April 20, 2023
April Expiration and Earnings Winners on Watch
Tomorrow is the expiration of our FTI and CLF covered call positions. Here is where we stand with each …
FTI is trading at 13.40, which is $0.60 below our short strike price.
Unless the stock rallies above that 14 strike that we sold for $1.02, that call will expire worthless tomorrow afternoon, leaving us simply with our stock position (totally fine scenario).
If that is the case and the call expires worthless (likely), come Monday morning I will need to make the decision whether to sell a May call to further lower our cost basis, or sell the stock out and walk away with our profit.
Our CLF trade is going to be a bit more interesting, as the stock has bounced above and below our short 17 strike many times today.
Essentially, we are going to play this one out, and if the stock closes below the 17 strike, the call that we sold for $0.82 will expire worthless. If the stock closes Friday above 17 we will walk away with our profit.
Stepping back, unless you hear from me, you won’t need to address either position today/tomorrow.
Moving on …
Earnings season is in the early innings, but I’m happy to report that some new buy candidates are popping up. Here are those stocks I’m watching, and their earnings gains:
JPM – 7.5%
ABT – 7.8%
DHI – 6.5% (new recent high)
LVS – 4.6% (new recent high)
I like the look of all of these stocks, and could easily see us getting involved with any or all. However, this market continues to be a sloppy mess that has essentially gone nowhere for nearly three weeks … so for now my plan is to wait for the index to break out of this maddening range.
April 17, 2023
Weekly Update
While the action under the surface was hardly encouraging, in the face of plenty of hawkish headlines from the Fed it was impressive that the S&P 500 gained 1.4%, the Dow rallied 1.44%, and the Nasdaq added 1% last week.
Stocks on Watch
The next three weeks are the true heart of earnings season and I expect our portfolio will look dramatically different as we add earnings season stars (if the market is in gear).
And on that note, I am intrigued by JPMorgan (JPM) which gained 7.5% on Friday following a big earnings beat. This was the biggest earnings move from JPM in more than 20 years! Hmmm.
And while JPM was encouraging for the bank stocks, I continue to “worry” that peers in the financial space like Charles Schwab (SCHW) have hardly bounced from their lows, and have attracted steady bearish option activity that was noted last week. (Earnings will be released this morning, and should be interesting.)
Similarly, U.S. Bancorp (USB) will report earnings on Wednesday, the stock looks suspect much like SCHW, and puts are piling up in this bank as well, including these trades from last week:
Tuesday - Buyer of 3,000 U.S. Bancorp (USB) May 35 Puts for $1.70 – Stock at 35.5
Friday - Buyer of 10,000 U.S. Bancorp (USB) May 32.5 Puts for $1.10 – Stock at 35.
This is going to be a VERY explosive earnings season, to the downside as well as the upside, for many financials as many of these stocks are down 20-40% in the last month.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 17, which is its lowest close since January 2022. Of note, via Deutsche Bank, “On Friday the VIX closed at just 17.07, its lowest level since 4th January 2022, on the same day that the S&P 500 hit its record intraday high.”
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Monday – 5
Tuesday – 5
Wednesday – 4
Thursday - 5
Friday – 5
Events for the Week to Come
Economic data releases are relatively light this week, which means traders will be focused on the first major week of earnings, with the headliners mostly from the financial space (GS, BAC, MS, AXP), though traders will also be dialed in on NFLX, TSLA, IBM.
What Traders are Saying
Last week was yet another week of choppy and sloppy action for the market, as the narrative seems to flip every single day.
What I mean is one day the mega-caps lead the market’s advance, and then the next two days those stocks turn weak, and then they rally again. This is the same price action for the industrials, semiconductors, financials, and on and on.
Not helping the uncertainty in the market is the Federal Reserve, which continues to send mostly mixed messages. For example, here are some comments from the Fed and its members last week:
Fed’s Austan Goolsbee: Right monetary policy approach calls for “prudence and patience” (dovish).
Fed’s Mary Daly: Strength of U.S. economy, elevated inflation suggests “more work to do” on rate hikes (hawkish).
FOMC Minutes: Many Fed officials lowered views of rate peak on bank strains (dovish).
Fed’s Chris Waller: Inflation still too high and my job is not done (hawkish).
Stepping back, despite the many uncertainties my plan (as always) is to own the best-looking stocks in the best-looking sectors, and I expect those emerging earnings stars will stand out in the weeks to come.
Open Positions
Long positions: BABA, BAC, CLF, DIS, FTI, JETS, IWM
Bearish Positions: SPY
Alibaba (BABA) October 105 Call – Chinese tech stocks were under pressure last week … though are bid up this morning in the pre-market. Regardless, option activity remains red hot in BABA.
Bank of America (BAC) April 36 Covered Call – BAC will report earnings tomorrow morning before the open. My tentative plan is to roll our short call today, so be on the lookout for a trade alert and the full earnings breakdown.
Cleveland-Cliffs (CLF) April 17 Covered Call - Heading into expiration this Friday CLF is $0.35 above our short strike price. This trade is working well.
Disney (DIS) September 105/130 Bull Call Spread – DIS finished last week mostly unchanged. Not much more to add.
TechnipFMC (FTI) April 14 Covered Call – FTI closed Friday $0.45 below our short strike price, which is totally fine headed into expiration this Friday.
Jets ETF (JETS) October 20 Call – The JETS ETF was down marginally last week following “meh” results from DAL and a disappointing pre-announcement from AAL. My patience with this position is starting to run thin.
Russell 2000 (IWM) August 177 Call – The IWM gained nearly 2% last week, though it continues to get whipped around by the regional banks.
S&P 500 ETF (SPY) September 400 Puts - While the S&P 500 rose 1.4% last week, there continues to be weakness under the surface of the market in many stocks and sectors. For that reason we will continue to hold our hedge.
