Weekly Update: October 18, 2012

| October 18, 2012

Weekly Update:  October 18, 2012


What To Watch

It’s been a very good week for economic news.

On the domestic front, housing starts, retail sales, and industrial production came in better than expected.  If you’re looking for a sign the economy is improving, that trio of indicators is an excellent start.  Particularly, the huge jump in housing starts bodes very well for the recovery.

What’s more, China’s GDP grew at a 7.4% clip.  That’s a strong, healthy pace for the country.  More importantly, it shows that the world’s most populous country should avoid a hard landing.  The economic slowdown seems to be effectively contained.

Keep in mind, we’re still early in earnings reporting season.  There will be several big names reporting in the coming days.  So, keep your eyes open for trade alert emails.


Portfolio Recap

Position #1:  DryShips (DRYS) November 2012 $2.50 Calls

Price Paid: $0.16 or better

Current Price: $0.14

Time Until Expiration: 30 Days

DRYS has gotten a nice boost from the positive economic news.  The stock is just about at our strike price and the options are nearly breakeven.  We’re one good day away from our calls being profitable.

There’s a very good chance DRYS will test the 200-day moving average, which is at $2.60.  At that level, we will almost certainly be able to cash in our options for a solid gain.  Continue holding the calls for now.


Position #2:  SkyWest (SKYW) November 2012 $10 Calls

Price Paid: $0.95 or better

Price Sold: $1.45

Our SKYW calls worked out very well for us.  In under a week, we locked in 53% profits! 

When a stock overreacts to news (which is not nearly as good or bad as investors make it out to be), it almost always results in a great trading opportunity.  In this case, we were able to take advantage of it and cash out for a nice gain.


Position #3:  International Business Machines (IBM) November 2012 $205 Calls

Price Paid: $0.80 or better

Current Price: $0.66

Time Until Expiration: 30 Days

An earnings disappointment was a catalyst for this IBM trade.  Although, it’s really a technical trade.  I don’t think the news is nearly bad enough for IBM to substantially breach its 200-day moving average.  In fact, I wouldn’t be surprised to see a bounce in the next couple days.

What’s more, most of you should have gotten filled around $0.64, so this trade is already moving in the right direction.  Let’s see what the next few trading days bring, but I envision the stock heading back towards $200 in the very near future.

Hang on to the calls for bigger gains ahead.


Category: OTW Weekly Updates