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Portfolio Review

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A Week to Remember...

There was no "Joy in Mudville" this week as the earnings-related volatility in a few stocks simply overwhelmed the MCM Portfolio. The grief began with declines in Pixar (NASDAQ:PIXR), Black & Decker (NYSE:BDK) and Sealed Air (NYSE:SEE), all of which were affected by the recent broad slump in equity values. Needless to say, the post-announcement "plunge" in Infospace (NASDAQ:INSP) was completely unexpected and the bearish activity in Estee Lauder (NYSE:EL) has also come as a surprise, given the previous price stability in the issue.

What isn't surprising is the fact that "losses do occur" and now our task is to recover from the substantial drawdown created by these positions. Readers who did not participate in the speculative INSP position (many chose the alternate spread in BHI) should be enjoying a relatively favorable month, based on potential profits of roughly $1800 against a collateral requirement of approximately $25K. In fact, most of these subscribers may be content to simply wait for the May options expiration (and the end of the quarterly earnings season) before initiating any new plays. However, there are a number of traders who need additional positions to offset the current losses and we will be searching diligently for some favorable credit spread candidates over the week-end.

With regard to the existing spreads in the portfolio, Mentor (NYSE:MNT) is on the "watch" list as the issue has been trending lower since a group of women's organizations asked Congress to investigate the FDA's review of silicone-gel breast implants. Apparently, there is some concern that agency officials are under inappropriate pressure to approve the devices, even if they are not as safe as the data suggests. For now, the issue remains comfortably above the sold (put) strike at $35, but we intend to monitor its progress closely in the coming sessions. Another stock that warrants some concern is Chiron (NASDAQ:CHIR) and given the cautious outlook that was voiced by a number of analysts after the quarterly earnings report, there is certainly the possibility for additional selling pressure in the company's shares. A move below the 2005 lows (JAN/FEB) near $32.30 will likely be the first signal of an intermediate-term downtrend, thus we plan to outline some potential exit/adjustment strategies if the stock approaches that price on a closing basis.

MCM Staff

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