EOT position update May 14, 2014

| May 14, 2014

May 14, 2014

Market Snapshot

Large cap US stocks have regained some of their bullish momentum following the dramatic selloff in momentum growth stocks over the last few months.

The S&P 500 hit a new all-time high of 1,902 yesterday.  It was the first time the index has crossed the 1.900 point threshold.

Despite the bullish connotations of the new highs, the S&P 500 is up less than 1% since early March.  And it’s contending with the seasonal headwinds known as ‘Sell in May and go away’ as well as the potential for people to take profits with the S&P at record high levels.

In fact, we saw the selloff in small-cap and internet companies resume today.  The selloff sent the Russell 2000 small cap index plunging below the 200-day moving average for the fourth time in the last month.

Needless to say, those are troubling signs about investors’ appetite for risk.

Right now the bulls are hanging their hat on the hope the world’s central banks will help.  Across Europe, China, and other emerging markets, policymakers are taking steps to fuel economic growth.

If they succeed, it could be a boon for cyclical and economically sensitive stocks.

What’s more, we saw US banks increase lending in the first quarter by $37 billion.  That was the biggest jump in loan growth since the first quarter of 2008 – pre financial crisis.

In short, all indications point to global economic activity accelerating in the months ahead.

And the best part is – that should give us plenty of opportunities to use options to profit from sinking and soaring stock prices.

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.

JOY June 2014 $60 Puts
JOY and other stocks tied to the mining industry got a boost from an upgrade by JP Morgan on Monday.  The analyst sees a rebound in Chinese mining activity bringing an end to the pessimism toward mining stocks.  I think the uptick in JOY is misguided.  As the analyst points out, the biggest reason for the upgrade is strong cost-cutting… in other words, miners aren’t spending money on new equipment.  And that’s troublesome for JOY.  We should see JOY continue to lose ground going into their June earnings. Aggressive traders should continue holding for bigger gains.  The next support is at $55.00.  Resistance is at $63.00 and $65.00.

APA May 2014 $85 Calls
APA reported better than expected earnings last Thursday.  The stock responded by surging past our $90 resistance level.  That’s the cue for conservative traders to pocket these impressive profits… our option hit a high of $5.50, a 118% gain!Congratulations to everyone.  The way I see it, APA is going higher from here, but these options are running out of time… they expire on Friday.  Go ahead and sell these options if you haven’t already.

GMCR May 2014 $90 Puts
GMCR has made an astonishing rebound after reaching our $90 support level. Conservative traders that cashed in at this resistance level managed to double their money.  Unfortunately, aggressive traders hoping for a bigger drop after the quarterly earnings have seen the option value disappear as the stock has soared from $90 to $120 in a matter of days.  These options expire on Friday.  Anyone still holding these options can let them expire.

Category: EOT Update

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