Weekly Update: February 28, 2013

| February 28, 2013

Weekly Update:  February 28, 2013


What To Watch

We’re seeing a little more volatility in the market as expected, but the overall trend is still positive.

After a fairly big drop earlier in the week, the major indices have regained their footing.  The S&P 500 is up close to a half of a percent from last week.  Meanwhile, the Dow Industrials are having a stronger week, up 1.25%.  Investors appear to prefer mega-cap stocks this week – likely due to the increased volatility.

Speaking of volatility, market action is picking up primarily due to the quickly approaching automatic budget cuts.  There’s also some concern over Europe, particularly related to the Italian elections.  I believe these concerns are primarily short-term.  Although, our politicians need to get their acts together soon regarding the budget cuts.

Concerning the economy, the news was mixed this week with a slight positive bias. Durable goods looked weak on the surface but the most important component, business investment, was sharply higher.  That’s a good sign corporations are willing to spend more money.  Meanwhile, jobless claims were substantially lower.  That continues the theme of modest growth in the job market.

Next week, the market will once again be headline driven and mostly focused on politics.  We’ll see what opportunities arise and act accordingly.


Portfolio Recap

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

Price Paid: $0.85

Current Price: $0.14

Time Until Expiration: 15 Days

LLY has been steadily climbing the past few days which is hurting the value of our puts.  However, there’s been quite a bit more volatility in the market this past week.  In the event of a market downturn, these puts offer some nice downside protection.

You see, we still have budget cuts and Europe to worry about in the next couple weeks.  With the additional risk in the market, I believe it’s wise for us to hold on to these options in case of a market selloff.  While the options will likely expire worthless, I don’t believe we should go into March without downside protection.


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

Price Paid: $1.13

Current Price: $0.13

Time Until Expiration: 15 Days

APA is not behaving as well as I’d hoped for.  We’ve gotten small moves higher the last couple days, but nothing substantial.  Meanwhile, we’re getting hurt by time decay.

Now, Apache is the type of stock that can move higher in a hurry.  A couple dollar climb in a day is plenty common for this stock. In that case, our calls could gain value quickly.

However, we need something to happen by the end of next week for the calls to still be in play before expiration hits.


Position #3:  Freeport-McMoRan (FCX) April 2013 $34 Calls

Price Paid: $0.72

Current Price: $0.57

Time Until Expiration: 50 Days

FCX shares have held up nicely since our trade on Monday.  And so far, our options haven’t moved that much in value.

I really like this position and feel strongly that it will be a winner.  And of course, we have 50 days left on these, so there’s plenty of time for a big move higher in the stock.  The 50-day moving average is easily within reach from the current price level and could provide a good exit point for us.


Category: OTW Weekly Updates