cano Petroleum, Inc. CFW +0.130 (17.79%) 352.58%
Capstone Turbine Corporation CPST +0.19 (13.97%) 249.83%
JDA Software Group, Inc. JDAS +3.15 (16.07%) 177.75%
Parallel Petroleum Corporation PLLL +0.39 (18.75%) 907.15%
Quest Resource Corporation QRCP +0.131 (30.44%) 854.06%
MGM MIRAGE MGM +0.68 (7.23%) 143.19%
MSC Software Corp. MSCS +0.52 (6.83%) 224.54%
Rovi Corp ROVI +0.80 (2.56%) 19.81%
Delta Petroleum Corp. DPTR +0.75 (32.89%) 1735.69%
Gasco Energy, Inc. GSX +0.120 (31.58%) 930.78%

Vivus certainly had a wonderful day on the back of some very positive news, but I feel I may have missed the majority of the move, as news caused that to rocket. The stocks which are most attractive to me from the list above are: Hi-Tech Pharmacal Co. (HITK), JDA Software Group, Inc. (JDAS), Rovi Corp (ROVI), and MGM MIRAGE (MGM) – ROVI and MGM did not have any direct headlines causing Wednesday’s share price and volume increase.

Below are two option trade ideas which I may be using in the week(s) to come on ROVI and MGM. To learn more about the option strategies outlined in this post, risks, pricing, calculations, other strategies, and options in general click here.

ROVI Option Trade: Settling at 32.11 a share as of Wednesday it is hard to use options with this stock as it is almost exactly in between the two strike prices listed of 30 and 35. Therefore this is an ideal candidate for a vertical option spread. I would get long this by purchasing the in the money 30 strike October option contract and selling the October 35 strike against it. To open each spread I would need to commit $245, but the stock is already 2.11 in the money so in order to break even the stock needs to climb higher by 34 cents per share. If the stock sells off and approaches the 30 mark, I may look at just going long by purchasing the 30 strike call options and wait for strength in the underlying to write out the 35 strike option. If the stock continues to rally and closes at or above 35 a share on Friday October 16, 2009 this position will return just over 104%.

For trader’s I would recommend using a ratio call spread. At current levels of delta, I would consider selling two or three 35 strike call options against the underlying, and if and when the lower delta and 2X or 3X the higher delta value start to equal, I would close the spread. This is much more dangerous than a vertical spread because it requires naked options and not only do maintenance requirements become a hassle, but if the stock really takes off this spread could lose a lot of money. The maximum profit point is at 35 a share, and should be closed by the end of trade on October options expiration day.

MGM Option Trade: I have been bullish on the casino stocks for quite a while, as they are up trending and the extremely high premium (due to the high levels of volatility on the underlying) makes them great for the buy/write option strategy. Like I did for Las Vegas Sands (LVS), I have been looking at using the buy/write option strategy and or selling put options for MGM. As the stock hovered above $10 on Wednesday I was trying to open a buy/write but my bid was not getting hit. I was bidding $9.40 a share, or $10 a share less $60 per option contract for the September 10 calls. I did not fill my order, so will certainly be looking into this until expiration. I would like to open it by Friday, as the theta value on the September 10 option is quite high and I would like to be able to benefit from the time decay experienced over the weekend. I think this stock could sell off significantly with any weakness in the overall market, and if so I will look at using this strategy centered around the September 9 call, or will look to sell September put options. If I happen to get into this position and then the stock sells off causing me to hold this stock after expiration, I would simply look to write it out for the month of October on strength in the underlying.

The ideas outlined above involve the use of stock options. The reason option volumes have surged in the last 5 years is because they are a great way to hedge your portfolio as well as create income off of your shares (see option volume chart).

These are just examples and are not recommendations to buy or sell any security; if you’re more bullish/bearish, you’ll want to adjust the strike price and expiration accordingly.

Disclosure: Long LVS, Short LVS September 15, 16, & 17 Call options

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