Weekly Update: June 20, 2013

| June 20, 2013

Weekly Update:  June 20, 2013


What To Watch


Well, today’s been eye-opening.  The S&P 500 dropped over 40 points while the Dow Industrials plunged over 350.  That’s the biggest one-day drop in the Dow since November of 2011.  Of course, we’re only talking about a 2.4% dip overall.

The red numbers may seem ominous, but overall, it’s really just a blip.  And, as I’ve been saying, I’m just not very worried about the markets right now.  I think this selling is way overdone, although it may not be over yet.  But once people come to their senses, I look at this as a major buying opportunity.

I wouldn’t jump in until the VIX cools off a bit.  The volatility index – aka fear gauge – is back over $20 for the first time since last December (after spiking 23% today).  We need cooler heads to prevail before going bullish, but it shouldn’t take too long.

Seriously now… a huge selloff because of the Fed tapering back stimulus?  I mean, the whole point of bond buying is to keep investor confidence high until the economy improves.  And if the Fed is cutting back on monetary easing, it would have to mean the ECONOMY IS BETTER.

So why are investors freaking out?  It’s nothing more than irrational behavior.  Unless some other news tanks these markets, I’ll remain bullish.


Portfolio Recap

Position #1:  LinkedIn (LNKD) June $150 Puts

Price Paid: $1.18

Current Price: $0.00

Time Until Expiration: 1 day

How irritating is that?  We specifically hold LNKD puts longer than is advisable just to protect against a major market selloff.  And when the market finally does sell off, we can’t take advantage because our options expire tomorrow.

Hey, sometimes that’s how it goes.  The important thing is to stick to the plan.  It doesn’t always pay off, but in the long-run, you have to stick to your strategy if you want to be successful.

These LNKD puts didn’t work out this time, but I’m glad we had the protection in place for our long-biased portfolio.  As today shows, you never know what may happen on any given day in the market.


Position #2:  Cliffs Natural Resources (CLF) July $20 Calls

Price Paid: $1.11

Current Price: $0.40

Time Until Expiration: 29 days

CLF continues to be extra volatile, jumping all over the place.  The stock had just made a nice move towards the 50-day moving average before today’s bloodbath.  But, the share price held today at the bottom of the current trading range.  And, with almost a month left until expiration, there’s plenty of time for these calls to be winners.


Position #3:  Pandora (P) July $16 Calls

Price Paid: $0.90

Current Price: $0.50

Time Until Expiration: 29 days

Pandora shares also got hit by the market selloff today.  However, the stock’s sitting right at the 50-day moving average, which should provide strong support.  Like CLF, I believe P will be fine once investors get past this current bout of volatility.


Position #4: Qualcomm (QCOM) August $65 Calls

Price Paid: $1.05

Current Price: $0.79

Time Until Expiration: 57 days

Our latest trade, QCOM, took somewhat of a hit with today’s pullback.  But, the options have held most of their value because we still have nearly two months until expiration.  It was precisely the potential for volatility following the Fed statement which is why we traded August options in this case.

Not to mention, with the market plunging nearly 2.5% in one day, QCOM only dropped 1.6%.  There’s no reason to believe our thesis has changed.  Keep holding your QCOM calls.


Category: OTW Weekly Updates