Weekend Review

Barron’s –

The cover sums up what the big focus is for the markets, the fiscal cliff and an excellent article sums up how we got where we are relative to the government’s financial situations. Basically if some sort of agreement is not reached in Washington the result is a combination of tax increases and spending cuts that kick in on January 1, 2013. 

The Striking Price column focuses on discusses focusing on purchasing stocks that have strong financials and lists companies that showed good results in the most recent quarter. It was notes that as of late last week only 36 of the 330 companies in the S&P 500 that have reported earnings had solid results that It is a pretty extensive list of stocks, but definitely worth checking out if you are considering using the recent market weakness as a long buying opportunity.

Options Action –

The guys start out with discussing the negative that is in the past – recent earnings results and the negative on the horizon – the fiscal cliff. The feeling is more downside in the market is on the horizon even with Friday’s slightly up day in the market. It was also mentioned that VIX futures pricing is a good measure of the concern about the fiscal cliff through focusing on January and February pricing.

The first trade was on American Express (AXP – 55.83) which is described as a proxy for the high end consumer in addition to being a financial stock. Both of these references (consumer and financial) means downside risk in the near term and the recommendation is a bearish one. Looking out to January 2013 the trade is a puts spread buying an AXP Jan 55 Put for 1.80 and selling a Jan 50 Put for 0.55 with a net cost of 1.25. The idea here is a 10% plus drop for AXP into January expiration which would result in a profit of 3.75.

The other trade thrown out there was on a place this suburban man spends too much time, Home Depot (HD – 60.96).  This is another bearish spread and again looking out to January. The trade buys the HD Jan 57.50 Put at and sells a HD Jan 55 Put at .70 for a net cost of 0.50 and a potential profit of 2.00. A couple of arguments for this one are the stock being ahead of itself and overvalued.