eot-position-update-October-15-2014
October 15, 2014
Market Snapshot
And that’s how it ends…
The S&P 500 had been above the 200-day moving average since November 19, 2012. On Monday, the S&P fell below this key technical support level.
Who knew that Ebola can infect a stock market?
All kidding aside, we just witnessed the end of one of the longest uninterrupted uptrends in history. During that time, the S&P 500 was up a whopping 40%.
The uptrend was the gift that kept on giving. We knocked the ball out the park trading call options. Our track record speaks for itself… we have consistently doubled or tripled (and sometimes more) our money trading call options over the last few years.
There’s no doubt that a major trend change has happened. The thing to remember is that just because one trend ends doesn’t mean that the market is destined to move in the opposite direction.
A new trend will be established based on the price action over the next few weeks. We could see a new uptrend emerge, we could see downtrend emerge, or we could just be in a directionless period of consolidation.
But one thing’s for sure, right now is a difficult time to speculate about the markets or a stock’s next move. There’s a lot of uncertainty and no overriding trend to fall back on.
What’s more, volatility is sky high. The CBOE Volatility Index (VIX) exploded to its highest level since 2011. That means option premiums are more costly than we’ve seen over the last few years.
At this point, the selloff is nothing more than a correction. And there’s no reason to believe that it will snowball into a full blown bear market.
Obviously that can change if we see economic data weaken further. If we see signs that another recession is going to hit, then all bets are off.
For now, I’m looking for stocks that have been hit hard by the selloff and have a good chance of rebounding in the near term. As the situation progresses, we’ll look to make some trades that will profit if stocks make another leg down.
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.
GLOG February 20st 2015 $20 Calls
GLOG is a new trade. The stock appears to be oversold and due for a snapback rally. This is a great company with a bright future. I’m not surprised to see the stock started moving higher shortly after our recommendation went out. With so much volatility in the market, right now I wouldn’t chase this option past our $1.90 buy up to price. Keep tabs on the situation over the next few days… you could get another opportunity to buy this option below $1.90.
CVX December 19th 2014 $120 Calls
CVX was my contrarian play on falling oil prices and a strong US Dollar. I recommended buying these call options on CVX as it reached support of the long term uptrend.
Unfortunately, this technical level didn’t hold. Energy stocks continued to sell off as oil prices were pressured lower. The selloff sent CVX below $110.00. That’s the cue for conservative traders to sell this option to conserve capital.
More aggressive traders should continue holding… after a wild day of trading today. We could see a nice snapback rally in the days ahead. What’s more, I still believe the strong dollar/weak oil trade is overdone. Resistance is at $122.00 and $130.00. The next support is at $105.00.
BDBD December 19th 2014 $12.50 Calls
Aggressive traders that are still holding onto these options have been taken on a wild ride as volatility has picked up in recent weeks. The good news is BDBD appears to have put in a bottom and has begun to move higher again. I think we’ll see the stock snap back to the 200-day moving average in short order. If it can clear this hurdle, we could still see BDBD make a run back to the 52-week highs before these options expire in December.
Category: EOT Update
