Weekly Update: December 11, 2014

| December 11, 2014

Weekly Update:  December 11, 2014


What To Watch

US equities have taken a downturn this week led by the plunge in energy stocks. However, the S&P 500 is still up over 11% for the year, and we’re only about 2% off record highs. Still, some measure of volatility has been added to the market, and many momentum names are getting crushed.

Ultimately though, the story this past week has been all about crude oil. Black gold fell all the way to $60 per barrel, a price not fathomable just 6 months ago. Excess supply has previously been the main culprit. And now, OPEC is suggesting weaker demand is going to be an issue moving forward.

While cheap oil is bad for major oil producing countries and oil-related companies, it’s great news for consumers. The savings customers will get from cheap gasoline should go directly into other areas of the economy, such as retail spending.

In fact, today’s retail sales report handily beat expectations. Retail spending increased 0.7% from last month, better than the 0.4% expected. Plus, the annual increase of 5.1% is looking very robust. What’s more, last week’s jobs report was about as good as it gets. The 322,000 jobs added destroyed expectations of just around 225,000. Overall, it’s hard to be anything but optimistic about the US economy at this point in time.

Look for another new trade tomorrow.


Portfolio Recap

Position #1: Cliffs Natural Resources (CLF) December $10 Calls

Price Paid: $1.11

Current Price: $0.00

Time Until Expiration: 8 days

CLF is plunging as the company is totally overhauling its operations. We had a window to make a profit on these options but it closed in a hurry. Management has a lot of work ahead of it if it wants to make CLF an attractive investment once again. For us, it’s time to move on.


Position #2: Kate Spade (KATE) December 29 Calls

Price Paid: $1.50

Current Price: $0.75

Time Until Expiration: 8 days

Kate has pulled back sharply with the market ahead of expiration. Fortunately, we were able to hit one of our exit points prior to the pullback. With expiration coming up next week, aggressive traders who still own the calls may want to cut their losses. Keep in mind, conservative traders made big money on this one – in other words, here’s an example of where being conservative didn’t detract from making big profits.


Position #3: Glu Mobile GLUU) January 4 Calls

Price Paid: $0.28

Current Price: $0.30

Time Until Expiration: 36 days

Not too much to report once again with GLUU. The stock has slowly gained ground and is sitting around $4. A solid close above $4 could be what we need for technical traders to become buyers. We have yet to hit any of our exit points, but expiration isn’t until January.


Position #4: Encana (ECA) April 15 Calls

Price Paid: $1.25

Current Price: $0.60

Time Until Expiration: 126 days

I was right to recommend options all the way out to April for the ECA trade. Unfortunately, I should have set our risk-control exit point lower for conservative traders, as we’ve already hit that point. Crude has continued to plunge and has taken most energy stocks with it. ECA will rebound once oil settles into a range. However, aggressive traders need to hope crude oil halts its plunge before ECA drops below $12.


Category: OTW Weekly Updates