EOT Position Update February 5, 2014

February 5, 2014

Market Snapshot

Wow!!!

After months and months of low volatility trading for US stocks, a good old fashioned market correction feels foreign. One thing’s for sure, volatility has returned with a vengeance.

Higher volatility means we have to pay more for our options. In fact, identifying cheap put options has been nearly impossible lately.

I would rather keep my powder dry than chase overpriced options.

Here’s the thing…

As crazy and unnerving as big down days are for investors, they’re not the end of the world. They’re a normal part of investing. In fact, the markets are in one of the longest stretches in history without a 10% correction.

And I don’t think we’ll get there this time either. The S&P 500 will have a hard time falling below the 200-day moving average. In other words, a peak to trough correction of about 7.6%.

What’s more, there are those that believe this selloff is because the Fed has begun to withdraw their monetary stimulus. And I’m sure it played a role. But I think it’s more psychological than anything.

A combination of factors has sent investor sentiment spiraling downward. In fact, investor sentiment has quickly swung from its highest level in months to the lowest level in months.

At this point, many traders have pulled the plug on short to medium term trades and are waiting for an opportunity to buy back in at lower levels. And the bears that have been in hibernation are pressing their advantage.

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.

EIGI May 2014 $15 Calls
EIGI has staged a nice comeback this week. It’s up more than 11% to the recent low. This is a great stock that’s been swept up with the market selloff. But it could still make a run into the $20s before these options expire in May. Continue holding. Resistance is at $20.00 and $22.00.

SPR April 2014 $35 Calls
SPR is hanging tough. This aerospace company is looking at a banner year in 2014. We still have plenty of time for this one to work out in our favor. Continue holding… Resistance is at $38.00 and $40.00. Support is at $31.00 and $30.00.

Category: EOT Update