EOT Position Update – December 5, 2012

December 5, 2012

Market Snapshot

I hate to sound like a broken record, but until something is done about the fiscal cliff, it’s the only story that matters.

At this point, President Obama and the Democrats have put forth one plan.  And House Speak John Boehner offered up a plan backed by the Republicans.

In a nutshell, President Obama’s proposal will generate $1.6 trillion in new revenue by allowing the Bush-era tax cuts for the richest Americans to expire and cut $600 billion in spending.

On the other hand, Republicans want to extend the Bush tax cuts and generate $800 billion by reforming the tax code and slash $900 billion in spending.

But so far, little progress has been made toward reaching an agreement.

In my opinion, this is typical political jockeying.  If the politicians follow the same path as they have before in similar matters, a deal is unlikely to be reached until the final hours.

Despite the lack of progress, investors are hopeful that a deal will be done.  As a result of this new found hope, the S&P 500 has rallied more than 5% over the last two weeks.

However, stocks will likely have a hard time following through on the 5% rally until a deal to avoid the fiscal cliff is finally reached.

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.

  CAB January 2013 $50 Calls
CAB is down a bit over the last few days.  But it’s still in a solid uptrend off the November lows.  I’m expecting a strong holiday shopping season to spur the sporting goods retailer’s stock higher in the weeks ahead.  Continue holding… Resistance is at $53.00 and $56.00.  Support is at $43.50 and $41.00.

  YELP February 2013 $20 Calls
YELP has pulled back this week.  This looks like a typical reaction to a sharp 16% surge the previous week.  The stock is still up 10% from when we rolled out the trade. And it should continue moving higher as it rebounds toward the high end of its trading range.  Continue holding.  Resistance is at $22.50 and $28.00.  Support is at $15.00 and $13.50.

  OPEN December 2012 $40 Puts
OPEN has taken a tumble over the last few days.  That’s good news for our put options.  The bad news is we’re running short on time.  Our December put options will expire in a few weeks.  However, OPEN is prone to wild price swings.  And a quick selloff over the next few weeks could spark a huge rally in our put options.  Continue holding… Resistance is at $49.00 and $50.00.  Support is at $40.00 and $36.00.

  PHM April 2013 $19 Calls
PHM’s rally stalled out around $17 this week.  It’s obviously disappointing that it hasn’t been able to build on the bullish momentum it generated earlier this year.  But don’t throw in the towel just yet.  The homebuilding industry trends are positive and we still have plenty of time on our April call options.  I’m expecting PHM to resume its bullish uptrend once an agreement to avoid the fiscal cliff has been reached.  Continue holding… Resistance is at $25.00 and $30.00.  Support is at $15.00 and $13.50.

Category: EOT Update