EOT Position Update – November 7, 2012
November 7, 2012
Market Snapshot
Obama wins… and the markets lose!
Stocks are getting crushed in the wake of yesterday’s landslide victory for President Obama. All of the major averages have given back the gains they accumulated over the last few days and then some. To make matters worse, they’re on pace for their worst day since June.
Obviously, the knee jerk reaction to Obama’s reelection isn’t good.
In fact, it’s one the top five worst one day performances for the Dow following a Presidential election. Naturally, the worst one day performance was the day following Obama’s 2008 election when the Dow plunged 5%.
Investors clearly aren’t excited about the proposition of another four years of an Obama led White House. And they’re voting with their dollars today.
But sooner rather than later, they’ll put their disappointment aside and get back to what’s important… making money.
Here’s the thing…
Despite investors’ ugly knee jerk reaction to Democrat Presidents, stocks have actually performed better when there’s a Democrat in the White House than when the Republicans are in control.
However, in order for that to hold true, Obama must address the looming fiscal cliff of tax hikes and automatic spending cuts. And that’s no easy task.
Until then, we’ll likely see increased volatility as fear creeps back into the market.
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.
OPEN December 2012 $40 Puts
OPEN continued it history of volatile earnings last week. Unfortunately for our puts, earnings swung up and they beat estimates last quarter. Nevertheless, investors weren’t impressed. The stock is virtually unchanged since our trade went out. Our options have lost some of the volatility and time value premium after the earnings announcement. But we could still see the options rally if shares of OPEN get dragged down in a marketwide selloff. Continue holding… Resistance is at $49.00 and $50.00. Support is at $40.00 and $36.00.
PHM April 2013 $19 Calls
PHM is virtually unchanged since we rolled the trade out. The homebuilder’s stock continues to consolidate in a tight range after a big run over the last few months. But that could be changing soon… a recent report from the US Census Bureau indicates the US formed 1.15 million new households over the last 12 months. A big jump from the 650,000 new households the US has averaged over the last four years. The rate of new household formations is one of the best leading indicators of demand for new home construction. And to see it nearing the levels when the real estate market was booming is a strong indication PHM has a lot of upside from here. Continue holding… Resistance is at $25.00 and $30.00. Support is at $15.00 and $13.50.
BGS February 2013 $30 Calls
BGS was caught up in the marketwide selloff today. But this consumer staple company should benefit from an Obama win in the weeks ahead. And we still have plenty of time on our February call options. Aggressive traders should continue holding… Resistance is at $33.50 and $35.00. The next support is at $28.00.
Category: EOT Update
