EOT Position Update – March 26, 2008
March 26, 2008
Market Snapshot
We’re now a few weeks into our first option trades. The markets have been quite volatile. The Fed intervention and the collapse of Bear Stearns have been causing the markets to gyrate. Hundred plus point rallies and falls in the major market indices are commonplace.
We’re getting close to the end of the first quarter and it’s been quite a rough one. I’d expect the market volatility to continue through to the first week in April. The end of the quarter is always exciting as portfolio managers are required to report their positions to shareholders.
As a result I’d watch for some end of month window dressing to occur. Major fund managers are going to clean up their act for the investing public. That means selling-off smaller lesser know and poor performing companies. And buying more of the best performing companies.
To top it off, talks of a recession continue to weigh on the economy. Keeping our head level at this point is going to be critical. Let’s stick with the trends on our investments.
Position Updates
RRC May 2008 $65 Calls (RRCEM)
Just yesterday we issued the trade on RRC. With oil moving in our favor I have high hopes for this trade. Resistance is at $65 and $70. Support levels are $57 and $54.
COP May 2008 $75 Calls (COPEO)
Our COP trade from last week is holding steady. Over the last few days oil’s tested the 100 level several times. This tells me, we’re bound to head higher. Higher oil prices will help our COP trade. Resistance is $79 and $85. Support is $70 and $67.50.
NSC June 2008 $55 Calls (NSCFK)
NSC has rallied above $56 several times since we put on this trade. Just a few days ago the options traded as high as $4.96. I’m sure some of you took quick profits – congratulations. I still think these have a ways to run. Resistance is $56.50 and $58.50. Support is $49 and $47.
Parting Shots…
Subscriber Question: I’ve received a number of questions from subscribers on the buy-up to price. Let’s go over what exactly this means and how to use it.
First, what does the option buy-up to price mean?
The buy-up to price is simply the suggested maximum amount to pay for the option. We provide this level as a guide to help everyone determine an appropriate entry point.
Is it okay to pay more than that price for the option?
That decision is really up to you. But I like to pay less for things . . . not more! Really, you can pay anything you want for the option. But in the long run, you’ll be better off buying these options for less than the buy-up to price. Check out the section on Market and Limit Orders in our Operating Manual for ways to do that.
How is the buy up to price determined?
When we identify potential trades, we look for options that are undervalued. This gives us an edge when it comes to turning profits with our strategy. When determining the buy-up to price we look at a number of factors. Everything from price volatility to time decay, and even directional movement are taken into account.
Why can’t you just tell me what price to pay for the option?
Remember the options market is like the stock market. Prices are constantly changing. One moment they may be moving higher and a few hours later they may be trending lower. By giving you a buy-up to price, this allows you to determine a reasonable entry point for your investment. In the end, you should not chase these options above the buy-up to price.
I hope that helps.
Category: EOT Update
