EOT Position Update February 12, 2014

| February 12, 2014

February 12, 2014

Market Snapshot

Janet Yellen made her first appearance on Capitol Hill since being sworn in as the new Chairman of the Federal Reserve this week.

She stuck with the strategy former chairman Ben Bernanke set forth. In short, they will continue to wind down their massive bond buying program known as ‘the taper’.

But she emphasized the need for continued improvement in the labor market in order for them to continue tapering in the months ahead.

For the most part, investors are discounting any disappointing economic data due to cold weather across much of the US. Needless to say, it’s hard to get much done when schools, roads, businesses, and airports are shut down.

Not that I’ve noticed here in Arizona where the high temperatures have been in the 70s and they’re expected to reach the mid-80s later this week! It’s times like this I remember why I moved to the desert.

A frosty start to the year for the S&P 500 sent the large cap index 6% lower from the start of the year through February 3rd. But since then, the S&P has rallied 4.4%.

More importantly, the industries with the highest relative strength over the last few weeks are biotech, home builders, and internet. It’s hard to believe we’re near a top in the markets when risk-on sectors are leading the market higher.

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.

GE February 2014 $25 Calls
GE is bouncing back from extremely oversold conditions. Our options jumped from around 40 cents to a high of 67 cents today. That’s a 65% jump in the value of these options in just a few days. These in-the-money options are close to expiration and should move closely with the stock price. Conservative traders can look to take profits here. Aggressive traders should look to take profits when the underlying stock reaches $25.75 and $26.00.

I did see a few questions were emailed in about which February option we were recommending. Since we are so close to expiration, there are weekly options available. Unless otherwise noted, we typically don’t recommend weekly options. Standard options always expire on the third Friday of the month. Sorry for any confusion.

EIGI May 2014 $15 Calls
EIGI is continuing to climb higher. Aggressive traders that held through the market selloff could see this option pay off down the road. Don’t forget, these options don’t expire until May. Continue holding. Resistance is at $15.00 and $20.00.

SPR April 2014 $35 Calls
SPR delivered a shockingly bad quarter and forecast for 2014 last week. As a key supplier of components to Boeing (BA), SPR appeared to be on the verge of increasing profitability and a higher stock price. But all of the promise they showed was undone by unforeseen charges in their most promising divisions. Clearly, BA is squeezing their suppliers in order to bolster their own margins. And our options were a casualty of the uncertainty these events created.

Category: EOT Update

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