Option Investor

Portfolio Activity

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One of the older positions in February's MCM portfolio has reemerged on the "watch" list. Netease.com (NASDAQ:NTES) has rebounded in conjunction with the upside activity in China Internet stocks and Briefing.com highlighted the stock Wednesday, noting that the issue was trading near the 50 dma at $45.80/$45.95. Indeed, this resistance area will be a key test for the issue and a successful outcome would likely lead to additional upside in the near-term. Since our position is currently profitable with a credit of $0.55, it would be imprudent to allow those gains to be lost completely. The cost to close the short option in the spread is approximately $0.25, however this price may increase substantially if the rally continues. Conservative traders should initiate a strategy (close or cover) to lock-in at least a portion of the existing credit in the event of further bullish movement in NTES.

One other newsworthy event occurred with regard to a new MCM Portfolio candidate. Chiron (NASDAQ:CHIR) was hit with an unexpected downgrade by Smith Barney, which lowered its investment rating on the company to "hold" from "buy," citing valuation concerns. The research note said they were revising their rating due to the "resolution of the Fluvirin manufacturing issues and the appreciation in the stock in reaction to this news." Our outlook for the issue remains cautiously optimistic and the downgrade simply improved the potential profit in the spread. However, today's brisk retreat should have reminded traders of the speculative nature of this play and the need to use appropriate loss-limiting techniques to prevent undue draw-downs in the position.

MCM Staff

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