Weekly Update: November 20, 2014

| November 20, 2014

Weekly Update:  November 20, 2014


What To Watch

US equities are back to hitting record highs on a seemingly daily basis. The S&P 500 is over 2,050 as of this writing, and closing in on 13% gains for the year. That’s interesting, considering the benchmark index was flat for the year about 5 weeks ago. Meanwhile, crude oil continues to hover around $75 per barrel and is being closely monitored by analysts and investors alike.

I’ve had some questions recently about the streaky nature of this service’s returns. That is, why do we have good and bad periods? Why don’t we have consistent runs of big winners like we’ve done a couple times in the past?

Basically, it’s all about market conditions. Long options strategies perform best in volatile environments. It’s no surprise we had a couple big winners last month when volatility was going nuts. That’s not to say we can’t in slower periods. We certainly can… and often do. It just isn’t quite as easy.

I try to adapt the strategy for the given market conditions. Sometimes it works better than others, and the variables are always changing. That’s one of the big reasons we shifted to the new selling method. By choosing your own exit level (conservative or aggressive), you can tweak the service to your own risk preference without having to wait for a sell alert. The new method should help even out the returns over time. (See CLF summary below for a good example of why.)

Speaking of the new method, we’ll have our second trade using the new sell guidelines tomorrow. Keep an eye out for the buy alert.


Portfolio Recap

Position #1: Transocean (RIG) November $37 Calls

Price Paid: $1.28

Current Price: $0.00

Time Until Expiration: 1 day

This one comes off the books tomorrow.


Position #2: Cliffs Natural Resources (CLF) December $10 Calls

Price Paid: $1.11

Current Price: $0.49

Time Until Expiration: 29 days

CLF got hammered this week on the potential closing of one of its mines, but the stock picked up some ground today. The company may close a big iron ore mine due to slumping prices. Investors didn’t like the news, but I think it’s actually a good thing. If the company can sell the poor performing mine, it could be a huge boon for the struggling business. Fortunately, we still have a month for this situation to play out.

By the way, in the new system, conservative traders would have already exited this trade for a profit, and only aggressive traders would still be at risk. That’s exactly why the new system will be better for almost everyone.


Position #3: Travelzoo (TZOO) December $12.50 Calls

Price Paid: $0.51

Current Price: $0.50

Time Until Expiration: 29 days

Basically, this is the same review as last week. TZOO has been flat once again this week. It should make another run at $13 soon, with the ultimate target of $14. The challenge is whether or not this happens over the next month. Our options are at the money so are holding value as expected. Stay tuned.


Position #4 Kate Spade (KATE) December 29 Calls

Price Paid: $1.50

Current Price: $1.50

Time Until Expiration: 29 days

KATE has inched back up to where we bought it, and the options price has regained value. The stock has yet to hit any of our exit points, but the recent price action is encouraging.


Category: OTW Weekly Updates