Weekly Update: December 27, 2012

| December 27, 2012

Weekly Update:  December 27, 2012


What To Watch

As expected, there’s not a whole lot going on this week.  Of course, it’s a short week with the holiday and a lot of investors are taking time off.   The major indices are down roughly 2% over the past week, but it doesn’t mean a whole lot given the low amount of volume we’re seeing.

The story hasn’t changed as the end of the year rapidly approaches – all eyes are still focused on Washington.  Will our politicians come to a fiscal cliff agreement in time?  What happens if we go over the cliff?

I’ve been saying for quite a while that a solution will be reached by the end of year.  I’m not so certain anymore, although there’s still a little time left.  However, even if we fall off the proverbial cliff, there will still be a little time before the country feels the pain of the tax hikes and spending cuts. 

But a resolution would need to be put in place quickly or financial hardship will surely dampen the prospects for economic growth.

I’ll be keeping a very close eye on the situation as stocks could take a dive or rally substantially depending on what happens in our nation’s capital over the next few days.


Portfolio Recap

Position #1:  Wynn Resorts (WYNN) January 2013 $100 Puts

Price Paid: $1.12

Current Price: $0.58

Time Until Expiration: 22 Days

My wording last week was a little confusing.  I mentioned that the value of our puts had doubled despite WYNN’s stock price holding steady.  I should’ve written that our puts had doubled in value since the prior week

This is important because it signals higher volatility in the options.   And that means more people are buying puts than selling – a sign WYNN could be headed south.

The stock is down a bit over the past week and the options have held their value.  We have just over a week before time decay really starts kicking in – so this coming week is key.  If WYNN takes another leg down, we’ll be in good shape to profit.  Otherwise, we may consider exiting and conserving some of our investment.


Position #2:  Cisco Systems (CSCO) January 2013 $20 Calls

Price Paid: $0.40

Current Price: $0.27

Time Until Expiration: 22 Days

CSCO shares were behaving nicely until today.  However, keep in mind, volumes are very low this week and don’t really signify a whole lot.

For the most part, our options are holding their value.  With 22 days to expiration, we still have plenty of time left.  Not to mention, we have the $20 calls, and the strike is a mere $0.35 away.  One big move will put us right back in the money. 

Hang on for the chance at big gains.


Category: OTW Weekly Updates