Weekly Update: November 1, 2012
Weekly Update: November 1, 2012
What To Watch
The big news this week is obviously Hurricane Sandy and its impact on stocks and the economy. Rarely do we see events that become bigger news than the presidential election… the week before the election itself.
But when a massive storm hits the East Coast and closes the financial markets, it’s clearly going to be top news. What’s more, analysts are expecting Sandy to cost as much as $50 billion between repair costs and lost economic activity.
However, most of the lost spending should be temporary and repair costs will be in a large part covered by insurance. All in all, I don’t expect too much, if any, of a drop in economic activity over the medium to long-term. And don’t forget, holiday season is almost upon us – and with it a big boost to retail spending.
Once the presidential election is completed next week, investors’ focus will be on the fiscal cliff, Europe, and holiday sales. In other words, there’s still plenty going on in 2012.
Portfolio Recap
Position #1: DryShips (DRYS) November 2012 $2.50 Calls
Price Paid: $0.16
Current Price: $0.05
Time Until Expiration: 15 Days
Hurricane Sandy fouled up my plans to sell out of DRYS early in the week. The plan was to exit our calls if the stock hadn’t moved higher at the start of the week. Of course, the market wasn’t even open Monday and Tuesday. And, by the time Wednesday rolled around, time decay had taken its toll on the options.
I don’t think it’s worth selling out for just $0.05 with two weeks left. Let’s go ahead and hang on to see if we can get a rally in the stock.
Position #2: International Business Machines (IBM) November 2012 $205 Calls
Price Paid: $0.64
Current Price: $0.29
Time Until Expiration: 15 Days
We had a big move today in IBM that we’ve been waiting for, sending the stock back up to the 200-day moving average. Now, the next stop is the 50-day moving average.
If IBM heads back to the 50-day average level (roughly $202-$203), we’re going to be in for a big jump in the price of our options.
We should have an idea of how IBM could react the next couple days based on the jobs report tomorrow. If there isn’t a move higher in the stock based on the October jobs report, I’ll strongly consider exiting the calls soon after. Remember, expiration is coming in two weeks.
Position #3: Caterpillar (CAT) November 2012 $87.50 Calls
Price Paid: $0.79
Current Price: $1.71
Time Until Expiration: 15 Days
Now that’s what we like to see! Our CAT calls are currently up 116%.
Very likely, we’re going to take profits off the table tomorrow after the jobs report. For the most part, jobs data has been very positive lately. And, I don’t want to miss a chance to earn huge gains on these options.
However, if the stock market pulls back, we still should be able to exit for a solid gain. Either way, we’re in great shape to profit from the options. Keep your eyes open for a sell alert tomorrow.
Category: OTW Weekly Updates
