Update: February 18, 2014

February 18, 2014

 

Portfolio Update

Normally this update will come out on Mondays, but with the markets closed for Presidents’ Day yesterday, I’m sending it out today.  Next week you can expect us to return to the normal schedule.

Since our first trades last week, the market has essentially stabilized.  The S&P 500 is up roughly 2.5% since last Monday and is almost even on the year.  With the debt ceiling a non-issue for at least a year, investor attention will now turn to economic data.

Overall, domestic economic news hasn’t been great… but it hasn’t been terrible either.  More importantly, winter weather has severely impacted business activity over the last month or two.  As such, it’s difficult to get a reading on how well the economy is truly doing.  I believe we won’t get a better picture of economic activity until March – but let’s see how the rest of February turns out.

In the meantime, we’ll be focusing on more distinctive themes.  The market volatility theme from last week is a broad strategy meant to protect our portfolio over the next 2 to 6 months.  Our next theme will likely take a more narrow approach.  Stay tuned next Monday for a new set of trades.

Now on to the portfolio…

 

Portfolio Highlights

• iPath S&P 500 VIX Short-Term Futures ETN (VXX) April $60 Calls – With the market stabilizing, volatility has decreased quite a bit.  That’s okay.  These VXX calls will spike in a big way if volatility hits – and by purchasing April calls, we have plenty of time for that to happen.  Our risk control levels are still a decent clip lower from here ($38 and $35 for conservative and aggressive traders respectively), so we have plenty of leeway as we hold this position.

 

• Exelon (EXC) July $29 Calls – Despite a lack of volatility in the market, EXC has still done nicely for us.  With the stock up to $30, our calls have been as high as $1.94, or a 39% gain.  We’re still $2 away from our conservative profit-taking point of $32.  Keep holding the calls for bigger gains ahead.

 

• 3D Systems (DDD) May $50 Puts – I expect DDD to be a volatile stock, so don’t be surprised to see big moves from this name.  The share price has moved up with the broad market recovery, but I believe it will find some resistance around $80 at the 50-day moving average.  While our conservative risk control point is at $80, I would recommend a little more patience with DDD as it will move in chunks.  Not to mention, we have our options until May expiration.

 

Category: AOA Updates