Weekly Update: October 3, 2013

| October 3, 2013

Weekly Update:  October 3, 2013


What To Watch

The big news this week is of course the government shutdown – which has entered its third day as of this writing.  Because of the shutdown, 800,000 federal workers are not getting paid and won’t return to work until Congress can pass at least a temporary budget.

The markets initially didn’t react too strongly to the shutdown as investors appear to believe the closure will be short-lived.  However, as the hours drag on, some urgency is sure to creep into the markets.  We’re already starting to see it today with the major indices down roughly 1%.

However, as bad as the shutdown could be to the economy should it continue, it pales in comparison to what will happen should the government default on its debt.  If Congress doesn’t vote to raise the debt ceiling by October 17th, the US could default on its interest payments and send the financial markets into utter chaos.

Washington needs to get its act together on both the budget and the debt ceiling, or it’s very possible we’ll see a major selloff in stocks (and a renewed recession).  I still believe the worst-case scenario will be avoided, but already damage is being done.

Let’s hope cooler heads prevail in the very near future.


Portfolio Recap

Position #1: Exxon Mobil (XOM) October $90 Calls

Price Paid: $0.73

Current Price: $0.05

Time Until Expiration: 15 days

XOM has sold off substantially the last few days and hasn’t given us a chance to exit the position.  However, if a budget/debt ceiling agreement can be put in place before October expiration, we could easily see the shares spike.  If it happens, we may have time to salvage some value out of these options.


Position #2: Zillow (Z) October $75 Puts

Price Paid: $1.45

Current Price: $0.80

Time Until Expiration: 15 days

Z has been all over the place this past week.  For a short-time, it looked like the shares were going to plunge below support and give us a chance to earn some nice profits.  However, the stock has since recovered to some extent.   Although, it does look like it could test support again soon.  With time running out, we’ll look to exit these puts in the next few days.


Position #3: Outerwall (OUTR) October $65 Calls

Price Paid: $1.53

Current Price: $0.05

Time Until Expiration: 15 days

Nothing to see here.


Position #4: ZAGG (ZAGG) November $4 Calls

Price Paid: $0.68

Current Price: $0.60

Time Until Expiration: 43 days

ZAGG pulled back from its 50-day moving average, but hasn’t moved all that much from our entry point.  Basically, the shares pulled back with the overall market.  Our calls have retained most of their value because we bought in-the-money options.  As I said when we made the trade, this is a low risk trade with relatively high upside.


Position #5: Barrick Gold (ABX) November $19 Calls

Price Paid: $0.97

Current Price: $0.85

Time Until Expiration: 43 days

Our ABX position represents both a bullish bet on gold and the stock itself.  With the debt ceiling debate underway, gold could get some significant play.  And, ABX will benefit if the stock market rallies once a budget/debt deal is reached.  Let’s just hope that happens…


Category: OTW Weekly Updates