EOT position update February 19, 2014
February 19, 2014
Market Snapshot
Bad weather continued to punish much of the country last week. But the stock market is out of the deep freeze.
Amazingly, the S&P 500 has recouped all the losses from the correction that knocked the large cap index down 6% in just eight trading days. I wouldn’t be surprised to see the S&P reach a new all-time high in the next few days.
Needless to say, the S&P has bounced back very quickly from the correction.
It’s not just large cap stocks that are on the upswing. The breadth of the rally stretches to small cap and even emerging market stocks.
This is exactly why I didn’t recommend a bunch of put options when stocks were selling off. Corrections simply haven’t lasted long enough to profit from them. More often than not, if you weren’t positioned to take advantage of the first leg down, bearish positions have been run over when the market bounces back.
And trying to call a top and buy put options when the dominant trend is up hasn’t been successful either.
Simply put, my preferred way to play this market is buying call options on momentum stocks and stocks that have corrected to support of their price channel.
Does it work every time?
No, of course not. No investment strategy gets it right 100% of the time. But as my track record shows more often than not, we get it right and quickly turn small 5% to 10% moves in the stock into massive 50%, 100%, or bigger increase in the option.
Let’s move onto the updates…
Position Updates
Just a quick note: Remember, we won’t update every open position every week. I try to focus on the positions that have some significant news or price movement.
AMZN April 2014 $365 Mini Calls
AMZN is carving out a new base with a solid floor of support at $345. And it’s holding above the upward trending support connecting the previous lows. Give this momentum stock some time to gather itself before it explodes to the upside again. Support is at $340 and again at $320. Resistance is at $380 and $400.
GE February 2014 $25 Calls
GE shot above $26 per share yesterday. That was the upper end of the resistance levels I gave in last week’s update. Our option hit a high of $1.00. That’s a 147% gain in less than two weeks! Congratulations to everyone who locked in these impressive gains.
EIGI May 2014 $15 Calls
EIGI has rallied back to $13.25. Right where it was when we recommended buying call options on it. The value of our option is down because of the loss of the time value and lower volatility. But with three months to go until expiration, these options have tremendous upside. Continue holding. Resistance is at $15.00 and $20.00.
Category: EOT Update
