Weekly Update: June 13, 2013
Weekly Update: June 13, 2013
What To Watch
Looks like we need to get used to an increase in market volatility for the time being. While the S&P 500 and the Dow Industrials are up small over the past week, the path to a flat result was actually quite choppy.
As a matter of fact, the CBOE S&P 500 Volatility Index (VIX) has been as high as $18.60 and as low as $14.96 over a one-week period. That’s quite the roller coaster ride for the heavily-followed investor fear gauge. Of course, even the low of the week is quite a bit higher than the $12-$13 range we’ve seen for most of 2013.
Where’s all this volatility coming from?
For the most part, the market is Fed watching. Whatever the Fed does and says has been scrutinized to the most granular minutiae. Investors are all trying to figure out when the central bank may alter their bond buying program – and by how much.
In the meantime, the economy is chugging along. This week brought mostly positive news. Jobless claims dipped again towards 5-year lows. And, retail sales were strong. The most encouraging aspect of the retail sales data is the substantial increase in consumer spending.
Basically, I don’t see the fundamentals in place for a major selloff. However, the Fed could throw a wrench into the works with an unexpected announcement related to their stimulus program. Meanwhile, we’ll probably have to deal with added volatility for a time.
Let’s take a look at our positions.
Portfolio Recap
Position #1: LinkedIn (LNKD) June $150 Puts
Price Paid: $1.18
Current Price: $0.20
Time Until Expiration: 8 days
This LNKD position has been a challenge. It keeps looking like the stock is going to break lower, only to be thwarted by technical support buying. And of course, we’re almost out of time.
On the other hand, as I usually prefer, we’re long-biased in our portfolio. As such, LNKD provides the only downside protection we have in the event of a selloff. My preference is to hold onto LNKD, even though we’re likely to take a loss, as a type of portfolio hedge against the current market volatility.
If we do get a sharp move down in LNKD prior to expiration, we’ll try to capture as much of our initial investment as possible.
Position #2: Fusion-io (FIO) June $14 Calls
Price Paid: $1.15
Price Sold: $0.60
We sold our FIO calls last week to conserve a little over half of our investment.
Position #3: Cliffs Natural Resources (CLF) July $20 Calls
Price Paid: $1.11
Current Price: $0.69
Time Until Expiration: 36 days
For a relatively low priced stock, CLF sure does jump around a lot. Technically speaking, the share price is still below the 20-day and 50-day moving average. As such, I believe we’ll see a move higher sooner rather than later. With over a month to go on these options, we’re going to wait this one out.
Position #4: Pandora (P) July $16 Calls
Price Paid: $0.90
Current Price: $0.70
Time Until Expiration: 36 days
Pandora has moved a little lower since we pushed out our trade this week, but it’s nothing more than broad market pressure. There’s no reason to believe any of the company-specific fundamentals have changed. Moreover, we’re sitting at the 50-day moving average, which is a strong support level.
I believe the stock will bounce off this current price level and resume its trek higher. Hang tight.
Category: OTW Weekly Updates
