Trade Alert: Time to Preserve Capital

Although the S&P 500 finished 2015 in the red for the year, our portfolio did the opposite.

Including our 10 triple-digit winners, we ended 2015 with an average return of 23%, easily trumping the loss in the broader markets.

And that loss for the markets has continued into the new year. Volatility swept through stocks this Monday, the first trading day of the year. It caused our protective stop-loss on Carnival to be triggered, handing us a 76% gain on the second half of our trade. Since we closed out the first half for a 51.6% gain in early December, we made an average gain of 63.8% on this one.

If your orders were not triggered, close the position at the market today.

A 76% gain is a nice way to kick off the year, but as is often the case with being a trader — you can’t win them all. We will occasionally take a loss, which we more than offset with our triple-digit returns.

That brings me to this week’s trades. We have two options — the Columbia Sportswear (Nasdaq: COLM) $55 calls and the Kohl’s (NYSE: KSS) $45 putsthat are set to expire next Friday, and each is underwater.

Today, we’re going to close them.

Both stocks are trading about $5 away from our strike prices, meaning there would have to be a pretty big move to put these into profitable positions. I don’t see that happening in the time we have left. So instead of letting these options ride it out until expiration (as we typically do when there’s the possibility of a move), I want to close them and preserve what capital remains.

Action to take: Sell to close both positions in the COLM January 2016 $55 call option (COLM160115C00055000) at the market. At last glance, it was trading at $0.30.

Some of you may have two positions in Columbia, since we doubled down on the company back in early November. If you do, close them both. The stock has climbed more than 13% since mid-December, showing its winter uptrend is still intact, but it’s too little, too late.

As for Kohl’s…

Action to take: Sell to close the KSS January 2016 $45 put option (KSS160115P00045000) at the market. At last glance, it was trading at $0.15.

At first, Kohl’s downtrend, which lasts from November to January/February, was going our way. Our original $47.50 January puts benefited when Kohl’s shares plunged in November as a result of the dismal earnings report from fellow retailer Macy’s.

But, as Kohl’s third-quarter earnings announcement approached, we decided to put in a protective stop-loss just in case the company surprised to the upside. When Kohl’s did in fact report solid earnings, our stops were hit and we collected a 5% gain. Immediately, we jumped back in with our $45 puts to keep benefiting from the winter trend that showed signs of reemerging. Unfortunately, it never kicked back in. That’s partly because of the warmer weather that was lingering around until lately. Before the recent bout of winter storms, there was no extreme weather keeping shoppers stuck at home. So they continued to pack stores.

Since the downtrend doesn’t look like it will reappear within the next week, let’s cut our losses and move on to the next trade.

Until next time, good trading…

Jeff Opdyke
Editor, Precision Profits