Weekly Update: October 25, 2012

| October 25, 2012

Weekly Update:  October 25, 2012


What To Watch

The past week has been a rough one for stocks.  However, it’s been a solid week for economic news.

The bad news came mostly in the form of earnings.  Several big name companies missed on revenues, earnings, or both.  Even worse, many companies lowered guidance… meaning next quarter could be even more disappointing.  It’s a major reason why the Dow Jones Industrial Average and S&P 500 are down 3.5% since our last update.

But that’s just half the story…

On the other hand, economic news has been quite a bit better than expected.  Domestically, jobless claims and durable goods orders came in very strong.  Plus, manufacturing in China looks to be improving as well.  And don’t forget the Fed.  The central bank is also seeing “modest growth”.

Earnings season isn’t quite over, but the damage is mostly done.  More importantly though, strong economic news is a good sign for the weeks ahead.  I expect to see a moderate rebound in stocks in the near future, so hold tight.


Portfolio Recap

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

Price Paid: $0.16

Current Price: $0.08

Time Until Expiration: 22 Days

The pullback in stocks hasn’t taken too much of a toll on DRYS.  The stock’s basically hovering in the same spot it’s been for the last couple weeks.

While we still have over three weeks to expiration, I’m running out of patience with our DRYS calls.  We’re going to give them another few trading days and then pull the trigger on selling if the stock doesn’t move higher.


Position #2:  International Business Machines (IBM) November 2012 $205 Calls

Price Paid: $0.64

Current Price: $0.20

Time Until Expiration: 22 Days

IBM stock has pulled back with the overall market.  Nothing additionally negative has come out about the company since earnings.  This is just a market related move.  As such, I’m in no rush to exit our calls.

The shares have already recovered somewhat from the drop.  More importantly, we’re one solid up day away from the calls gaining significant value.  Equity calls such as these gain value very quickly as the stock gains positive momentum.

The stock should head back towards the 200-day moving average now that it’s appeared to bottom out.  Continue holding the IBM calls for now.


Position #3:  Caterpillar (CAT) November $87.50 Calls

Price Paid: $0.79

Current Price: $0.63

Time Until Expiration: 22 Days

CAT is well positioned for a move higher.  The stock reacted fairly positively after earnings, but the market selloff brought the shares down with it.  Fortunately, our options haven’t lost much of their value.  A quick move back to the 50-day moving average will definitely put our options in the black.

Continue holding the calls for potential profits ahead.


Category: OTW Weekly Updates