EOT Position Update – October 26, 2011
October 26, 2011
Market Snapshot
Tired of hearing about the European debt crisis? I know I am!
The good news is we’re nearing an end to the latest round of the crisis. So we’ll likely get a break from Europe’s problems… at least for a while anyway.
Right now, European leaders are putting in place a solution to prevent a total collapse of the banking system. And it will allow for an orderly default of Greek debt.
Look, even with today’s agreement, Europe’s problems haven’t been solved. Far from it… all the agreement does is kick the can down the road. But it does kick the can far enough down the road for investors to refocus their attention on more pressing matters.
In fact, we’re already seeing investors shift their focus away from Europe. Now they’re looking at corporate earnings and US economic data.
Amazingly, corporate earnings aren’t as bad as once feared. And economic data is coming in better than expected.
As the ‘less bad’ information comes in, investors are throwing caution to the wind and buying back into the stock market. It’s sent the S&P 500 screaming higher by more than 13% this month!
The rally is clearly a snap back rally. Stocks have quickly recovered from the overly pessimistic views that dominated a few months ago. Simply put, investors are plowing money back into stocks now that things aren’t quite as bad as feared.
For now, stocks are likely going to consolidate. After all, they’ve had an impressive rally over the last few weeks. And we’ll likely see some profit taking.
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.
GOLD December 2011 $80 Puts
GOLD followed gold and silver prices higher over the last week. The strength in precious metals is closely tied to US Dollar weakness. And the dollar weakness is tied to strength in the Euro. Clearly investors are buying what the Europeans are selling. They have enough confidence that the Euro’s demise isn’t imminent. As a result, investors are moving back into the Euro and selling the US Dollar. Unfortunately, the rising gold and silver prices sent GOLD past our resistance levels. That’s our cue to sell this option to conserve capital.
CNH December 2011 $40 Calls
CNH has been on a wild ride… On October 4th, the stock was trading for around $22. Today, it almost hit $35! That’s a 50% gain in a matter of a few weeks. Our option’s starting to move as we begin to approach our $40 strike price. Tomorrow morning, CNH will announce their quarterly earnings results. If they follow in Caterpillar’s (CAT) footsteps and beat estimates, the stock and our options will be looking good. Resistance is at $40 and $45. The next support is at $21.50.
SBUX January 2012 $38 Calls
SBUX hit a new all-time high of $42.98. And our option hit a new peak gain of 124% this week. Coffee sales are clearly going strong. And the company has a number of exciting growth opportunities to fuel further gains in the stock and our option. Aggressive traders should continue holding for bigger gains ahead. The next resistance is at $45.
Category: EOT Update
