EOT Position Update – June 18, 2008

| June 18, 2008

June 18, 2008

Market Snapshot

The Dow Jones Industrial Average just closed at 12,029.  We’re down a bit from last week’s closing price, but not by much.  This week earnings news roiled the markets, and the water cooler comment was “can you believe the weather?”

The destruction of the banking industry continues.

Lehman preannounced earnings (or should I say losses) last week.  In traditional soap opera style they killed off the main characters.  Getting hit with a demotion and the blame for the problems were Lehman’s COO and CFO.

My heart goes out to the CFO – It was clearly all her fault.  I mean really she had what . . . 6 months at the post of CFO before being slaughtered as the sacrificial lamb. Interesting that none of the Board members who have been in place much longer than 6 months are losing their seats.

Here’s your sign. . . .

FedEx gave the street a good shake down today on their earnings announcement. Believe it or not oil prices were hurting profitability.  Who would have thought that? It’s not like they use fuel consuming airplanes or trucks to deliver packages all over the globe.

The Proof is in the Pudding – or in the PPI numbers.

Tuesday marked the Labor Department’s release of the PPI numbers – Producer Price Index.  Core prices which remove energy and food costs showed an increase of 0.2% from the prior month, and more than 3% from a year ago.  They also noted that gas prices were up 9.3%.  If it looks like inflation and talks like inflation . . . it’s probably inflation.

It’s too early for the Fed to start raising rates, but more reports like this and interest rates are going to go up, up, up.

Commodities rocket still higher!

Corn prices are the topic of the week.  The major rainstorms in the Midwest managed to flood out several towns and millions of acres of corn fields.  Initial estimates are 3 million crop acres are damaged.  This pushed the already volatile commodity to new highs.  So much for corn on the cob at the summer BBQ.

Now for the trade updates.

Position Updates

  ICO September 2008 $12.50 Calls (ICOIV)
Last Thursday we recommended the ICO calls.  I hope everyone decided to take a full position in their trading account.  The stock had a nice rally and we are now up more than 130%.  Resistance is at 13 and 15.  Support levels are 9 and 7.50.

  AHGP October 2008 $30 Calls (AQPJF)
AHGP traded mixed this week. Coal prices are still going the right direction . . . give this trade some time.  Resistance is 32.25 and 35.  Support levels are 26 and 25

  NGS July 2008 $30 Calls (NGSGF)
NGS continues to trade higher closing today over $32.50.  The option is now up 200% The next resistance is at 35.  Support is 25 and 23.

Parting Shots…

This week, two more subscriber questions:

Subscriber Question:  I bought two of the options you suggested, but they weren’t listed in your Position Updates list.  When did you sell them and why didn’t you let us know?

Good question, I’m sure some of you were thinking the same thing.  So here’s a quick explanation.

First, selling an option position is a very personal decision.  Some traders are willing to take on more, or less, risk than others.  Because of that we don’t provide specific exit points . . . when you sell an option is up to you.

However, we do give support and resistance levels.  You can review and take into account this information when determining your own exit strategy.  For more information I’d look at last week’s issue where we discussed that very topic.

Now, you might be a bit confused over the “Position Updates” section.  Keep in mind we won’t always describe in detail every recommendation.  We try to highlight those that have some important news or event occurring.  This might be as simple as breaking support or resistance, or an important news story.

Subscriber Question:  Given what is happening with corn, livestock, and other commodities would you look at options on some of the commodity ETFs?  Or are there reasons to prefer specific company stocks?

Great question.  While we haven’t had an option trade on an ETF I wouldn’t rule it out. I always like to keep my options open.

However, ETFs don’t make the best options plays for a few reasons.  The biggest reason is their volatility.  As I’m sure you know, an ETF is made up of a basket of securities.  Some of the stock ETFs can have as many as a thousand or more securities.  That makes them less volatile.  So even if some of the stocks in the ETF catch a big move, the results are muted.

This isn’t good news for Options where we are trying to capture a big move.

There are some situations where trading ETF options might be a good idea.  But for our service, Elite Option Trader, that’s not the focus.

Category: EOT Update

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