Weekly Update: April 18, 2013

| April 18, 2013

Weekly Update:  April 18, 2013


What To Watch

Stocks have taken a turn for the worse this week with the S&P 500 down over 2% since our last update.  Commodities, especially gold, have really taken it on the chin though.  The iPath DJ-UBS Commodity Index (DJP) is down 4% for the week, while gold has plunged a whopping 12% in that time.

Poor earnings and weaker than expected economic news are driving the current selloff.  Basically, it looks like we’ve hit a snag in the recent bull market.  Manufacturing activity is down and unemployment still hasn’t been tamed.

However, I do believe this will be a temporary setback.  The economic data is worse than expected, but it’s not terrible overall.  More likely, we’re just seeing a pause from what had been a couple months of fairly rapid growth.

Moreover, there are plenty of major earnings left to come.  We’re only in the second week of earnings season.  Next week could easily bring some positive surprises.

Finally, option volatility has been increasing, with the VIX all the way up to $17.32.  Keep in mind, it was as low as $12 just four days ago.  However, high volatility can often present some excellent buying opportunities.   We’ll definitely be looking to put on another trade in the next few days.


Portfolio Recap

Position #1:  F5 Networks (FFIV) April $105 Calls

Price Paid: $0.92

Current Price: $0.00

Time Until Expiration: 1 Day

As a reminder from last week, FFIV collapsed after the company preannounced weak 2Q earnings.  It could be an opportunity for another trade down the road.  But for now, it’s time to move on.


Position #2:  Amazon.com (AMZN) April $280 Calls

Price Paid: $1.10

Price Sold: $0.86

We sold AMZN at the end of last week and recovered much of our initial investment.  The risk management move was due mostly to protect against time decay.  However, we not only got out before time decay created any further damage, we also sold before a fairly significant market selloff.

As such, this move paid off for us about as well as could have been possible.


Position #3:  Deere & Co (DE) May $87.50 Calls

Price Paid: $1.43

Current Price: $0.58

Time Until Expiration: 29 Days

DE is our one active position at the moment.  Of course, the stock got hit hard by the market/commodity selloff.  But, since we have almost a month left to expiration, our calls still hold value.  Deere is one of those companies that should see plenty of upside once the market shakes off this recent downturn.  So, let’s go ahead and hang on to these calls for now.


Position #4:  OpenTable (OPEN) May $57.50 Puts

Price Paid: $1.65

Price Sold: $4.40

Bam!  And that’s why we owned puts in our portfolio.  I was already skeptical of OPEN’s stock price.  And, I wanted to make sure we had some downside exposure in our portfolio as well.  Sure enough, it paid off in spades.

We sold off our OPEN puts early in the week for a 167% gain.  How’s that for a 10-day return!

With volatility ramping up in the market, I believe we’ll be able to keep hitting trades out of the park like this one.  Congratulations on a big winner!


Category: OTW Weekly Updates