WEEKLY ISSUE: Closing Out a Position After a Massive Swing in the Right Direction
KEY POINTS FROM THIS ALERT
- We are issuing a sell on the United Parcel Service (UPS) January 2018 120 calls (UPS180119C00120000) that closed last night at 2.56, up more than 232% from our 0.77 entry point.
- We were stopped out this week of both the remaining Amazon (AMZN) January 2018 1150 calls (AMZN180119C01150000) and the Applied Materials (AMAT) January 2018 60 calls (AMAT180119C00060000).
Following yesterday’s more than 1% move lower in the Nasdaq Composite Index that weighed on a technology stocks, we were stopped out of our Amazon (AMZN) January 2018, 1,150 calls (AMZN180119C01150000) after trimming the position back earlier this week. Based on our 55.00 stop loss, the remaining portion of those Amazon calls generated a return of just over 69%. On a blended basis, the overall Amazon call position generated a return of more than 95% in a period of just two weeks. Not too shabby if I say so myself.
We were also stopped out of the Applied Materials (AMAT) January 2018 60 calls (AMAT180119C00060000) this week when our 1.30 stop loss was triggered. This led the position to return a loss of just under 16%.
Those two stop loss actions were the “bad” news to be had this week, but really on a combined basis, the net return on those two positions — a 95% blended return on the Amazon calls and a 16% loss on AMAT — was overall still extremely positive.
Now let’s turn to the good news – our UPS calls.
Coming out of Cyber Monday 2017, which as I discussed in yesterday’s Tematica Investing weekly issue was another record year for digital holiday spending, United Parcel Service (UPS) gave a very upbeat presentation at the Credit Suisse 5th Annual Aerospace Industrials Conference 2017 that popped UPS shares more than 3% yesterday. The combined impact of Cyber Monday and that presentation pushed UPS shares higher to more than $119 from $113 last Friday, which is less than $1 from the 120 strike price on our United Parcel Service (UPS) January 2018 120 calls (UPS180119C00120000).
The result was an astounding move in those UPS calls to 2.56 at the market’s close last night – up more than 232% from our 0.77 entry price just over a week ago. Here’s the thing – later today we have the Senate vote on tax reform, and while the outlook has been improving for its passage over the last few days it’s not a done deal. Even if it does pass there are some meaningful conversations to be had in the coming days to negotiate a final tax reform plan between the differing House and Senate bills.
As we have seen many times before, investor expectations can sometimes get ahead of what’s likely and given the amount of political gridlock in Washington, we’re going to take the prudent route, especially after the whipsaw we saw this week in our Amazon calls, and close out the United Parcel Service (UPS) January 2018 120 calls (UPS180119C00120000) booking the entire gain in one fell swoop.
In the short-term, we’re going to hold steady until we see what shape tax reform fall out takes over the next several days. No need to step in front of a new position that could move significantly lower if investor expectations are not met… and there is the chance of an off-putting Trump tweet that could rattle Congressional sabers during tax bill conversations. Better to sit on the sideline until the coast is clear.
As we wait, I’ll be looking at several potential call option positions, including ones in Universal Display (OLED) as well as Apple (AAPL) shares.
- We are issuing a sell on the United Parcel Service (UPS) January 2018 120 calls (UPS180119C00120000) that closed last night at 2.56, up more than 232% from our 0.77 entry point.
