EOT Position Update – September 21, 2011
September 21, 2011
Market Snapshot
According to the Economic Cycle Research Institute (ECRI), economic growth is slowing. And leading indicators are pointing toward further slowing through the end of the year.
But here’s the worst part…
There’s no end in sight to the current slowdown. At this point, I’d put the odds on the US falling into another recession at 50/50.
What’s more, when we’re in an economic slowdown, like we are right now, the economy is much more vulnerable to shocks. That makes policy decisions by government leaders around the world much more important. One misstep by the Fed or the ECB could shock the system into recession.
It’s also why the markets are obsessed with the debt crisis in the Euro Zone. It’s a litmus test for how well policymakers are doing. On days they seem to get a handle on the situation, stocks pop… and on days they seem clueless, stocks drop.
Truth is, until they find a solution to the debt crisis, there’s a greater risk of a systemic shock sparking a new recession. Obviously, that’s not good news…
As a result, investors are selling stocks and pouring their money into the relative safety of treasuries.
The silver lining is we can profit from the market’s decline by buying put options on stocks as they fall. In fact, I’m working on a new trade for later this week.
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.
CNH December 2011 $25 Calls
CNH hasn’t done much since our trade alert. The stock is bouncing between $29 and $33.50. The good news is Agribusiness stocks should finish out the year strong. Farmers are simply going to spend too much money on equipment for these stocks to remain this cheap. Continue holding… Resistance is at $40 and $45. Support is at $25 and $21.50.
SBUX January 2012 $38 Calls
SBUX continues to soar to new heights. The coffee maker hit a new all time high of $42 per share yesterday. That’s great news for our call options! They reached a peak gain of 123%! It’s good to see consumers are still willing to pay up for their grande non-fat mocha cappuccinos! But that’s not the only reason SBUX continues to soar. This is a well run company executing a great growth plan. Continue holding for bigger gains ahead. The next resistance is at $45.
WPRT October 2011 $30 Calls
WPRT hit a new all time high of $34.23 yesterday. And our option skyrocketed to a peak gain of more than 100%! The bad news is investors are selling WPRT hard since it hit an all-time high. Here’s the bottom line… WPRT is a great business in a red hot industry. I think this stock will continue moving higher. But it may not happen before our options expire next month. The problem is investors are very risk averse at the moment. They are selling risky stocks and WPRT is a risky stock. So, you can either bank a small profit now or continue holding with the expectation WPRT will move higher to our next resistance level at $35.
Category: EOT Update
