EOT Position Update – January 7, 2009
January 7, 2009
NOTE: Watch for a trade early next week.
Market Snapshot
Well, the end of last year looked good. We’d put together a string of three consecutive winning days. Unfortunately, the end of the year excitement was replaced with the cold slap of reality. Now that the professional traders have returned to the market, I’m expecting a resumption of market volatility.
The big news this week . . .
Alcoa announced massive layoffs with a dramatic cut to capital spending. Clearly the fall in commodity prices and the weak economy is taking its toll.
Good news for Pfizer (PFE)… they received a patent extension on their cholesterol lowering drug Lipitor. The stock’s been moving higher on the news. Lucky me, I own some shares.
Both General Motors (GM) and Ford (F) reported weak December sales numbers. You had to have your head in the sand not to see this coming.
Military action between Israel and the Palestinians unsettled the markets early this week. And surprise, surprise… The Arizona Cardinals survived the first round of the wildcard playoffs. (Corey in customer service was really happy!)
Now for the trade 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.
APEI March 2009 $45 CALLS (QAZCI)
This option was a new recommendation from yesterday. We’re already seeing a small gain. Give this trade a few weeks to develop. Resistance is $44 and $46.50. Support is $36 and again at $32.50.
WPI February 2009 $25 CALLS (WPIBE)
The stock had a nice run up in the last few days of 2008. Since the beginning of the year it’s traded lower. We hit the first resistance level last week. Congratulations to everyone who took profits. If you still have a position, I’d hold for a potential rebound. Resistance levels will be at $25.50 and again at $27. Support levels are $22 and $21.
Parting Shots…
Market Maker Games
I want to take this opportunity to point out something important from our last trade. Something we can all learn from.
If you noticed, when the trade alert for our APEI March 2009 $45 CALLS (QAZCI)went out the spread was larger than normal. The market makers on the exchange were quoting a bid/ask spread of $1.60 – $2.05. That’s a spread of almost $0.45 per option.
This is a difference of 22% from the ask price!
As we discuss in our Elite Option Trader Operating Manual, the spread is something everyone needs to pay attention to. It’s part of the cost of trading options. Everyone pays the spread, and were’ no different.
Now, there is one way to keep the market makers from stealing a ton of our hard earned money. That’s by using limit orders. You set the price you want to buy or sell at. Check out page 16 of the Operating Manual for more details.
We’re finally seeing some spreads start to close. The last time I checked the spread on the APEI options was less than $0.20… a reduction of more than 50%.
Category: EOT Update
