EOT Position Update – February 9, 2011
February 9, 2011
Market Snapshot
Stocks continue racking up gains…
In fact, the gains are coming so consistently I feel like I’m beginning to sound like a broken record! Not that I’m complaining… An upward trending market is great for our call options.
Over the past few weeks, blue chips have taken up the role of market leader. The Dow has strung together seven straight days of gains coming into today. And it’s tacked on over 400 points. That’s nearly 3.5% in just a few weeks.
Clearly, earnings season has stoked investor enthusiasm.
And there’s plenty to like! Overall, the blue chips are growing their top and bottom lines, company balance sheets are flush with cash, and the Fed’s easy money policy is extremely pro-growth.
The question is… How long can companies continue growing their businesses without ramping up hiring in a meaningful way? And once they do, will it cause inflation to spiral out of control?
The way I see it, inflation will play a big role in the market’s success or failure going forward.
At least for now, higher food and energy prices aren’t hurting profit margins. But at some point, companies won’t be able to pass along higher costs to consumers. That’s when we could see things fall apart quickly.
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.
RIO July 2011 $80 Calls
RIO is moving in the right direction… UP! Our call options hit a peak gain of 41% yesterday. The company is benefiting from strong demand and rising iron ore prices. This base material for steel is up 30% since November. Higher iron ore prices translate to bigger profits and higher margins for RIO. Continue holding for bigger gains ahead. Resistance is at $80 and $85. Support is at $65 and $60.
MCD June 2011 $80 Calls
MCD reported strong January same store sales earlier this week. Right now the stock is bumping up against the 50-day moving average. Once it clears this minor resistance level, I think MCD and our options will move higher in a hurry. Sit tight for the next leg higher. Resistance is at $80 and $85. Support is at $70 and $67.50.
DO June 2011 $79.25 Calls
DO reported earnings last week. They came in better than expected due to a favorable change in the tax code. However, this good news was offset by DO having three ships working near Egypt. Clearly this situation is weighing down the shares. DO also declared another 75 cent special dividend. This caused the strike on our option to change from $79.25 to $78.50. Hold tight for now. Resistance is at $80 and $85. Support is at $64 and $62.
Category: EOT Update
