Weekly Update: March 27, 2014

| March 27, 2014

Weekly Update:  March 27, 2014


What To Watch

The S&P 500 is down about a percent from last week and is sitting just above breakeven for the year.  Meanwhile, the Nasdaq 100 is off nearly 3% over the same period and is now slightly negative on the year.  Basically, investors are rotating out of last year’s momentum stocks and moving into traditionally safer sectors.

At least part of the reasoning behind the rotation is the ramping up of global geopolitical risk.  Of course, the Ukraine/Russia/Crimea situation is the most volatile at the moment.  However, there’s still plenty going on in Syria, Turkey, and Venezuela which could increase global risk.  And don’t forget China and the impact of its economy.

Meanwhile, the domestic economy is looking good.  Fourth quarter GDP was revised up from 2.4% to 2.6%.  The overall expansion was driven by strong consumer spending, especially in health care.  Moreover, jobless claims dropped once again to 311,000, the lowest number since November.

With a relatively strong US economy but plenty of international risk, we can expect the market to remain choppy for the time being.  We could see some action starting in April as the next earnings season is already almost upon us.


Portfolio Recap

Position #1: Verizon (VZ) April $47 Calls

Price Paid: $1.08

Current Price: $0.89

Time Until Expiration: 22 days

Once again, our expectations of VZ have held.  The share price is now over $47.50, with $48 the most likely destination.  We may give the stock a day or so to test resistance at $48 once it gets there, but if it doesn’t break through in a hurry, we’ll probably close out the position at that time.


Position #2: Green Mountain Coffee Roasters (GMCR) April $90 Puts

Price Paid: $0.95

Current Price: $0.33

Time Until Expiration: 22 days

As expected, GMCR has come back down after its pop last week.  The stock will likely test the 50-day moving average support level in the near future (around $102).  If it falls through support, there’s nothing but air all the way down to $80.


Position #3: Facebook (FB) April $72.50 Calls

Price Paid: $1.68

Current Price: $0.25

Time Until Expiration: 22 days

FB has taken a big hit over the last week on a general pullback in Internet stocks.  I’m not overly worried as this stock can be pretty volatile at times.  Not to mention, it’s sitting at support and is due for a rebound.  The company’s acquisition of Oculus VR is a brilliant move and investors will return to FB soon enough.


Position #4: Travelzoo (TZOO) April $22.50 Calls

Price Paid: $1.65

Current Price: $1.30

Time Until Expiration: 22 days

Not a whole lot of action in TZOO since last week.  For the most part, the stock has held in there despite pressure on Internet stocks.  The shares look poised for a breakout, perhaps all the way to $25.


Position #5: Abercrombie & Fitch (ANF) May $38 Puts

Price Paid: $1.68

Current Price: $2.00

Time Until Expiration: 50 days

ANF has dropped below $38 and is closing in on its first support level around $37 (the 50-day moving average).  Our puts are up about 19% so far.  The put premium will ramp up quite a bit as the stock approaches support.  And of course, if it breaks support we could have a very big winner on our hands.


Position #6: Pandora (P) May $32 Calls

Price Paid: $2.05

Current Price: $2.20

Time Until Expiration: 50 days

We just made this Pandora trade yesterday, so not much to report just yet.  It’s nice to see the stock up over 2% the day after we bought calls on it.


Category: OTW Weekly Updates