EOT Position Update – October 22, 2008

| October 22, 2008

October 22, 2008

Market Snapshot

NOTE:  Watch for a new Trade Alert on Thursday or Friday.

The volatility in the market continues.  Today we closed down 500+ points to end the day at 8,519.  I don’t know what’s going to calm the volatility.  I’m of the opinion that this might last longer than anyone expected.

The big news this week . . .

We’re in the thick of earnings season.  That means not only is the crazy market volatility rocking the markets . . . but every time a CEO opens his mouth it could move the markets even more.

Kirk Kerkorian finally bid adieu to part of his investment in Ford.  If you ask me the entire auto industry is broken.  Why he was investing there in the first place is beyond me.  He’s bound to lose money on that investment.

Another whale investor is making a move . . . Carl Icahn announced a 9%+ stake in Lion’s Gate.  This at the same time the Chairman of the company was forced to sell his shares because of a margin call.

Merck announced earnings this morning.  Everyone should have been watching as we have call options on the company.  Merck announced lower net income numbers, but they included restructuring charges.  Without those added charges the numbers would have been up.  In addition, Merck announced layoffs in their overseas operations (7,200 people in all) which should save the company money going forward.

Wall Street was unimpressed by the news.  The stock opened lower and closed down almost 2 points.  At one point our options were up more than 100%.  Today we gave all that back and then some.  Honestly, I’m surprised it wasn’t worse given the overall market movement.  (Good trading by everyone who exited the trade for a profit when we hit the first resistance point).

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)
The rollercoaster ride continues.  Earnings crushed the stock price today (that and a bad market).  We’re back now just below our buy in price.  Congratulations to everyone who booked a profit last week.  Support is at $27.  Resistance around $31 and $32.50.

  CVX December 2008 $75 PUTS (CVXXO)
CVX traded in a range this week between $55 and $70.  Everyone should be showing a nice profit and only the most aggressive traders should be holding this option now.

  JCP January 2009 $30 PUTS (JCPMF)
Our JCP option continues to climb in value.  Peak Gains this week were 441%.

  GT January 2009 $15 PUTS (GTMC)
Goodyear Tire continued falling this week.  It closed today below $10 per share!  Peak value this week showed a gain of 181%.

Parting Shots…

Subscriber Question:  Brian, Why do you keep suggesting call options?  The Market is going down! – Jerry

Great question Jerry.

When I look at selecting options, I’m focusing on what will make money.  Now you are right, the market has been falling for a while now.  That’s why our put options are doing so well.

You’ll note that 2 of the last 3 call options were put on as the market bounced higher. I saw an opportunity in those stocks for profits, so we took them.  The two call options that traded higher showed gains of over 100% each!  Clearly the system’s working.

The best example is Merck (our last trade).  When I put out the trade alert, I said we were looking for a “short term rally”.  In 7 of the last 9 trading days the option spent part of the session above the buy-up-to price.  So the opportunity to profit was fairly wide.

If you weren’t able to profit on the last trade, I’d suggest two things.  First, be willing to take profits more quickly (especially when we are looking for a short-term rally).

The second thing is watch your entry points closely.  The Merck trade had a buy up to price of $1.50.  That doesn’t mean you should rush out and pay the maximum amount. Watch the option, sometimes by waiting a few hours or even a day you can get a better price.  The lower the price you pay, the bigger your profits will be!

Hope that helps.

Category: EOT Update

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