January 3, 2012 (9:30 pm)
We took a number of positions today in the Multi-Strategy Portfolio. You can think of it as a long/short fund that utilizes options to leverage potential returns on near-term opportunities.
- 10% allocation of BRK.B Mar’13 $95 puts @ $3.00
- BRK.B has been forming a well-defined rising channel for the last two months. Over the last couple of days, it gapped well above the channel and became very overbought on both the RSI and Chi-Osc. Over the coming days, it will likely at least test that upper trend line if not fill the gap. Depending on how it reacts at the trend line, we’ll decide whether or not to get out of the position there or wait for an additional decline.
- 5% allocation of HOT Feb’13 $60 puts @ $2.20
- HOT reached the upper Bollinger Band today on overbought conditions. Each time the shares reached the current RSI level over the past year, we’ve seen a near-term decline in price.
Las Vegas Sands
- 5% allocation of LVS Mar’13 $52.25 puts @ $4.35
- LVS closed above its upper Bollinger Band as it closed in overbought territory. The shares are historically volatile and its beta is far above average. Past instances where the shares traded well above the upper bband preceded short- to intermediate-term corrections.
- 10% allocation of QQQ Mar’13 $67 puts @ $1.92
- QQQ traded above its upper Bollinger Band for the past two days, and both opened and closed above it today. Similar action has typically preceded at least near-term pullbacks in the past. On the near-term, the shares are overbought. The recent gap can be viewed as an exhaustion gap on high volume. It’s important to notice that a 50% retracement of the recent rally puts us right to the gap fill line. We may see higher prices tomorrow, but should see lower prices over the next week or two.
- 5% allocation of SODA Feb’13 $47.50 puts @ $3.30
- SODA also closed above its upper bband. This happened just as it reached both RSI and Chi-Osc levels that have historically had a good record calling near-term tops.
- 5% allocation of V Mar’13 $160 puts @ $7.10
- V similarly is at an RSI level that has historically preceded near-term tops. The shares are a bit stretched here.
There are a number of other stocks that we’re watching for near-term opportunities.
BA has formed a well-defined rising wedge over the last 9 weeks. It has since seen two very minor breakouts – the first to the downside and now to the upside. Since it broke out as it entered overbought conditions, this is very likely another false move. If the shares fall back into the wedge, we’ll likely enter a bearish position.
Bank of America
BAC has been forming a very clear rising channel over the past six weeks and has climbed over 30% during that time. The shares are over stretched here. We’ll likely take a bearish position if the shares break below the channel.
YELP has formed a multi-week symmetrical triangle. It has since broken to the upside and is now forming a bull flag. If a market pullback creates an opportunity with the shares re-testing the upper trend line of the triangle, we may enter a bullish position.