Weekly Update: December 13, 2012

Weekly Update:  December 13, 2012

What To Watch

It’s been another relatively slow week of fiscal cliff watching.  The S&P 500 is up roughly 1.5% from this time last week, with the Dow Industrials up 1.7%.  Dow stocks are trading at a small premium over the market in general due to the safe-haven allure of mega-cap companies.

I expect the situation to even out a bit once the fiscal cliff issues are resolved.  For example, it means technology stocks and small caps should get a boost in the coming days/weeks.

The Fed provided the market with some very good news in the form of additional bond buying and parameters for when to raise interest rates.  The market hasn’t yet reacted strongly to the news – but I believe it will once the budgetary issues are ironed out.

We have two put positions – one for January – should the stock market experience a major selloff due to the current political situation.  For our next trade, it’s time to move back into calls as I believe there are many opportunities for individual stocks to rally.

Portfolio Recap

Position #1:  Netflix (NFLX) December 2012 $62.50 Puts

Price Paid: $1.41

Current Price: $0.03

Time Until Expiration: 8 Days

There’s not much left to say about NFLX.  As I mentioned last week, our puts were decimated by the positive Disney (DIS) news, which sent the stock soaring.  Unless the market suffers a correction next week, these options will expire worthless.

Position #2:  Wynn Resorts (WYNN) January 2013 $100 Puts

Price Paid: $1.12

Current Price: $0.60

Time Until Expiration: 36 Days

WYNN has moved higher since our trade this week, but it’s nothing to worry about.  There’s no significant news driving the rise.  And don’t forget, WYNN is a very high beta stock.  In other words, if the market moves south, the stock could drop in a hurry.

What’s more, we have plenty of time left on our puts.

Even if the market doesn’t take a turn for the worse, WYNN is nearing a significant resistance point.  I expect the shares will drop back towards the 50-day moving average in short order.

From there, the only support left is the 200-day moving average –and by that point, our puts should be nice and profitable.  Let’s hang on to our WYNN options.

Category: OTW Weekly Updates