The sell-off that made our hedges so successful has hurt our other positions.
This week’s market rout was obviously due in part to fear about the spreading coronavirus and uncertainty about its economic impact. However, I’m with “Bond King” Jeffrey Gundlach in believing that Bernie Sanders’ rise in the national polls has something to do with it.
Whatever the reason, I believe there is a 50/50 chance we could see a correction of 10% or more in the broader market. And even after the spread of the virus is contained, there will be lingering worries about the Chinese economy. However, I also believe the Chinese government will pump money into its economy as fast as it can.
And assuming the virus does not become a major concern in the United States, domestic economic data and corporate earnings continue to favor the bulls. So, I expect the market to bounce back once traders feel like things are under control.
Today, I am recommending we sell a call against our uncovered CVS Health (CVS) shares and roll our Halliburton (HAL) and Nike (NKE) calls.
We are clearly going to be in these positions longer than we intended, but I am confident in our ability to manage them to get back to breakeven.
CVS Uncovered Shares
Current Stock Price: $63.06
Cost Basis: $72.85
Action: Sell to open the CVS Mar Week One (3/6) 66 Call for around $0.56
New Cost Basis: $72.29
HAL Feb Week Four (2/28) 22 Call
Current Stock Price: $18.46
Cost Basis: $23.08
- Buy to close the HAL Feb Week Four (2/28) 22 Call for around $0.02
- Sell to open the HAL Mar Week One (3/6) 20 Call for around $0.17
- Set initial credit limit at $0.15, but adjust as needed to roll today
New Cost Basis: $22.93
NKE Feb Week Four (2/28) 102 Call
Current Stock Price: $92.41
Cost Basis: $100.15
- Buy to close the NKE Feb Week Four (2/28) 102 Call for around $0.02
- Sell to open the NKE Mar Week One (3/6) 95 Call for around $0.92
- Set initial credit limit at $0.90, but adjust as needed to roll today
New Cost Basis: $99.25