Weekly Update: February 21, 2013

| February 21, 2013

Weekly Update:  February 21, 2013


What To Watch

What a difference a couple days make…

For the first time in a while, the major indices are actually down over the past week.  Although, the selling has all happened over the last two days.  The S&P 500 and the Dow Industrial are each down about a half of percent since our last update.

There’s nothing terrible going on, but some negative news has hit the wire.  Not to mention, we were due for some kind of pullback after all the buying that’s been going on the past several weeks.

Earnings season is essentially over, so the market isn’t getting any support there.  Meanwhile, this week’s economic news has been disappointing.  Housing starts dropped by more than expected.  And, jobless claims came in higher than anticipated.

Have the housing and job markets cooled off, or is this just a blip in the trend?  It remains to be seen.  But, one thing’s for sure – we’re seeing more volatility in the market.  Moreover, the upcoming political debate about the automatic spending cuts and debt ceiling isn’t going to help calm the markets.

Our positions could get whipsawed a little bit.  But don’t worry, there’s still plenty of opportunity to be found in options.  We just need to continue making savvy trades and monitoring our positions closely.


Portfolio Recap

Position #1:  Eli Lilly (LLY) March 2013 $52.50 Puts

Price Paid: $0.85

Current Price: $0.36

Time Until Expiration: 22 Days

LLY shares rallied a bit above its narrow trading range, but the stock has pulled back a bit with the overall market selloff.  If the reversal holds, the shares could quickly sink to $53, which would clearly give our puts a big boost.

In a nutshell, if the market selloff continues, we can expect the puts to be in play.  If the pullback is short-lived, our options will lose the rest of their value quickly.

However, with the turnaround in the market this week, we definitely want to continue holding our LLY puts.


Position #2:  Apache (APA) March 2013 $80 Calls

Price Paid: $1.13

Current Price: $0.30

Time Until Expiration: 22 Day

While the market downturn is helping our LLY puts, it’s definitely hurting our APA calls.  Just when APA looked like it might rebound, overall market selling pressure kicked in.

Now, we still have three weeks to go in these options.  And, APA is the type of stock that can gain ground quickly.  So, let’s not give up on these options just yet.  If APA rallies back towards its 50-day moving average, we could do very well on these calls.


Category: OTW Weekly Updates