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Portfolio Activity

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A Necessary Consolidation?

Today's market activity was less than exciting as stocks drifted sideways on mixed economic data and rising crude prices. There was little follow-through from Wednesday's broad rally, however we observed some favorable moves in the MCM Portfolio:

- Shares of CHIR opened higher, offering better than expected option prices for the transition to the JUL-30.00/32.50 put credit spread. The cost to roll down and forward was roughly $0.15 per contract, or about $75, less commissions. In addition, our adjustment recommendations usually result in a sharp reversal in the underlying issue, so look for CHIR to rally in the coming week. :-)

UnitedHealth (NYSE:UNH)
- UNH continued its winning ways, climbing above $96 after CIBC upgraded the company along with several of the HMO sector's biggest names, citing "conservative" earnings estimates throughout the industry. While the issue is comfortably above our sold (put) strike at $85, we don't want to overlook the company's upcoming earnings report, which is due on Thursday, April 14.

KB Home (NYSE:KBH) - KBH jumped nearly 2% in early trading, despite a lack of public news to explain the activity. Since today is the last day of the quarter, the bullish momentum may be due to "window dressing" among fund managers. Although we favor the renewed upward trend, the big question is, how will the stock react when the buying pressure subsides?

Estee Lauder (NYSE:EL)
- With no bullish undercurrent in the broader market, the lateral pattern in EL has resumed - at least for the moment. While we do not want to recommend a trade unless it is absolutely necessary, the prices for the JUL-$45 calls are certainly tempting at the current levels. We plan to monitor the issue closely as the day winds down and hope for some better indications of its future trend in the coming sessions.

One issue that has us puzzled is LM Ericsson (NASDAQ:ERICY). The stock has dropped almost 4% in less than a week and the outlook is decidedly negative in the near-term. Although we have not made any trade recommendations for the stock (since no one is actually in the position), a critical change in character has occurred and another adjustment is warranted. If buyers fail to support the share value near $28, the recent trend suggests a move to the 2004 lows (near $25). Investors who absolutely want to own the stock could roll out to October (or possibly January?) for additional premium in the $30 calls. However, it may be best to simply unload the stock and leave the short (JUL-$30 call) options in place with a "buy-to-cover" order to protect against future upside activity. A technicals-based "sell" stop near $28.50 seems appropriate for traders who agree with a bearish future for ERICY.

MCM Staff

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