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Cabot Options Trader Pro Weekly Update

The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 11.49, marginally higher on the week. This was interesting price action as the market was making new highs and ahead of a long weekend (would have expected new lows).

The three major indexes closed the week at or just a couple points below all-time highs on Friday, following another week of solid gains. For the week, the S&P 500 gained 1.51%, the Dow added 1.75%, and the Nasdaq rose by 1.82%.

For the bulls, it was another stellar week as the buying spree continued, pushing the S&P 500 higher for the fourth straight week. The gains were led by the financials, which posted their biggest five-day gain this year. The biotech sector also posted big gains, with the Biotechnology ETF (IBB) gaining 3.5% on the week. And continuing the trend of the last several weeks, economic data continues to shine as Jobless Claims, Retail Sales, Small Business Optimism and Philadelphia Fed Business Outlook all beat expectations.

For the bears, it was a challenging week. Selling pressure on Thursday and Friday morning was met with buyers and the indexes closed the week at or near their all-time highs. However, the bears would point out that the Small Caps (IWM) have not been nearly as strong as the other three major indexes, and sentiment is potentially getting too complacent with the VIX at 11.50. Also, as I noted on Thursday (and was subsequently written about in most major financial publications), there seemed to be an unusual bid to the market all week, as a hedge fund was forced to buy/chase S&P 500 futures higher to close an options trade gone horribly wrong.


The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 11.49, marginally higher on the week. This was interesting price action as the market was making new highs and ahead of a long weekend (would have expected new lows). However, my options scanner continues to pick up on virtually no big put buying, so this could just be a small uptick off extremely low levels in the VIX.

Events for the Week to Come

The market is closed today in celebration of Presidents Day.

Economic data releases for this week are light. The lone potential market mover is Wednesday afternoon’s release of the Federal Reserve’s Minutes from its previous meeting.

The focus of earnings season turns to the retail sector this week, with companies such as Macy’s (M), Wal-Mart (WMT), Home Depot (HD) and TJX (TJX) reporting. This year to date has seen very mixed action in the sector, with Macy’s down 10% and Home Depot up 7%.

Also this week, Tesla (TSLA) will report earnings on Wednesday after the close of trade. I will write up an earnings report for TSLA that morning.

What Traders are Saying

The option action in Colgate-Palmolive (CL) Thursday into the close had me as excited as I’ve been about a stock since our big winner in White Wave Foods (WWAV) last year. From 3:30 until 4:00, traders aggressively bought May and August calls. This followed a week of odd out-of-the money call buying. I was going to buy calls, no matter how much edge we had to give up, first thing Friday morning.

Unfortunately, news broke before the open and we missed our trade, as the stock had spiked higher by 5%.

Did I outsmart myself by waiting until Friday to buy the calls in an attempt to avoid the decay? Perhaps. Because the call buyers were targeting May and August calls, I felt no need to rush a trade on in the last 30 minutes of trade on Thursday.

This unfortunate miss reminds me of a trading quote I like when I’m upset about a trade that’s gone wrong. “Focus on whether what you are doing is right, not on the random nature of any single trade’s outcome.”

With that in mind, I will stick to my plan of waiting for the right setups and then jumping in aggressively.

Open Positions

Seven long positions: AMD, AZN, BX, KO, MSFT, SYMC and USO
Positions not impacting my decision-making: None
One short position: None

Advanced Micro Devices (AMD) Short Puts – AMD traded lower by 3.3% on the week, and many of its closest peers also traded down. Our position is still in great shape.

AstraZeneca (AZN) July 30 Calls – AZN closed Friday at its highest level since October of last year. Before the open last Friday, the company reported that a Phase III trial for a breast cancer drug met its primary endpoint, and that pushed the stock higher by 1.5%.

Blackstone (BX) Buy-Write – We adjusted our BX buy-write on Friday ahead of the long weekend. We will attempt to continue to create yields of 2% to 4% each month in the stock.

Coca-Cola (KO) May 42 Calls – KO spiked back to life on Thursday, and call buying was looking for a move higher this week and next. The company will present at a conference heavy on consumer staples this week.

Microsoft (MSFT) April Bull Call Spreads – MSFT traded higher by 1% last week, slightly underperforming the indexes. Our position is in good shape. Though I may buy back our short call and sell a new call to create even more yield against our long call.

Symantec (SYMC) April 24/29 Bull Call Spreads – SYMC underperformed the market last week, though the stock closed strong on Friday. Our calls are still in great shape.

United States Oil ETF (USO) Buy-Write – The USO continues to chop below and above our short call strike, which is perfect.