Weekly Update: August 12, 2015

| August 12, 2015

Weekly Update: August 12, 2015


Big Picture Outlook:

Things are getting interesting in China…

As you may have heard, the People’s Bank of China (PBOC) shocked investors when they unexpectedly devalued their currency, the yuan, against the US Dollar earlier this week.

The surprising event not only sent the yuan swiftly lower, but sent US stocks on quite a bearish ride as well.

Why did the PBOC take such an action?

The currency move is a clear sign China’s central bank is struggling to keep economic growth alive.  The past few months we’ve seen multiple economic signs the Chinese economy is in an increasingly troubling predicament.

However, there are two ways of looking at this news…

One viewpoint is that China’s economy is in worse shape than previously thought, which will have a negative effect on commodities.  After all, if economic growth is slowing dramatically, demand for commodities will decline.

On the other hand, if the PBOC starts taking drastic action to bolster China’s economy, they may actually succeed.  A return to strong GDP growth of 8% and higher would be a great development for commodity bulls.

Only time will tell which of these scenarios prevails.

Let’s get to a few of our open positions…


Portfolio Highlights:

Editor’s Note: I won’t update every open position in every update.  I focus on the positions with significant news or price movement.

. . . . Market Vectors Junior Gold Miners $GDXJ September 18, 2015 $18 puts

Well folks, the gold relief rally I’ve been talking about in recent weeks finally took hold.  The metal is closing in on $1,125 an ounce as I write.

Unfortunately, this rally came about two weeks later than I was expecting so a fair amount of time value has evaporated from our $GDXJ puts.  What’s more, the junior gold mining ETF is closing in on our risk control line at $22.10.

Keep a close eye on $GDXJ.  If the ETF rallies above our risk control line, I recommend all traders, both conservative and aggressive, close this trade.

. . . . Southwestern Energy $SWN September 18, 2015 $21 calls

Our $SWN calls may be back in business.  With energy stocks rallying in recent days, $SWN is back above $18 a share.  Remember, $SWN traded below our risk control line at $17.23 on August 4th.  As a result, conservative investors likely dumped this trade.

If you’re aggressive and still holding these calls, I suggest you keep doing so.  $SWN is primed for a substantial rally off multi-year lows and we have ample time until our calls expire.

. . . . Oasis Petroleum $OAS September 18, 2015 $11 calls

We’re off to a great start in our $OAS call trade…

The Bakken oil producer is up nicely since last Friday as investors place their bets on a potential bottom in oil stocks.  The past few days’ rally sent our $11 calls surging to $1.65 a contract- a 135% gain in a matter of days!

Remember, when any trade achieves a 100% profit, you should always take some profits off the table- even if the first profit target has yet to be hit.

Speaking of which, our first profit target at $12 isn’t far away.  A few more strong days, and we’ll be there.  And since these calls have a September expiration, there are very good odds our second target at $15 will also be realized.

Keep holding your remaining $OAS calls for further upside!


Category: Commodity Trading