The market went on a wild ride today, opening lower in the morning before reversing its trend, and then moving back to the downside to close at the day’s lows. This was due in part to the continued fall in oil prices and fears of lower energy costs, as well as Russia’s troubling economy and anxiety ahead of the Federal Reserve’s announcement tomorrow. Our call positions have weakened amid the market volatility, and I wanted to share my updated thinking on each open trade.
We initially opened a call position in the iShares Russell 2000 ETF (IWM) because of the little exposure it had to the oil crisis, although it appears to have been dragged into the oil concerns anyways. While the stock did trade well midday, the rug was pulled out from under it when the market turned sharply lower in the late afternoon. While we may not get the bounce I was expecting, I am still watching the position closely for the best exit point. For now, continue to hold the IWM December $116 calls and I’ll be in touch when it’s time for us to make a move.
Bank of America (BAC) actually traded well today, breaking above $17. However, the stock was also hurt by the broader market weakness and pulled back with the financial sector. I believe the market reaction after the Fed meeting tomorrow will be key here, and I wouldn’t be surprised to see the market bounce after, lifting BAC with it. I am still positive on the name, and with another week until expiration, I want to give our call position a little more time to play out. Continue to hold the BAC December $16.50 calls.
Alibaba (BABA) held up relatively well despite the NASDAQ sell-off. While the option is down, it is important to keep in mind that this is a volatile name, and we’ve seen big swings in the stock before. I still expect BABA to be a candidate for year-end buying, which should lift the shares and our call position. For now, keep holding the BABA December $100 calls.
The market is in historically oversold territory right now, and I don’t expect it will take much to get the stocks rallying again. In addition, I believe the Fed will not want to spook the market and cause anymore panicked selling, so the meeting tomorrow could be a positive turning point for the Street. We will not be trading ahead of the meeting tomorrow, as we could see some additional volatility. I’ll be watching to see how the market reacts following the Fed’s announcement, and will be in touch if there’s a trade I want us to jump on.
Given the volatile trading environment, we’ll continue to be selective and not have too many names on our Buy List to limit our risk. I’ll also be looking for deeply oversold stocks that we could get bounces in. Lastly, I don’t expect us to trade puts right now, given the recent action we’ve seen in the stocks. It’s best to stay focused on trends and stocks that are primed for a bounce rather than shooting in the dark.
I’ll be watching the market action closely tomorrow, and will be in touch right away when it’s time to take action. In the meantime, I recommend continuing to hold the positions for now, even if the underlying stocks open lower, as I expect we’ll see some real movement after the Fed minutes are released.