Weekly Update: August 7, 2014

| August 7, 2014

Weekly Update:  August 7, 2014


What To Watch

US equities markets have settled somewhat from last week’s end-of-week selloff, but there’s still an elevated level of investor fear. That’s not to say the market is volatile – the VIX is still under 17 – but it’s certainly more volatile than it has been for most of the summer.

From this time last week, the S&P 500 is down about 2.5%, but is still up 5% on the year so far. Bond yields continue to plummet, with the 10-year Treasury down to nearly 2.4%. That’s the lowest level since summer of 2013.

The higher level of investor fear is almost entirely due to geopolitical events. Russia is massing troops at the Ukraine border. The US is considering air support in Iraq. And, the cease fire between Israel and Gaza is about to end. So, you can see why international issues are front and center right now.

On the other hand, most of the global hotspots aren’t likely to spill over into something larger. And let’s not forget, the US economy is doing quite well. In fact, the 4-week average for initial jobless claims is at its lowest level since February of 2006!

At this time, I’m still not worried about anything like a correction. Still, it pays to keep an eye on volatility.


Portfolio Recap

Position #1: Franco-Nevada (FNV) August $55 Puts

Price Paid: $1.38

Current Price: $0.15

Time Until Expiration: 8 days

What a frustrating past couple of days for FNV! The stock plunged towards $55 and I was prepared to sell the puts out as soon as we got back to even. Then the company reported strong earnings and declared a quarterly dividend and the price soared. The stock is way overbought here, but we probably don’t have enough time for the share price to come down to more reasonable levels before out puts expire.


Position #2: AGCO (AGCO) August $55 Calls

Price Paid: $0.85

Current Price: $0.05

Time Until Expiration: 8 days

As I wrote last week, this trade got killed by poor guidance from the company. Not much we can do at this point as the stock has likely too much ground to cover before August expiration next week.


Position #3: Altera (ALTR) September $34 Calls

Price Paid: $1.35

Current Price: $0.55

Time Until Expiration: 43 days

ALTR is basically trading where it was at this time last week. However, the stock has made a few attempts to get back to $34. As I said last week, there’s plenty to like about this company. September expiration should give us lots of time for this trade thesis to develop.


Position #4: GT Advanced Technologies (GTAT) September $14 Calls

Price Paid: $1.35

Current Price: $2.15

Time Until Expiration: 43 days

GTAT is already a 59% winner for us, and should continue climbing. In fact, if not for the broad market selloff today, the stock may have hit $16. GTAT’s news has all been good (including beating earnings and issuing solid guidance), so it’s just a matter of time before we cash out on this trade for nice profits.


Position #5: Rocket Fuel (FUEL) September $20 Calls

Price Paid: $1.10

Current Price: $0.70

Time Until Expiration: 43 days

We just made this FUEL trade yesterday, and the stock has come off a bit since then. However, it shouldn’t take long for the share price to make a run at the 20-day moving average, which is about 30% higher than the current price. We have lots of time to let this trade play out.


Category: OTW Weekly Updates