EOT Position Update – August 12, 2015

| August 12, 2015

Market Snapshot

The big story over the last few weeks has been oil prices.

oil chart

As you can see, oil prices reached a low around $43.00 in March.  Then they rallied 40% up to around $60.00.  After holding here for a few months, oil prices have given back those gains and are threatening to break even lower.

This is having a ripple effect throughout the entire economy.  In short, the energy industry and the industries that service the energy industry and its employees were one of the main sources of good paying jobs over the last decade.

Now energy companies are cutting back on their investment in new projects and employees.  This is big negative for the energy industry, those industries that support it, and the US economy in general.

Those that predicted a huge uptick in consumer spending due to the drop in gasoline prices were simply wrong.  In short, the slowdown in the energy industry is a much bigger net negative for the US economy than many thought it would be.

But that’s not the only problem right now…

The combination of falling oil prices, slowing growth in China, strong US Dollar, sluggish corporate investment, and concerns about the timing of the first US interest rate hike in nearly a decade have crushed the optimism out of investors.

We’re nearing a point where the negativity is reaching a critical point with the potential for two very different outcomes.

We could see the pendulum swing back the other way toward optimism.  This is what has happened time and time again during the current bull market.  Bullish investors pile on the bandwagon and propel the markets higher.

But we could just as easily enter into a negative feedback loop.  In this scenario, the negative news and poor sentiment start to feed off each other.  This causes companies and investors to cut back on their investments.  Ultimately, it can trigger the biggest stock market correction since the financial crisis ended in 2009.

Let’s move onto the updates…


Position Updates

Just a quick note:  Remember, we won’t update every open position every week.  We try to focus on the positions that have some significant news or price movement.

NTAP September 18th 2015 $30 Puts

NTAP is a new trade we rolled out earlier this week.  I’m anticipating disappointing quarterly earnings next week.  You can still buy this put option to open the trade up to $1.15 per contract.

MSFT August 21st 2015 $47 Calls

MSFT is moving higher in an uptrend off the April low.  But overall weakness in the market is keeping a lid on a breakout above resistance around the $48 to $49 range.  Aggressive traders can continue holding this option that’s in the money going into the final week before expiration.

LUV August 21st 2015 $36 Calls

LUV is moving higher as oil prices fall and traffic increases as consumer gravitate toward the airline.  Our option has more than doubled in price.  And the stock should make a run at our $40.00 resistance level in the next week.

GDDY August 21st 2015 $24 Puts

GDDY is a mystery to me.  The company’s plans for international growth are unproven and untested.  The two quarters as a public company have been dismal.  Losses are growing and there’s no sign that they’ll be able to right the ship.  Despite these facts, there’s a floor of support near $26.00 that simply won’t give.  Someone or something doesn’t want this stock to fall below $26.00.  Hopefully sellers can exhaust this buyer in the next week or so before. our option expires and the stock nose-dives down to around $20.00 where it deserves to be trading.

Category: EOT Update

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