WEEKLY ISSUE: Preserving Capital and Sitting on the Sidelines
Key points inside this issue
- We were stopped out of the United Parcel Service (UPS) January 2019 120.00 (UPS190118C00120000) calls at 2.50 yesterday following the post-September quarter earnings drop in the shares that led to calls to close at 1.00, down 64% from the prior day.
- Ahead of September quarter earnings from Chipotle Mexican Grill (CMG), we will continue to hold the Chipotle Mexican Grill (CMG) January 2018 450 calls (CMG190118C00450000) that closed last night at 16.75 vs. our stop loss at 14.00
- Given the day to day market volatility, we will prudently hold off adding new positions in order to preserve subscriber capital.
I’ll say it right up front, this is one of the more volatile stock market environments that I have seen in some time. There are some pockets of strength as well as relative outperformers but there is a sea of red when it comes to stock prices. As I cautioned a few weeks ago, the stock market is indeed trading day to day based on the news of the day. That makes it a very challenging one to trade in the short-term, especially given the nature of the relationship between stock price movements and those in call options.
This week in particular, with some 30% of the S&P 500 reporting their quarterly earnings, it’s going to be a telling week as investors recalibrate earnings expectations not only for the September quarter, but also the current one. While the Fed’s Beige Book for October didn’t say much of anything new, September New Home Sales missed expectations in a new way reigniting concerns over the speed of the economy. The CNN Fear & Greed Index is pointing at Extreme Fear (6) down from Extreme Greed (70) a month ago and this is leading investors to shoot first and ask questions later.
I can understand the reaction to pull the rip cord, but in my experience, it pays to have a calm perspective and steady hand on the wheel, especially as more earnings reports are coming over the following days that can add additional color and context to what we are reading and hearing.
In the interim, the smartest thing from a capital preservation perspective is to stay on the sidelines until we have a clearer picture of things and the market is on more even footing. As those calmer waters emerge, we’ll look to re-enter the market with option trades here, while at Tematica Investing we’ll look to improve our cost basis, in some cases significantly, in the Thematic Leaders and other positions on the Tematica Investing Select List.
