EOT Position Update – October 1, 2008

| October 1, 2008

October 1, 2008

Market Snapshot

The Dow Jones Industrial Average just closed at 10,831.  What can I say?  Sometimes the markets are just crazy.  This last week we’ve seen the largest one day point drop in the history of the markets – 777 points.  Then we watched the markets bounce up over 400 points the next day.

Big news this week.


The big news this week has been our Government’s inability to pass a bank rescue package.  Without the government’s help to restart the frozen credit markets, we might be slipping into a long and painful recession.  The proposal reached over the weekend was rejected on Monday, causing the massive sell off.

The US Dollar

Despite all the uncertainty in the US markets, the demand for the US Dollar continues to climb.  This tells me global investors see greater risk around the world – and the US is the safe place to be.

Citigroup bails out . . . I mean buys Wachovia

Wachovia hit the skids and agreed to be sold to Citigroup for about $1 a share.  The stock was trading for $10 a share when the deal was struck.  Oh, and this occurred less than a week after Washington Mutual was seized by the FDIC.  That was the largest bank failure in recorded history.

Goldman and Buffett join up.

Late last week news that Warren Buffett invested more than $5 Billion in Goldman Sachs (GS) hit the tape.  I wrote about his sweetheart deal in $5 Billion . . . Not A Big Deal.  Now today we see he’s getting something similar in General Electric (GE).

Presidential Debates

The first debate was held on Friday.  Who won?  Who Lost?  It depends on what commentator you were listening to.

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.

  CVX December 2008 $75 PUTS (CVXXO)
A great reason to have both puts and calls in your portfolio.  Our options on CVX traded as high as $480 on Monday’s market destruction.  Options reached a peak value on Monday giving traders a return of 98%.  We’re well above the Buy-up-to price on this trade.  Everyone should be showing a nice profit!

  MS November 2008 $35 CALLS (MSKG)
Morgan dropped below our support level during Monday’s sell off . . . then it rebounded the next day.  Remember, were looking for a bounce off the Bank Rescue Plan passing Congress.  I’d give this trade a bit more time.  Support level will be $22.50.  Resistance is at $31 and $35.

  CHD January 2009 $70 CALLS (CHDAN)
Believe it or not, CHD proved to be a great place to be when the market sold off on Monday.  The stock fell about a point on a day when many stocks were posting double digit drops.  The stock rebounded nicely and I’m expecting it to continue moving in our direction.  Support is at $60 and $57.50.  Resistance will be around $65 and $70.

  JCP January 2009 $30 PUTS (JCPMF)
Once again owning both puts and calls is paying off nicely.  Our JCP put options spiked in value, giving traders a gain at peak value of 71%.  Congratulations to those aggressive traders who continued to hold the options.

  GT January 2009 $15 PUTS (GTMC)
Goodyear Tire continued falling this week.  We’re now in the money on this option – the stock’s trading below $15 a share!  Support levels are 15 and 12.50.  Resistance is 20 and 22.

Parting Shots…

The Vexing VIX

If you remember last week we talked about the VIX which is a measurement of the puts and calls being traded on the exchange. Some call it the “fear gauge”. Anyway, what it showed last week was investors are afraid.

Well, that hasn’t changed. Instead of getting better we got worse!


The VIX is considered high when it’s over 30 . . .over 45 is virtually unheard of! Will it get worse? I hope not. I’m expecting the fear to dissipate. As the VIX falls, the market should climb.

Category: EOT Update

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