EOT Position Update – June 13, 2012

June 13, 2012

Market Snapshot

One quirk of this market has been its nasty tendency to pull back violently after hopeful rallies.

And now… same market indecision, different week.

We had bad news out of Europe last weekend and into Monday’s trading.  This was due to the fact of continued worries of global weakness.

As a result, the S&P 500 market sold off 1.2%, or 17 points, Monday.

Then, Tuesday saw an eye-popping reversal.

The S&P posted a 1.17% gain.  Taking back all of Monday’s losses.

This was due to rumors on the possibility of more Federal intervention.  And you know what that means, another round of stimulus.

Here’s the problem…

I think that any move made by the Fed would be to counteract overall weakness in the economy.  For instance, new weakness in retail sales which came in today at a negative 0.2%.  This is indicating slowing sales due to a renewed lack of consumer confidence.

We can’t lose sight that these markets are very volatile and unpredictable from day to day.

Reactionary trading is a guessing game where we can be right one day and wrong the next.

With the size of these moves in the markets lately, we can easily be knocked out of our positions, regardless of direction.

Bottom line…

Trading in this type of market environment can greatly reduce performance and increase blood pressure.

Let’s remember, in these situations we need to take fewer positions with smaller sizes.

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.

  DRYS September 2012 $2 Calls
DRYS has been acting a bit erratic.  But what hasn’t?  The story of DRYS has not changed.  It has been swinging with the overall market.  However, in the longer term, this remains an attractive option play.  And that’s why we bought them out to September.  So, DRYS has breached its first support level of $2.10 by a few pennies. Conservative investors can exit here to preserve capital.  On the other hand, aggressive investors, this may be a wild ride.  But in the end, I think you’ll be rewarded nicely.  Continue holding.  Remember, we want this stock to increase in value.  The next support level remains at $1.90.  Resistance is still at $2.90 and $3.20.

  SCHW July 2012 $12 Calls
Schwab was a little rocky last week.  Not bad for a market that can be compared to another bloodbath.  The banking story from last week remains intact as SCHW has held up well in this uncertain environment.  Remember, if the banking sector jumps, SCHW will reap the rewards.  And since our options are still in the money and we have a long time before expiration, we’re going to hold these options for large gains.  Remember, we want this stock to rise in value.  Resistance is at $13.20 and $13.60, while support is at $11.70 and again at $11.20.

Category: EOT Update