Weekly Update: November 8, 2012
Weekly Update: November 8, 2012
What To Watch
Clearly, this week has been all about the election and the aftermath. I believe the market anticipated an Obama victory and the selloff today and yesterday is related to fiscal cliff concerns and European issues.
The morning after the elections, stock index futures were flat and international markets were higher. The markets begin to pull back once ECB President Draghi made bearish comments on Europe’s growth. Then, analysts started worrying about the likelihood of a resolution to the fiscal cliff.
Here’s the thing…
I’m not really worried about the fiscal cliff. Despite what talking heads may be saying, neither party wants the tax increases and spending cuts to occur the way they’re currently structured. Something will get done before the end of the year.
In the meantime, holiday sales will start ramping up and should give a boost to retail and transportation stocks, to name a few. We’ll definitely be keeping an eye on possible options plays related to the holiday season.
Portfolio Recap
Position #1: DryShips (DRYS) November 2012 $2.50 Calls
Price Paid: $0.16
Current Price: $0.02
Time Until Expiration: 8 Days
The market hasn’t given us an opportunity to get out of DRYS at a reasonable price. Now, the options are too cheap to sell. I don’t like recommending closing out long options if commission costs eat up what’s left of the value of the options.
That’s currently the case with DRYS. At this point, we’ll just let those options expire worthless. However, if we are fortunate enough to get bump in the next week, we’ll close out the options at any price above $0.05.
Position #2: International Business Machines (IBM) November 2012 $205 Calls
Price Paid: $0.64
Current Price: $0.05
Time Until Expiration: 8 Days
It looked like we had a shot for a rally in IBM – and then the post-election selloff happened.
The options are currently on the borderline of where it would be reasonable to sell them out for salvage value. We don’t want to waste money on commissions if we can let them expire worthless for no transaction costs.
However, if the options move any higher from here, I’ll likely send a sell alert so we can conserve at least a portion of our initial capital.
Position #3: Caterpillar (CAT) November 2012 $87.50 Calls
Price Paid: $0.79
Price Sold: $1.05
While we didn’t get the huge gains in CAT I was hoping for, we stuck to our plan and executed for a profit. After all, there’s nothing wrong with a 33% gain.
On certain occasions, when I believe the upside potential is there, we’ll hold for a chance at huge profits. CAT was one of those situations. The key to holding for big gains is to make sure you take at least some profits right away if the trade doesn’t unfold the way you expect.
That’s exactly what we did. And don’t forget, it’s never a bad decision to take profits.
Position #4: Boeing (BA) December 2012 $72.50 Calls
Price Paid: $0.97
Current Price: $1.42
Time Until Expiration: 43 Days
Despite the recent stock pullback, BA is a nice winner for us. We’re currently up 46% on our calls with a hefty 43 days left until expiration.
I’m not ready to take profits yet on BA. Not only has the stock held strong in the face of the selloff, but I also believe we’re due for a market rally. I’m looking at a stock price of around $72 as an exit point and fully believe we’ll get there.
Let’s hang on to our calls for bigger profits.
Category: OTW Weekly Updates
