Weekly Update: May 22, 2014

| May 22, 2014

Weekly Update:  May 22, 2014


What To Watch

The summer doldrums seem to have come early to US equities. In terms of action, it’s been a fairly quiet week. The S&P 500 is mostly flat from the time of our last update, while the Nasdaq-100 has finally picked up steam and is up over a percent over the same time frame.

For the most part, investors seem to be in watch and wait mode. Volatility is running at very low levels with the VIX sitting at 12, and at times trading in the 11 range this week. The low volatility is occurring despite a fair amount of international hot spots.

Of course, we know about Ukraine and Russia. But, there’s been a military coup in Thailand, rioting in Vietnam, and bombings in Nigeria – all in the last week. Are US investors too complacent?

Oh the other hand, the US economy is doing fine. Today’s index of leading indicators paints a rosy picture for the second half of the year. The Fed minutes from last meeting also provided reassurances to the market. Basically, there’s nothing to see here.

Nevertheless, I’m looking to roll out a safety trade, just in case the geopolitical risk does boil over into the US markets at some point. My plan is to send out the new trade tomorrow, so keep an eye on your inbox.


Portfolio Recap

Position #1: Dunkin’ Brands (DNKN) June $47.50 Calls

Price Paid: $1.15

Current Price: $0.20

Time Until Expiration: 29 days

DNKN is still sitting at trend line support but is making at attempt to move higher. I still believe the stock’s at its floor and that the shares will take a shot at $46-$48 in the next couple weeks.


Position #2: Goldman Sachs (GS) June 21st $165 Calls

Price Paid: $1.39

Current Price: $0.75

Time Until Expiration: 29 days

GS broke $160 today after a strong up week. Right now, it’s testing the 50-day moving average. If it can close above $160 or so, the next stop is around $164. We have plenty of time for this trade to develop and momentum is on our side.


Position #3: Target (TGT) July $60 Calls

Price Paid: $0.94

Current Price: $0.29

Time Until Expiration: 57 days

TGT stock got hit on negative earnings news. The news wasn’t a surprise, although the selling action was a bit harsher than I would’ve guessed. Still, nothing in the earnings news has changed my thesis. I believe there’s plenty of value in Target to be had. A potential overreaction to earnings is why we bought July calls instead of June. So, we have nearly two months for this trade to work.


Category: OTW Weekly Updates