Weekly Update: February 20, 2014

| February 20, 2014

Weekly Update:  February 20, 2014


What To Watch

It’s been a mostly calm week for stocks as investors appear to have reached a level of complacency.  The S&P 500 is up roughly a half percent over a week’s time.  Meanwhile, the VIX, a widely followed gauge of volatility, is down below 15… well off the highs of nearly 22 from earlier this month.

Economic data still appears to be suffering from winter weather as several reports came in worse than expected earlier this week.  However, the news was mostly written off by investors who expect the numbers to improve along with the weather.

As a matter of fact, there was already some good news today with jobless claims coming in lower than expected.  What’s more, the initial PMI estimate showed a strong rebound in manufacturing activity.  Perhaps the spring thaw has already begun.

Regarding our portfolio, we’ll have several positions expiring tomorrow, barring any last minute selling.  I realize that we took it on the chin with our February positions.  The “correction” from earlier in the month pushed a few of the trades too far out of the money to recover from.

Nevertheless, I’m not going to alter a strategy that’s been highly successful for years.  Sure, there will occasionally be setbacks – but that’s just part of trading.  You have to stick to your guns – and what works – if you want to profit over time.  So don’t worry… we’ll have plenty of big winners ahead to make up for this challenging stretch, just like we already achieved last week with FCX.


Portfolio Recap

Position #1: Millennial Media (MM) February $7.50 Calls

Price Paid: $0.65

Current Price: $0.00

Time Until Expiration: 1 day

MM collapsed today, ending any hope we had of finishing in the money.  This trade just goes to show how hard it can be to time the market.  In order to have capitalized from this trade when it was above $8.00, we would have had to sell during a brief 4-day window in January.  While no one can predict the future, sometimes it pays to take your profits off the table even if you haven’t hit your exit level.


Position #2: American Eagle (AEO) February $14 Calls

Price Paid: $0.98

Current Price: $0.05

Time Until Expiration:  1 day

AEO surprised me by making a real run at finishing in the money.  We may yet sell our calls before close tomorrow in order to avoid exercising the options and becoming long the stock.  While we won’t make money on the trade, there’s still a chance to capture a little of our initial investment.  Keep an eye on your email should AEO open tomorrow at $14 or above.


Position #3: First Solar (FSLR) February $60 Calls

Price Paid: $1.29

Current Price: $0.08

Time Until Expiration: 1 day

Of course, FSLR had to wait until expiration week in order to make a run at our strike!  We still may sell these calls out tomorrow if they reach $0.20 or higher.  Let’s see what happens.


Position #4: Intel (INTC) March $26 Calls

Price Paid: $1.03

Current Price: $0.10

Time Until Expiration: 29 days

INTC has reached the 50-day moving average.  A successful break over the resistance level will give new life to our calls.  Stay tuned.


Position #5: Unisys (UIS) February $32 Puts

Price Paid: $1.60

Current Price: $0.10

Time Until Expiration: 1 day

UIS may be a losing trade for us, but it served its purpose.  Basically, this position was all about peace of mind that we would have had a big winner should the market have collapsed.  While it’s never fun to lose money, a hedge can help you sleep at night.  In the future, if we place another put trade as a hedge, we’ll take it off sooner so as not to give up all our capital on the trade.


Position #6: McKesson (MCK) March $165 Puts

Price Paid: $1.6

Current Price: $0.70

Time Until Expiration: 29 days

MCK has moved a bit higher from last week, but is finding strong resistance.  It’s just a matter of time before the stock heads back down.  It won’t take much of move for our puts to gain value in a hurry.


Category: OTW Weekly Updates