MorningWord 7/2/14: Spinning Tops

by Dan July 2, 2014 9:35 am • Commentary

In case you missed it, and you probably did, as Fast Money last night went head to head with the U.S. Soccer’s game against Belgium, we had a discussion of what to buy with equities at new all-time highs.  Watch here for my response:

Ok, so you get the point – I don’t think people should be committing fresh capital to new equity longs, especially those of stocks that have rallied significantly in the last year and sport higher than average earnings multiples.  So for me, If I am forced to make narrow choices at these levels, I would look to play some laggards, like GE, CSCO or even PCLN (and we have, see our recent trades here, here and here).  Do I want to be long them? NO.  Am I happy to have some long exposure by way of calls, call spreads, or calendars? Sure. Defining my risk with new bullish views sounds like a decent plan from a risk management point of view.

Our general Modus Operandi here at RiskReversal is to find good risk/reward opportunities in single stock situations that can be expressed through favorable options structures.  That becomes more difficult when the general market trend is a slow grind higher, with slight gains on the way up, but at the risk of nasty, sharp losses on any given pullback (see late Jan / early Feb), especially since the market is probably due for a pullback at some point in the coming months given the uninterrupted uptrend of the past 2 years.

So, we have tried to avoid situations where the trade’s fortunes rest solely on whether the market goes up or down from here.  Rather, we’re focused on individual names with potential catalysts, good technical setups, reasonable fundamentals and attractive options pricing.  We’ll continue to focus on that, whether stocks are at all-time highs or in the midst of a nasty correction, and all the points in between.