Weekly Update: May 30, 2013
Weekly Update: May 30, 2013
What To Watch
Let’s take a look at a couple subscriber questions this week which are both relevant to our current positions.
J.F. asks, “In light of the recent news about class action suits being brought against ARUN, should we be selling to close our positions”.
I had planned to answer this question before the huge jump in ARUN the last couple days and the subsequent profit-taking today. But, hindsight doesn’t change my answer any. Basically, class action suits hit public companies all the time. If investors believe a particular suit is a big deal, it will show up in the stock price.
When this recent ARUN suit was announced, the stock barely budged. As such, shareholders don’t seem to be concerned about the case. So, I wasn’t concerned. And clearly this time, our patience paid off in a big way.
John H. asks regarding his underwater LNKD position, “Should I close the LinkedIn position or do you see that the position still has prospects for profitability?”
As always, I counsel patience with options. Stocks like LNKD move around a lot – and options which seem worthless one day can be in-the-money the next. Now, John wrote this before LNKD breached the $170 support, so things are already looking up (or down in this case).
Keep in mind, I like trading calls more than puts but I always like to have at least one put in the portfolio if possible. Puts provide downside protection in case of an overall market downturn, so I typically have a longer leash with them.
Next, on to the portfolio.
Portfolio Recap
Position #1: LinkedIn (LNKD) June $150 Puts
Price Paid: $1.18
Current Price: $0.97
Time Until Expiration: 22 days
LNKD finally took a downturn this past week – and stayed down even while the overall market rallied. That’s a good sign the stock may finally have breached the heavy support at $170.
Volatility has picked up a bit in the market this week. And, with three weeks left to expiration, I think it’s a good idea to hang on to these puts. The options have regained much of their value, and we still should have a good week left before time decay really starts to hurt us. Let’s hang on for now.
Position #2: Fusion-io (FIO) June $14 Calls
Price Paid: $1.15
Current Price: $1.00
Time Until Expiration: 22 days
It was good to see the bargain hunters come in today and scoop up FIO. It’s given a nice boost to our calls which are nearly back to their original price. Even better, with today’s jump, this stock may be ready to make a break to the 50-day moving average around $16 per share. If that happens, we’ll be able to close out our options for a nice profit.
Position #3: Aruba Networks (ARUN) July $13 Calls
Price Paid: $1.05
Price Sold: $2.50
Well, we didn’t need to wait until July to reap the rewards of this trade. We closed out the ARUN trade today for 138% gains. As always, finding heavily oversold stocks is one of the best ways to make money using long options strategies like ours.
Position #4: Cliffs Natural Resources (CLF) July $20 Calls
Price Paid: $1.11
Current Price: $1.11
Time Until Expiration: 50 days
Our brand new CLF calls haven’t moved a penny since our trade yesterday. Okay, that’s not entirely true. The options price has actually bounced up and down since then, it just happens to be right at our buy price at the time of this writing.
I’m going to give this CLF trade plenty of time to develop, and with 50 days until expiration, we have plenty of time to wait it out.
Category: OTW Weekly Updates
