EOT position update April 30, 2014

| April 30, 2014

April 30, 2014

Market Snapshot

Over the last week, the S&P 500 has bounced back near its all time high.  It’s currently less than 1% below the all time high of 1,897.

But the bears are taking aim at stocks.  And they have plenty of ammunition to fire…

At the top of the list is the conflict between Russia & Ukraine.  These headlines seem to move the market on any given day.  Then there’s the air coming out of the bubble in internet, biotech, and other momentum growth stocks.

What’s more, we’ve seen the Russell 2000 small cap index drop more than 8% from the highs and breech the 200-day moving average for the first time since November of 2012.

These are all signs of serious turmoil just below the surface… signs that could easily be missed if you only looked at the fact that the S&P 500 is trading just below its all-time high.

One thing’s for sure, the tide of investor sentiment has turned against many of the stocks that were the top performers over the last few years.

In fact, famed hedge fund manager, David Einhorn, has begun to short these stocks that had disconnected from traditional valuation methods.  There are clearly new opportunities to use put options to profit from the downside in these names.

At the same time, there are also opportunities to use call options…

The rotation of money out of momentum growth and into value or cyclical stocks is a vast opportunity.  The influx of money into stocks that can be valued using traditional measures are one of the best ways to find stocks that have the potential to make a big move to the upside.

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.

JOY June 2014 $60 Puts
JOY is a troubled mining equipment manufacturer that had risen back near its 52-week high when we put this trade on.  The stock quickly dropped in the days after we recommended buying puts.  Our option shot up 39% to $3.05.  The stock is attempting to hold onto support of the 20-day moving average.  But it appears a bigger correction is still in store.  Continue holding… Support is at $58.75 and $55.00.  Resistance is at $63.00 and $65.00.

APA May 2014 $85 Calls
APA surged to a high of $88.69 yesterday.  And our call option peaked at a high of $4.12… that’s a solid gain of 63%.  APA and other energy stocks are clearly benefiting from the rotation of money into value stocks.  Continue holding… Support is at $80.00 and $77.50.  Resistance is at $90.00 and $94.00.

GMCR May 2014 $90 Puts
GMCR came within 50 cents of hitting our $90 resistance level on Monday.  The drop in GMCR’s stock price caused our put option to double in value.  The next leg down for this broken momentum stock should send it below our $90 resistance level.  Continue holding… Support is at $90.00 and $80.00.  Resistance is at $110.00 and $115.00.

Category: EOT Update

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