I hope everyone enjoyed their Father’s Day weekend as much as I did. I road tripped with my favorite girls to Green Bay Wisconsin as this was my request for my day. The desire to travel 200 miles north of Chicago had nothing to do with some sort of mecca to pay tribute to the Packers. No, my favorite roller coaster from my youth in Memphis,TN is now located in Green Bay. The Zippin Pippin, was relocated to Bay Beach Amusement Park and resumed operation a few weeks ago. My father’s day wish was to share a piece of my youth with my girls before they are too old to gripe about it and that wish was fulfilled.
Enough with the fun weekend stuff, back to business…
The show started out talking about the oil market and the price correction that has occurred in the oil market. The drop in the price was tied to slow economic growth forecasts. Slower growth will result in lower demand for oil. The interesting aspect to this drop in oil is the corresponding strength in stocks last week as the S&P 500 broke a six week losing streak. Time will tell which market is getting it right at the moment.
The first stock discussed was Chevron (CVX) which, needless to say, is tied directly to the energy markets. CVX has been testing old highs despite the weakness in oil prices. The feeling is the stock has held up and may be primed for a break out. Based on this analysis, the recommendation is a cash-secured put on CVX. Selling the September 97.50 Put would take in about 4.50 and obligate a trader to purchase the shares at 97.50 between now and the third week in September. CVX closed Friday at 99.17.
The next recommendation relates to the social media space where LinkedIn (LNKD) and Pandora Media (P) have recently become public companies. The price reaction from both of these stocks has been lukewarm since their first days as public companies. The trading recommendation was based on continued weakness from social media stocks. The suggested trade was a put spread on LNKD using August option contracts. The spread involves buying the Aug 70 Put for 11.40 and selling Aug 55 Put for 7.40. The net result is a debit of 7.00 and a break-even level is 63.00. LNKD closed 65.53 Friday so a drop of about 2.50 between now and August expiration is needed to start realizing a profit on this trade. The maximum potential profit from this vertical spread would be realized with shares at 55.00 or lower and a profit of 8.00.
The Striking Price column focuses in on the macro-economic environment as influenced by the continuing saga known as Greece. Although the stock market was stronger last week, it was noted the trend has not turned positive. Focusing on handful of broad based equity market related exchange traded funds, it was noted they are all slightly below their 200 day moving average. Closing above the 200 day moving average for the IWN, EFA, EEM, and SPY exchange traded funds may be a glimmer of hope for bulls on the markets. A lower close could indicate that the bears are still in charge and the market is not quite out of the woods yet.