Weekly Update: March 14, 2013
Weekly Update: March 14, 2013
What To Watch
The bull market continues to pick up steam, bolstered by strong economic data. The S&P 500 is up a 1% from last week. And, the Dow Industrials have climbed just over a 1% as well. The Dow keeps setting record highs as investors remain bullish on stocks.
While several analysts believe this rally is overdone, I don’t see anything more than short-term selling in the near future. Yes, Europe is still a problem and so is the US budget. However, the economy is looking healthier than it’s been in years.
Jobless claims are closing in on five-year lows. That’s clearly a great sign for the job market. We’re not out of the woods yet, but companies are definitely ramping up their hiring.
What’s more, retail sales showed the strongest gain in five months. They increased by 1.1% over January. That’s an indication that higher taxes aren’t taking a toll on spending for now. And, it’s also very good news for the economy.
Of course, we could get a pullback at any point. Certainly, we’ll see some profit taking here and there. But, I believe any selling we see will be short-term unless macro conditions change significantly.
Now on to the portfolio.
Portfolio Recap
Position #1: Eli Lilly (LLY) March 2013 $52.50 Puts
Price Paid: $0.85
Current Price: $0.00
Time Until Expiration: 1 Day
As expected, LLY will expire worthless tomorrow. I don’t mind this one so much because it was our only downside protection. Consider it a hedge against the market rally.
Position #2: Apache (APA) March 2013 $80 Calls
Price Paid: $1.13
Current Price: $0.00
Time Until Expiration: 1 Day
APA made a late run at making our options relevant, but unfortunately it was too little, too late. In hindsight, I should have recommended longer-term options on this stock. However, I felt the April options were too expensive at the time. As always, trading options is a delicate balance between risk and return. This one didn’t work out, but it will help provide guidance for future trades.
Position #3: Freeport-McMoRan (FCX) April 2013 $34 Calls
Price Paid: $0.72
Current Price: $0.64
Time Until Expiration: 36 Days
FCX is behaving well, and continues to gain ground towards our strike. It’s pulled back in recent days, but not before flirting with the 50-day moving average.
The next time it moves up to the $34 range, it could very well break through. At that point, we’ll have very nice gains on our calls. In this case, buying the extra time is paying off. It’s giving our position plenty of time to work.
Keep holding the calls for big upside potential.
Position #4: F5 Networks (FFIV) April 2013 $105 Calls
Price Paid: $0.92
Current Price: $0.34
Time Until Expiration: 36 Days
FFIV was slowly creeping higher until a somewhat sharp pullback today. However, this stock can be volatile, so big moves are nothing unusual. And once again, we bought ourselves plenty of time with this position.
I don’t see any reason to change my thesis on FFIV. The fundamental and technical pictures remain the same. The shares could quite easily trade above their major moving averages by April. And, there’s plenty of time to cash out our calls for a profit.
Category: OTW Weekly Updates
