September 2011 – Dearest Leader

Checkpoint Trade CHKP

The well known maker of firewalls and other security solutions has a nice setup here. Prior resistance from February 18 held up as support at the 200 DMA. CHKP also closed back inside the trend line on the 23rd. Earnings is set for October 20 which would account for a big squeeze if the stock stays inside the triangle. The weekly trend is still up so this is likely to be a continuation.

Aside from playing long equity there are a few options here.

One is to sell an ATM Vertical option. This assumes that the 200MA, the February resistance, and the trend line will hold up. The 50MA was resistance on Thursday and that is relatively close to resistance on August 18 and also Near the end of April. Closing half a position close to the 50MA would be one way of reducing this exposure. This is the setup SELL -1 VERTICAL CHKP 100 OCT 11 52.5/50 PUT @.95 LMT

The other option is to bet on a break out after earnings on October 20. IV for October is 50% while November is 45%. A call calendar above the resistance at 58 could be one way to capture a break out. BUY +1 CALENDAR CHKP 100 NOV 11/OCT 11 60 CALL @.55 LMT

If we were looking to pin close to the center of the triangle BUY +1 CALENDAR CHKP 100 NOV 11/OCT 11 57.5 CALL @.73 LMT or BUY +1 CALENDAR CHKP 100 NOV 11/OCT 11 55 CALL @.85 LMT could also be good choices. These would be taken off close to expiration, but before earnings.

The Hartford to Offer Data Breach Insurance

Good news for small firms. The Hartford (NYSE: HIG)is now offering data breach insurance targeting small business. Insurance is a good control to invest in to supplement other information security controls or as the main control if your business is very small. Some E&O policies may also have riders that cover data breaches. If you own a business you should review all your policies to be sure that your coverage objectives are met.

Relying on insurance is a form of risk transference. The policy holder is transferring some of the risk in the form of impact costs to another party. This can be useful and could potentially save a small business from severe financial damage if it has to absorb the costs of investigating a breach or cover the cost of credit monitoring for its customers.

In trading terms buying a Put is the same as buying insurance. The purchaser is given the option to sell their investment for potentially more than the current market price. An unexpected oil spill or embezzling scandal could be the equivalent of intruders or dumpster divers getting their hands on your customer’s data.

There’s a very small range in HIG. There is support around 16 so this could be played different ways. Shorting the stock with a stop above the trend line is one option. The Oct 18/16 Bear Put Spread is going for .69 and has a max profit of 131. Since front month IV is higher than November a put calendar may be an alternative if you want to play the descending triangle pattern. The 16 Oct/Nov Put calendar is going for .47. There is a possibility the stock could drop to 12 if the descending triangle follows through.

AUDJPY Ascending Triangle Setup

There is an ascending triangle forming on AUD/JPY with a triple top. Ascending triangles tend to be a bullish pattern. Positioning a buy stop order above resistance is a good strategy to grab the break out. This one reversed but was worth 20-30 ticks with a tight trailing stop. Always be on the lookout for patterns to give guidance for buy and sell stop entries.

USDCHF Short

Today there are some nice technical indicators showing on the USD/CHF pair. The pair topped out at around .82 before turning lower. Today the Persons Proprietary Signal indicated a sell along with MACD, Stochastics, and RSI starting to point down. A short entry today should be able to run for a few days.