EOT Position Update – October 3, 2012
October 3, 2012
Market Snapshot
As October gets underway, the S&P 500’s in consolidation mode. But it shouldn’t come as a surprise…
Don’t forget, the large cap index logged an impressive 16% rally this summer. It went virtually straight up from the low of 1,266 on June 4th to a high of 1,274 on September 14th.
It’s completely healthy for markets to go through a period of consolidation after a huge rally.
What’s more, the S&P’s high water mark came just one day after the Fed announced QE3. This also isn’t surprising. Many traders were long stocks in anticipation of QE3. And once it was announced, those traders locked in their profits on the trade.
More importantly, the selling pressure hasn’t overwhelmed the market. And the uptrend off the June low is still firmly intact. In fact, the orderly pullback and consolidation over the last few weeks should give traders confidence to pull the trigger on new bullish trades.
The only thing that’s holding traders back at the moment is the lack of a bullish catalyst.
But that could be changing…
This week we’ve seen economic data start to turn up. After three months of contraction, the ISM manufacturing and service sector rebounded in September. Auto sales outpaced estimates. And the ADP jobs estimate showed the US added 162,000 private sector jobs last month.
Look, if economic data turns up, it could be just the thing to spark the market’s next leg higher.
And don’t forget, earnings season is just around the corner. Overall, earnings per share estimates for the S&P 500 stocks have fallen 4.5% from where they were at the beginning of the quarter. If companies can clear this lowered bar, it could add fuel to the bulls’ fire.
And here’s the best part…
No matter which way the markets move, options give us the opportunity to profit. But it appears the bulls are in control, so we’ll continue to look for opportunities to the upside.
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.
BGS February 2013 $30 Calls
BGS is our latest trade. As expected, the company’s secondary offering went off at $30.25 without a hitch. It should continue moving higher from here. Feel free to buy these options if you haven’t already. Also… some of you noticed the typo on the trade alert that indicated we were recommending the “BGS February 2012 $30 Call”. Obviously, February 2012 calls don’t exist anymore. I apologize for the oversight. We are in fact recommending the BGS February 2013 $30 Calls. Resistance is at $33.50 and $35.00. Support is at $29.00 and $28.00.
NPSP October 2012 $9 Calls
NPSP hit our $9.25 resistance level today. Congratulations to everyone who locked in their 30% gain. The stock is up after an analyst at MLV & Co initiated coverage with a buy rating and a price target of $15. More aggressive traders should continue holding for an opportunity to grab a bigger pay off before the options expire in a few weeks. The next resistance is at $9.75. Support is at $7.75 and $7.25.
AXP October 2012 $60 Calls
AXP has been a bit of a disappointment. It’s been range bound since we sent the trade alert out. At this point, time value on these options is decaying rapidly. The good news is AXP is poised to make another run at the high end of the trading range over the next few weeks. When it does, take the opportunity to sell these options.
BKI October 2012 $30 Calls
BKI has been moving virtually in lockstep with the broader market. Unfortunately, that means BKI has been consolidating over the last few weeks. But as I said earlier, the bulls are still in control of the market. And once the market gets moving, BKI should too. Continue holding… Resistance is at $34.50 and 36.00. Support is at $27.50 and $26.00.
Category: EOT Update
