EOT Position Update – July 9, 2008

| July 9, 2008

July 9, 2008

Market Snapshot

The Dow Jones Industrial Average just closed at 11,147 – down again from last week.  I wouldn’t be surprised if we end up even lower next week.

Alcoa’s earnings announcement kicks off earnings season for the second quarter. Check out today’s Dynamic Wealth Report to learn more about my thoughts on their announcement.

Big news items this week included . . . surprise, surprise, oil.  Crude oil fell almost $10 over the last week, only to rally today.  All of the volatility in the market is being driven by news.  I’m still expecting $200 oil at some point in the next year.

The airlines are still struggling.

Northwest announced plans to cut more than 2,500 jobs.  And at the same time, Boeing increased expectations that airplane demand will grow 14% more than expected in the next 20 years.  I know it’s a long range estimate but that doesn’t seem right to me.

Inflation around the world is becoming a bigger issue.  India’s inflation rate is now running at more than 11.6%.  Watch the US closely.  If inflation gets out of hand, we could have the Fed start raising rates early.  This might cause the economy to cool and hurt earnings in the second half of the year.

Now for the trade updates.

Position Updates

  ROST November 2008 $42.50 Calls (REQKT)
We had a nice rally in Ross this week.  The stock managed to climb above the 38.25 level before giving up some of those gains today.  We still have lots of time on this trade.  Resistance is 40 and 45.  Support levels are 34 and 31.50.

  ICO September 2008 $12.50 Calls (ICOIV)
ICO traded flat throughout the week.  This is another option with lots of time left.  Give this trade time to develop.  Resistance is at 13 and 15.  Support levels are 9 and 7.50.

  AHGP October 2008 $30 Calls (AQPJF)
AHGP traded down over the last few days.  Watch this closely as we are nearing the first support level.  Resistance is 32.25 and 35.  Support is at 26 and 25. 

Parting Shots…

Bear Markets. . . .

It’s official.  We’re now down more than 20% from the market peak reached in October 2007.  This is the arbitrary point many financial journalists and news media use to determine the “Bull” from the “Bear”.  If you ask me it doesn’t matter much when trading options.

The way I see it, if you are a long term investor keeping market direction in mind is important.  For example, deep value investors are licking their chops at all of the companies that are now “On-Sale.”  Value investors look for long term hold periods, and will probably show good gains on their investments in 5 years.

Option trading is different.

All options traded have a finite life.  And short ones at that.  Knowing this, successful options traders look for momentum and trends.  It doesn’t do you any good to believe Citigroup, or the market for that matter, is going to be higher in 5 years.  You can’t get options that far out.

What we look for are short term moves.  That’s why we stick to the trend.  And we look for news events in the short term that may push a stock one way or the other. Profiting from these short term moves (sometimes measured in days or weeks) is what can make options trading really profitable.

Category: EOT Update

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