Weekly Update: September 25, 2014

| September 25, 2014

Weekly Update:  September 25, 2014


What To Watch

We’re actually seeing some selling in the equities markets for the first time since late July/early August. In fact, the major indices basically closed at their lows today, with the S&P 500 down 32 points or 1.6%. Perhaps more importantly, the benchmark index fell below the 50-day moving average.

Does this mean a selloff is coming? Personally, I wouldn’t go that far. I think investors are just adjusting their expectations as equities have been sitting at mostly overbought levels for some time. I imagine we’ll level out here, unless something major occurs next week.

There are certain macro risks which could turn into something more. Russia continues to be a thorn in the side of the world’s markets, agitating various countries on a regular basis. Plus, the US and its allies have undertaken a much wider strike on ISIS, including within Syria itself.

At home, the economic news hasn’t been quite as robust, but nothing really to worry about. Jobless claims continue to fall and home sales are rising. The Fed’s bond buying program will end next month, but the central bank still plans to keep rates low for a “considerable time”. Of course, stock buyers love those low rates.

While I don’t expect a huge pullback in stocks, our next trade will likely be a put of some kind. We want to have at least one position which would thrive in a down market.


Portfolio Recap

Position #1: ZAGG (ZAGG) October $6 Calls

Price Paid: $0.30

Current Price: $0.10

Time Until Expiration: 23 days

ZAGG pulled back from its highs after the Apple (AAPL) conference, but looks to have hit a strong support line. I believe the stock will climb into earnings (in early November). We should see a rebound in the next week or so. If the stock doesn’t move all that much in the next week, I may consider rolling the position to November to make sure we capture earnings results.


Position #2: Transocean (RIG) November $37 Calls

Price Paid: $1.28

Current Price: $0.35

Time Until Expiration: 58 days

RIG did not bottom out last week and has instead continued to fall off a cliff. The only good news is that there’s nothing wrong with the company itself. What we’re seeing is a pullback in all offshore drillers, which is clearly hurting the stock. With a dividend yield over 9% and a P/E at 6.5x, the stock is ridiculously cheap. Fortunately, we have plenty of time for there to be a rebound. Hold tight for now.


Position #3: Yahoo (YHOO) November $42 Calls

Price Paid: $1.51

Current Price: $1.10

Time Until Expiration: 58 days

YHOO has declined a bit since our trade yesterday, but once again, it’s nothing stock specific. It’s just general “profit taking” along with the overall market selloff today. We have nearly two months for our thesis to work, so stay tuned.


Category: OTW Weekly Updates