Weekly Update: May 23, 2013

| May 23, 2013

Weekly Update:  May 23, 2013


What To Watch

After a decent start to the week, stocks have pulled back somewhat these past couple days.  As of this writing, the S&P 500 is flat from last week, while the Dow Industrials are up small.

It looks like this minor selloff is nothing more than human psychology at work.  In fact, the economic news has been pretty solid this week.  Jobless claims dropped more than expected.  And, the Manufacturing Purchasing Managers Index showed slow growth in May.  Once again, slow growth is certainly better than no growth.

The supposed culprit for the reversal in stocks is the uncertain timing surrounding the Fed’s bond buying program.  When will it end?  How much will the buying slow down over the year?  These are the questions investors are asking.

I don’t buy it.  I expect the Fed to give us fairly clear signals as to when the bond buying will start to slow.  And, it will take more than a few dissenters for Bernanke to reverse course.  By the time the Fed cuts back on bond buying, the economy should be clearly better off than it is today.

Bottom line – I think some selling is natural after the run we’ve seen in stocks.  However, I don’t have any long-term concerns about the market at this point in time.


Portfolio Recap

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

Price Paid: $1.18

Current Price: $0.65

Time Until Expiration: 29 days

Our LNKD puts are trading roughly where they were last week, although the stock has dropped since then with the overall market.  We’ll still need a more significant move down for the options to become solid winners.  Keep in mind, the 200-day moving average is under $140, so LNKD could plunge in a hurry if it breaks the current resistance level.

What’s more, with a slight uptick in volatility this week, I think it’s a good idea to have at least one put in our portfolio in the event of a market selloff.


Position #2:  Fusion-io (FIO) June $14 Calls

Price Paid: $1.15

Current Price: $0.85

Time Until Expiration: 29 days

At the moment, it looks like my decision last week not to sell our FIO calls is backfiring to some extent.  However, the stock has pulled back with the overall market and not because of anything specific to the company.

More importantly, I believe the shares will return to the 50-day moving average of $16 prior to expiration.  We still have a month to go and the options are holding most of their value.  Let’s hang on for now and see what next week brings.


Position #3:  Aruba Networks (ARUN) July $13 Calls

Price Paid: $1.05

Current Price: $1.20

Time Until Expiration: 57 days

Aruba Networks bounced nicely after we entered our call trade last Friday.  The stock has since come off a bit in tune with the overall market selling.  However, out trade is still a small winner.

I still believe ARUN is a strong candidate for a rebound.  And, with nearly two months left before expiration, we’ll definitely keep hold of these options.


Category: OTW Weekly Updates