EOT Position Update – March 25, 2009
March 25, 2009
Market Snapshot
Wow! When the market wants to move the market really moves. We’re going on two weeks of upward momentum. As I mentioned last week, the importance isn’t in the move, but in the follow-through. This is a great rally, the question everyone keeps asking is will it hold?
I think we’ll have our answer in a few weeks.
Once we start seeing the markets moving lower, if the damage isn’t too dramatic, it will be a sign the worst is over. Now, if you put a gun to my head, I’d say this is likely the bottom… and we’ll start moving higher over the next 3, 6, and 9 months. But that’s just my opinion.
Along those lines, I’m going to start looking at ways to profit from a potential turn in the market. There are several different ways, and positioned properly, these moves could provide big gains. We’ll dip our toe into this pond, before jumping in with both feet.
The big news this week…
We finally have been presented with Treasury Secretary Geithner’s plan to save the banks. The markets, looking for any reason to rally, moved higher off the news. Essentially, toxic assets will be sold through an auction process. Investors put up 7% of the purchase price with the government contributing another 7%. The remainder of the purchase will be funded by a loan from the FDIC.
Sounds like a sweetheart deal to me.
Most financial stocks rallied on the news.
China continues to bash the US Dollar. It doesn’t quite make sense given their huge holdings of US government Treasuries. They continue to rattle the cage in front of the G-20 meeting.
Commodities have been rallying for the last few weeks… helped in part by a weaker dollar. Oil is up as are some of the industrial metals.
The M&A lottery continues to run. Late last week IBM announced they’d be interested in buying Sun Microsystems for $10 to $11 per share. Sun’s stock jumped on the news… as did many other companies in the tech space.
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.
GE June 2009 $11 CALLS (GEWFI)
We’ve started to see GE rally off of really oversold levels. We traded as high as $11.35 this week (intraday), briefly putting our options in the money. This pushed the stock through our first resistance level. Congratulations to everyone who captured a quick profit this week. Not bad to see a 91% jump in value in less than eight days. I’m expecting GE to continue moving in our favor… hold tight. Resistance levels will be at $11 and $13.75. Support levels will be at $8.25 and $7.
BDK May 2009 $17.50 PUTS (BDKQW)
Well, BDK moved right through both resistance levels. Everyone, save for the most aggressive of traders, should have exited this position. Unfortunately the stock rallied along with the rest of the market. I’m still expecting the company to struggle with earnings, and we might see it fall again in the future.
WPI May 2009 $30 CALLS (WPIEF)
Two weeks of strong rallies in the market and WPI hardly budges. This is what I call a frustrating trade. This stock should be well above $30 by now. We still have time on this one, so give it a few more weeks. Resistance levels will be at $31.50 and again at $33. Support levels are $27 and $25.
EMC April 2009 $11 CALLS (EMCDM)
At one point today, EMC traded over $12 a share. This pushed our option values higher, and just about breakeven. These options expire in the next 23 days… if you can exit with a profit, take it! Resistance levels will be at $13 and again at $14.25. Support levels will be at $9.50 and $8.50.
ORCL June 2009 $19 CALLS (ORQFT )
Oracle jumped big in value this last week after management hit a homerun with earnings. Our options spiked in value as well. I know only aggressive traders are still holding this option. Give this trade more time, we’re only $1.00 away from being in the money.
Parting Shots…
AIG Bonuses?
I don’t know about you, but the AIG bonus debacle has gotten quite a bit of chatter going around our office water cooler.
Some of our debates have become quite heated. The funny thing is nobody disagrees with the idea of bonuses like that being ridiculous. The big debate is how the government should have gone about trying to get the money back.
Some think the Attorney General of New York is abusing his power by releasing names of bonus recipients. Others think Congress is going too far with special taxes for the bonus recipients.
Nobody can believe the company would actually agree to give bonuses that aren’t tied to performance.
After a bit of contemplation I’ve decided the whole discussion is too distracting.
What I want to know is how are the tax payers going to get repaid?
Category: EOT Update
