Weekly Update: December 6, 2012

| December 6, 2012

Weekly Update:  December 6, 2012


What To Watch

Stocks have seen mixed results this week as investors try to digest what’s in store for the country and the economy.   The S&P 500 is flat for the week while the Dow Industrials have posted small gains.

The main topic of interest continues to be negotiations over the fiscal cliff.   As typical of our government officials, the posturing between the parties has been played out ad nauseum.   And yet, I still think a deal will get done.

In fact, I’d say the markets believe a deal will get done as well, otherwise, we’d have seen a sharp selloff in stocks by now.

Meanwhile, economic data continues to roll in.  The numbers are clearly impacted by Hurricane Sandy, so it’s difficult to get a true read on the economy.  On the bright side, jobless claims appear to have fallen back in line and are trending the right direction.

There’s still some risk a meltdown in stocks occurs if we get to the edge of the fiscal cliff with no deal in place.  As such, for our next trade I’ll likely be taking a close look at puts on a major company.  As always, check your email regularly for trade alerts.


Portfolio Recap

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

Price Paid: $1.41

Current Price: $0.10

Time Until Expiration: 15 Days

What a difference a day makes.  Early in the week, we saw the big down move in NFLX that we’ve been waiting for.  Investors started worrying about increasing competition in the movie rental/streaming industry.  It seemed the stock was headed straight down to the 50-day moving average.

More importantly, our options were back in play.  They nearly tripled in price during the course of the day.

And then, out of the blue, NFLX announced a new contract with Disney (DIS)… and the stock skyrocketed.  Unfortunately, things like this happen.  You just never know when a major announcement will be made.

It’s highly unlikely our options will come back into play at this point.  Time decay is moving against us.  However, the options aren’t worth selling at this price.  So, we’ll go ahead and hold on to them and see if the next two weeks presents us with a more favorable exit point.


Position #2:  McMoRan Exploration (MMR) January 2013 $9 Calls

Price Paid: $0.92

Price Sold: $6.40

As I said in yesterday’s sell alert, we hit one out of the park with MMR.  When all was said and done, we made 595% in profits in just one week.

Freeport-McMoRan (FCX) snatched up MMR for $3.4 billion ($2.1 billion including shares already owned) to gain exposure to the oil and gas markets.  FCX is clearly counting on the Davy Jones to be a success.

We couldn’t have timed this one any better.  Go ahead and spend a little extra this holiday season… you earned it!


Category: OTW Weekly Updates