Weekly Update: February 6, 2014

| February 6, 2014

Weekly Update:  February 6, 2014


What To Watch

The stock market looks a tad bit better than last week, with the major indices seeming to bottom out.  We still have some ground to gain back before reaching positive territory for the year.  For instance, the S&P 500 is down approximately 5% year-to-date.  On the bright side, volatility is down in a big way today, with VIX down 13% at the time of this writing.

Heading into this 5% correction, we were mostly long in our portfolio.  So, it’s no surprise several of our positions aren’t doing very well.  First off, I believe this correction is way overdone.  I imagine we’ll have some big positive days ahead.  In addition, we do have some time for our February options to regain ground – although expiration is just two weeks away.

On the bright side, the last couple weeks of overall selling has given us some great trading opportunities.  I’m going to mix in a few more puts than usual in the coming weeks because investors seem to be easier to spook so far this year.  In general though, I’m sticking to my guns on the overall strategy – and I believe it’s going to pay off in a big way.

Don’t let the market volatility change your convictions.  Stick to what works, and it’s going to result in profits.


Portfolio Recap

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

Price Paid: $0.65

Current Price: $0.35

Time Until Expiration: 16 days

MM gave back all its gains this week as the overall market got shelled. However, we’ve finally hit strong support at the 50-day moving average.  There are roughly two weeks to expiration, so I’m not going waste any time when we get back to positive territory.  We gave our MM calls a chance to earn big profits and it hasn’t worked so far, but there’s still plenty of time to make something out of this trade.


Position #2: General Cable (BGC) February $30 Calls

Price Paid: $1.25

Current Price: $0.60

Time Until Expiration: 16 days

BGC got hammered with the overall market selloff.  It reversed that trend today and looks to be headed back up to the moving averages.  There’s still time to get something out of these calls.  Hold tight.


Position #3: American Eagle (AEO) February $14 Calls

Price Paid: $0.98

Current Price: $0.30

Time Until Expiration: 16 days

Nice reversal from AEO today, up 3%.  The stock has bounced hard off the double bottom at $13.  Fortunately, our strike price is well within reach. Another good day or two and we’ll be in position to sell.


Position #4: First Solar (FSLR) February $60 Calls

Price Paid: $1.29

Current Price: $0.20

Time Until Expiration: 16 days

FSLR is the one position I don’t have a lot of hope for.  It’s just too far away from our strike at this point.  We need a very big up move in the next week for these options to be back in play.  This stock can move in chunks, so it’s not out of the realm of possibility… but this one is certainly a long shot.


Position #5: Intel (INTC) March $26 Calls

Price Paid: $1.03

Current Price: $0.10

Time Until Expiration: 44 days

We finally got a meaningful bounce from INTC today, up 2% off the bottom.  Next stop is where the 20-day and 50-day moving averages converge, around $25.  Once again, we have plenty of time on these March calls.


Position #6: Unisys (UIS) February $32 Puts

Price Paid: $1.60

Current Price: $0.75

Time Until Expiration: 16 days

UIS gave us a scare for about a day.  The company posted stronger than expected earnings and the stock jumped.  However, overall market pressure pushed the price back down to below our strike.  UIS is the one hedge we have against our portfolio right now, so I’m inclined to hold on to it until I add another put or two – unless the stock makes another big move down.


Position #7: Freeport-McMoRan (FCX) March $32 Calls

Price Paid: $0.97

Current Price: $1.06

Time Until Expiration: 44 days

Our latest position is off to a good start.  You know I have a lot of faith in this trade if I’m willing to put it ahead of another put trade.  Once FCX breaks the 200-day moving average at $32, it’s off to the races.


Category: OTW Weekly Updates