EOT Position Update – October 15, 2008

| October 15, 2008

October 15, 2008

Market Snapshot

The volatility in the markets is absolutely amazing.  We’ve had triple digit moves in the market for 20 of the last 23 trading days.  We’ve broken below 9,000 on the DOW over the last few days, and as of today’s close we sit at 8,577.  When we start trending higher is anybody’s guess.

The markets have been setting record after record . . . unfortunately they’re not all good.  Biggest point move up in a day, biggest point move down in a day.  Biggest losing week.  I’m secretly wishing we’d stop setting records.

The big news this week . . .

It looks like the government’s decided what to do with part of the $700 billion rescue package.  They’re going to force banks to take money.  That’s right.  The first $250 billion is going to be passed along to the largest banks in the US in the form of an equity infusion.  And here’s the best part – they have to take it . . . I didn’t realize we were living in a socialist country.

Despite the best intentions of the government and the rescue package, the markets keep heading lower.  The fear has shifted from the freezing credit markets to now include the coming recession – which according to Wall Street looks to be a foregone conclusion.

September same store sales were weak.  The consumer’s clearly not as confident as once thought . . . and the purse strings are starting to tighten – right before the holiday season.

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.

  MRK November 2008 $30 CALLS (MRKKF)
What a roller coaster ride this trade has been.  The first four days of this trade we watched it march ever higher – Tuesday it reached a peak value of up 108% (and broke through the first level of resistance).  Now today the option value’s been cut in half (and the stock broke support).  Congratulations to everyone who booked a quick profit.  Aggressive traders who still hold this option should give it a few more weeks. Support is at $27.  Resistance is around $31 and $32.50.

  CVX December 2008 $75 PUTS (CVXXO)
Oil prices continue to fall – as does CVX.  At one point this past week, the stock was below $60 a share.  Everyone should be showing a nice profit!  Maximum gain so far is 764%.

  JCP January 2009 $30 PUTS (JCPMF)
JCP continues to move lower.  The market turmoil pushed the stock below $20.  Peak gains this week were 393%.

  GT January 2009 $15 PUTS (GTMC)
Goodyear Tire continued falling this week.  Peak value this week showed a gain of 171%.

Parting Shots…

Market Volatility and What it Means for You

This week we’ve seen some amazing moves in the stock market.  Many of you witnessed this first hand in our MRK trade.  Right now everyone is getting whipsawed. One day you’re up big, the next day you give it all back and then some.  Here’s what the professional traders do.

1) They watch the markets more closely.  This means keeping an eye on the market movements throughout the day.  Right now ou can’t buy options and check back a few days later . . .you might miss a big move and a profit opportunity.

2) Take profits and cut losses much more quickly.  Professional traders realize the markets can quickly turn a big gain into a big loss.  That’s why they’ll be quicker to take a profit or a loss.  You don’t want to have several months of hard earned gains wiped out from a few bad days of market action.

3) Reduce the number of ancillary positions.  You know as well as I do, certain trades are easier to make than others.  Maybe you have a “Feel” for a particular stock.  So, now’s the time to stick with what you trade the best.

Category: EOT Update

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