Weekly Update: January 23, 2014

| January 23, 2014

Weekly Update:  January 23, 2014


What To Watch

US equities took it on the chin today, with the S&P 500 and Dow Industrials both down roughly 1%.  Investors seem to be looking for reasons to sell after such a big year for stocks in 2013.  Many seem to believe that we can’t possibly have as good of a year as last year.

China was the primary reason behind today’s selloff.  In a surprise, China’s Purchasing Managers’ Index came in below 50.  That means the manufacturing sector is officially in contraction.  Of course, that’s not a good sign for the global economy considering how big a consumer China is of international goods.

With the US economy still looking strong, I don’t believe we have to worry about a sustained selloff.  Nevertheless, it will be important to pay close attention to upcoming earnings.

Regarding our portfolio, the recent drawdown in stocks has hurt our mostly long positions to some extent.  However, we wisely bought plenty of time with our current holdings, so there’s plenty of time for our underperforming positions to recover.


Portfolio Recap

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

Price Paid: $0.65

Current Price: $0.50

Time Until Expiration: 29 days

MM continues its choppy behavior and is now back down below $7.50.  The drop was due primarily to broad market action.  As such, I expect shares to regain ground soon.  On the next move higher, we’ll consider taking profits.


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

Price Paid: $1.25

Current Price: $1.70

Time Until Expiration: 29 days

BGC is still a nice winner.  I’m targeting next week for exiting this trade, unless it hits $31 in the next couple days.  We definitely want to capture profits on these calls.


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

Price Paid: $0.98

Current Price: $0.30

Time Until Expiration: 29 days

This one is on me.  I chose to let AEO ride because I felt we could hit the 200-day moving average (around $16.50 right now) before February expiration.  However, the company’s CEO unexpectedly resigned and shares plunged on the news.  Fortunately, there’s still time for the stock to recover – and I do believe it’s oversold on the news.  Let’s give AEO a chance to recover and see what the next couple weeks bring.


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

Price Paid: $1.29

Current Price: $0.56

Time Until Expiration: 29 days

FSLR hasn’t yet tested the 20-day moving average as the stock pulled back with the overall market.  I believe the shares will make a run higher in the next few weeks – the question is will it happen prior to expiration.  Stay tuned.


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

Price Paid: $1.03

Current Price: $0.30

Time Until Expiration: 57 days

INTC didn’t post as good as earnings as expected, but the results really weren’t that bad.  The biggest negative is the company expects 2014 revenue to stay flat – which is what ultimately led investors to sell.  However, I think the company is being overly conservative in their outlook and it will be in better shape this year with PC demand stabilizing.  The good news is we bought March calls, in the event of this very scenario.  In other words, we have plenty of time to let this trade work.


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

Price Paid: $1.60

Current Price: $1.90

Time Until Expiration: 29 days

We picked a good day yesterday to roll out the UIS trade.  With much of the market down today, our UIS puts performed nicely.  That’s a good way to start things out.


Category: OTW Weekly Updates