Weekly Update: January 3, 2013

| January 3, 2013

Weekly Update:  January 3, 2013


What To Watch

Welcome to 2013!  It’s already been an exciting start to the year with the last minute fiscal cliff resolution falling into place.  As you may recall, I wrote several times how I believed a resolution would occur.  However, I was wrong on the timing.  I expected the deal to be done before the end of the year, and technically that didn’t happen.

Nevertheless, a deal got done.  And the markets loved it.  Since our last update, the major indices are up over 2%, with the Nasdaq 100 and Russell 2000 both up over 3%.  Not a bad start to the year.

Of course, political worries are far from over.  The tax issue is out of the way, but spending cuts and raising the debt ceiling are still on the table.  The government has roughly two months to figure out how to agree on those issues – and if history is any indication, it will once again come down to the last minute.

Let me say this, the debt ceiling is a far bigger issue than the fiscal cliff ever was.  The consequences of not raising the debt ceiling would be catastrophic to the financial markets.  That being said, I don’t expect the US to default on its debt payments.

However, as the deadline approaches, you can bet there will be some volatility.  Meanwhile, the economy continues to gain strength.  As such, I’ll likely be focused on calls in the short-term.


Portfolio Recap

Position #1:  Wynn Resorts (WYNN) January 2013 $100 Puts

Price Paid: $1.12

Current Price: $0.10

Time Until Expiration: 15 Days

It may sound strange to say this, but losing on WYNN was probably the best outcome for us given the fiscal cliff situation.  There was a high probability that the market was going to shoot higher or plunge lower after New Year’s.  And since we had two call positions on compared to just one put, a move higher was the more profitable of the two for us.

Not to mention, the economy would have been in trouble had the deal not been made (and that impacts everyone negatively).

So, WYNN has basically served as an expensive hedge for us.  Not ideal, but not the worst situation either.  With 15 days to expiration, the options are still in play, but just barely.  If the price gets back up to around $0.20 or so, we’ll sell out.


Position #2:  Cisco Systems (CSCO) January 2013 $20 Calls

Price Paid: $0.40

Price Sold: $0.61

As I said in today’s sell alert, this week’s market rally pushed our CSCO calls into profit-taking territory.  We locked in a 53% gain on the options.  That’s a strong way to begin the year!

CSCO isn’t the type of stock to make gap moves, so a 50% plus gain is an excellent result for a less than two-week trade.


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

Price Paid: $1.41

Current Price: $1.70

Time Until Expiration: 43 Days

FCX also got a nice boost from the fiscal cliff resolution.  However, I believe we have far more upside with these February options.

We’re up roughly 20% on our calls.  And we were up over 40% earlier in the day.  Clearly, this position has room to climb.  Plus, we have 43 days to expiration.  With economic news continuing to come in strong, I expect FCX to keep rising.

Hold on to your calls for bigger gains.


Category: OTW Weekly Updates