Option Investor

On The "Watch" List -- MMM

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Shares of MMM have traded higher in recent sessions and with the stock price now less than $1 from our sold (call) strike at $85, it certainly warrants additional scrutiny in the near term. Despite the close proximity of the spread's break-even point ($85.50), we are hesitant to "pull the plug" until MMM clearly breaks through the established trading-range top near $84.75. Here is a chart displaying the "failed rallies" in SEP-04 and earlier this month:


While it may be prudent to take a small loss (approx. $0.25) now and avoid any additional risk, this position has somewhat less downside potential than our other spreads as the stock has not traded beyond $85 for nearly 7 months. At the same time, the next few sessions would certainly be considered a "key moment" both for this issue and the stock market as a whole. If the Fed offers some favorable comments after the FOMC meeting, equity values could rally sharply, taking MMM shares along for the rise. For this reason, it may be best to use a "buy to cover" order on the stock with a limit price well above the current resistance area. A reasonable target might be $85.20-$85.75, depending on your personal risk/reward attitude and technical outlook for the issue.

Even with the recent market volatility, the MCM portfolio has performed well and all of the February positions (even those we closed early) are currently profitable. With just a little luck, we can transition to March with a large surplus in the account for any "rough times" that might occur in the future.

Trade Wisely!

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