EOT Position Update – November 12, 2008
November 12, 2008
Market Snapshot
The market decided to trade much lower this week. Apparently the excitement over a new President has a shelf life of 3 days or less. The Dow just closed at 8,282.
The big news this week . . .
American Express became a bank,
China decided to spend $600 billion stimulating its economy,
The automakers are a step close to bankruptcy, and
Citigroup stopped foreclosures . . . in an attempt to keep people in their homes.
Last week we had major rate cuts around the globe with big cuts from the EuroZone Central bank (ECB) and the Bank of England (BOE). This drove the value of the US Dollar higher.
October retail sales look horrible. It doesn’t bode well for the retail industry heading into the important Christmas season. (Great news however for our KSS and JCP puts)
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.
KSS December 2008 $30 Puts (KSSXF)
The stock’s moving in our favor. Recent news about October retail sales pushed retail stocks down across the board. The stock’s traded below the first support level of $30. Everyone should be showing nice gains in their option, we’re up 105% on the position. Resistance is $38 and $40.50. Support is $30 and $25.
BP December 2008 $35 Puts (BPXG)
Oil prices continued to fall apart. BP cratered form the 50 level to the low 40s. Since we moved thorough both resistance levels, only the most aggressive traders should be holding this position.
MRK November 2008 $30 Calls (MRKKF)
I hope everyone was able to exit in profitable territory with this option. Peak gains were 116%. This week the stock moved below our support levels.
JCP January 2009 $30 Puts (JCPMF)
The weak October retail sales numbers hammered the retail stocks hard. JCP fell well below $20. The option now has a value of over $10. This stock may move lower still.
Parting Shots…
More subscriber questions
Last week we discussed entry points and the bid/ask spread. This week we’re going to look closer at exit strategy.
Brian, I’m not sure what you mean by first support/resistance level and second support/resistance levels. Do I need to sell when it hits the first level or the second one?
First off, let’s take a quick step back and discuss support and resistance levels. Resistance levels are price points where a stock meets a lot of selling pressure. It resists the stock moving higher.
Support levels are the exact opposite. Support levels are points where a stock encounters a lot of buying pressure. This supports the stock at current levels and keeps it from moving lower.
The reason why I identify these levels is to help you develop an exit strategy before you invest in a stock. It’s my best estimate of where a stock might move to or reverse trend at. Now as always, I can’t predict the future. What level a stock ultimately moves to is determined by market forces.
I do however try to give two different levels – a high level and a lower level. The idea is more conservative investors will take profits or cut losses quicker than more aggressive traders. Aggressive traders may be willing to capture a big win and suffer a few more losses along the way.
Unfortunately, I don’t know what kind of investor you are (or any other subscribers). Your temperament, trading strategy, and financial ability will ultimately determine if you’re conservative, aggressive, or somewhere in the middle.
I encourage you to review the Elite Option Traders operating Manuel. Starting on page 10 we give a good overview of how to develop an exit strategy.
Category: EOT Update
