Weekly Update: October 9, 2014
Weekly Update: October 9, 2014
What To Watch
Volatility has hit the US equity markets this week, with large percentage moves hitting the major indices on a daily basis. The biggest concerns seem to be related to how slowing global growth could impact the US economy. Keep in mind, the Fed is also expected to end its bond buying program this month.
How concerned should we be?
Well, selling does tend to feed on itself, so anything is possible in the short-term. However, I still don’t see any compelling reasons to avoid US equities. Yes, the economic problems in Europe and elsewhere could hurt revenues for some of the bigger companies in the US. However, the domestic economy is still doing fine.
In fact, the job market is the US is stronger than it’s been for quite some time. All the recent jobs metrics, including the September jobs number, came in better than expected. As long as people are getting hired, it’s hard to be too pessimistic.
As long as overseas conditions don’t worsen appreciably, investors should shift focus to earnings seasons, which kicks off this week. I’ll be keeping a close eye on earnings for potential trade opportunities. Stay tuned!
Portfolio Recap
Position #1: ZAGG (ZAGG) October $6 Calls
Price Paid: $0.30
Current Price: $0.10
Time Until Expiration: 8 days
ZAGG wasn’t able to capitalize off the share price pop last week as selling has hit small cap stocks hard. We’ll need a major bounce next week for these options to be in play. It won’t take much for the options to gain value, but conditions for small caps are pretty tough right now.
Position #2: Transocean (RIG) November $37 Calls
Price Paid: $1.28
Current Price: $0.22
Time Until Expiration: 43 days
RIG looked like it hit a bottom… until today’s big drop. The slaughter of drilling companies appears to have resumed. It’s really pretty ridiculous – but it is what it is. We need a serious turnaround in RIG for the options to be worth anything substantial. Fortunately, we still have over 40 days on this trade.
Position #3: Yahoo (YHOO) November $42 Calls
Price Paid: $1.51
Current Price: $1.68
Time Until Expiration: 43 days
Despite the market selloff, YHOO has held in there pretty well. The stock is still holding above $41. And, our options are still winners. That’s certainly a good sign for this trade. When the markets are done with this bout of selling, I expect the shares to continue climbing.
Position #4: Du Pont (DD) November $67.50 Puts
Price Paid: $0.95
Current Price: $2.18
Time Until Expiration: 43 days
Looks like we picked a good week to buy downside protection! DD shares have dropped considerably since our trade this week and our puts are now 129.4% winners! We’ll keep them on for today in case the selling intensifies tomorrow. If the markets calm down tomorrow morning, we’ll probably lock in our profits at that time.
Category: OTW Weekly Updates
