The zombies struck a deal late Tuesday to avoid a government shutdown in January but the reaction may have already been priced into the market. The budget deal set spending limits for the next 2 years and replaces some automatic spending cuts but was viewed more as a “cease fire” between the zombies with the holidays coming up. We mentioned in our Weekly Wrap on Sunday night there was water-cooler talk over Thanksgiving that a deal was going to be reached because the government’s contracts were too important to miss with the start of the year rolling around.
The Bipartisan Budget Act of 2013 sets a spending level of just over $1 trillion for the zombies as they meet in the middle. The Senate’s budget was $1.058 trillion while the House budget was at $967 million. The agreement would provide over $60 billion in sequester cuts over the next 2 years and will be split evenly between defense and non-defense government programs.
Shares of MasterCard (MA, $792.96, up $29.36) are up 3% after the company announced a 10-for-1 stock split, a dividend hike, and a new $3.5 billion share buyback.
We have recommended options on MasterCard in the past when shares were south of $100 years ago and a 10-for-1 split doesn’t mean anything on paper but stocks usually do well up on the news and into the split. We talk about this in our option trading manual, How to Trade Options on Momentum Stocks.
The December 800 calls (MA131221C00800000, $7.75, up $7.12) are zooming today after closing at 63 cents yesterday and are up a sizzling 1,130%. These options have traded to a high of $11.15! This would have been a big bet to place on shares reaching $800 in 10 days and when these options expire.
The January 800 calls (MA140118C00800000, $18.00, up $12.62) are also getting a nice pop and are up 235% but as you can see, they are expensive.
We often shy away from playing options on stocks over $100 for this very reason. A 10-contract trade on the MA January 800′s would have cost roughly $5,400 going into yesterday’s close. Today, they would be worth $18,000, of course, but an option prices at $5 is 10 trades priced at 50 cents.
We like buying options under $2 as they can make just as much percentage wise with less premiums at stake.
The bears are making a little noise today and while this may be disappointing to some, our game plan is coming together perfectly. We mentioned Wall Street could get lulled to sleep this week (and next) as a pullback would have them looking forward to the holidays and New Year with no Santa rally. Remember, if there is one last push to fresh highs before yearend, it will likely coming during the last 5 trading days in 2013 and when Mr. Clause officially shows up.
We will be in PERFECT shape as we are winding down our last “batch” of trades from October and November with December options expiring next week. We do have a few newer positions we have opened for January and the pullback is giving us a great opportunity to load up on our next batch of trades.
We are proud to say we will officially be ending 2013 with strong gains for our Daily portfolio (up +250%) and our Weekly Wrap portfolio (up nearly 100%). We have recommended over 200 option trades for the year and we have a success rate of nearly 70%. This will be our sixth-straight year of making money for our subscribers as we have proved over the years we can trade in any type of market.
As we head to press, the Dow is down 102 points to 15,870 while the S&P 500 is lower by 15 points to 1,787. The Nasdaq is off 38 points to 4,021 and is below 4,025 and the Russell 2000 is getting spanked for 14 points and is crying at 1,105. The VIX is up 0.92 to 14.82 but has stayed below 15 – for now.
We do have some action to take today on the last of our December options so let’s go check things out. Subscribers, hit the Members Area for the updates.