February 23, 2024
Li Auto (LI) Earnings
Li Auto (LI) will report earnings Monday morning before the market open. Headed into the announcement we are holding half of a position.
I am going to hold my position through the earnings event as the stock has been shaping up in recent weeks even as China-related stocks have been “meh” at best.
And while I am going to hold my calls through the announcement, there is risk as a fall by the stock back below 30 would hurt our calls quite a bit. If you would prefer to not take that risk, you must Sell to Close before the end of the trading day today.
LI - With the stock trading at 35, the options market is pricing in a move of $3 next week, or 32 to the downside and 38 to the upside.
Open interest is skewed bullish on a ratio of 1.3:1 call vs. put.
Skew is pricing in typical downside risk and upside interest.
February 21, 2024
Nvidia (NVDA) Earnings
Today is the “big” day when it comes to AI and semiconductors as Nvidia (NVDA) will report earnings after the close.
Because this earnings report is being viewed by most traders as a “boom or bust” moment for the AI story, I thought I would share with you what the options market is pricing in for the event.
First off, options prices headed into earnings are off-the-charts expensive. This isn’t surprising as NVDA moved more than 15% on earnings twice last year.
Here are some examples of expensive call options, with the stock trading at 682 …
February 1,000 calls expiring this Friday are worth $1 (would need a $319 move higher to break even)
August 690 calls are trading for $92 (this is the way I would play NVDA if I were bullish … I am not executing this trade)
What is somewhat interesting about this NVDA earnings report that I am seeing in the options market is that calls are in MUCH greater demand than puts in terms of pricing. What I mean is typically puts are more expensive than calls, but because of NVDA’s recent history of big stock moves higher, calls are much more expensive than puts.
Now what makes trading NVDA earnings difficult if you are an options buyer is if the stock doesn’t make a big move in your desired direction, the options listed above, and all options, will get killed as volatility drops post earnings.
Stepping back, I’m “rooting” for NVDA to blow out earnings, the stock to race higher, and stocks like TSM/MRVL/NTNX that are in our portfolio and AI-related plays to move higher with it.
That being said, this NVDA earnings feel like a total toss-up, and I am not going to get directly involved and will watch from the sidelines with our second-level exposure.
NVDA - With the stock trading at 682, the options market is pricing in a move of $70 this week, or 612 to the downside and 752 to the upside.
Open interest is skewed slightly bullish on a ratio of 1.2:1 call vs. put.
Skew is pricing in extreme downside risk and upside interest.
February 20, 2024
Weekly Update
As traders grappled with the moves in the bond market (expectations of rate cuts coming soon have faded), the market moved violently day-to-day, though big picture the indexes were mixed. By week’s end the S&P 500 had fallen 0.35%, the Dow was mostly unchanged, and the Nasdaq had lost 1%.
Stocks on Watch
While option activity has largely been bullish in leading stocks the last couple of weeks, that call buying in AMZN/NVDA/AAPL, etc., cooled off last week and action moved to “second tier” types of stocks. Here are some examples of such call buying:
Robinhood (HOOD) has been a total train wreck of a stock in recent years as the company was accused by regulators and traders of some not-so-fair practices. However, it appears the company has shed those concerns in the last year, and the stock exploded higher on earnings last week, and in the days that followed call buyers very aggressively added bullish positions, including:
Wednesday – Buyer of 30,000 Robinhood (HOOD) May 14 Calls for $1.15 – Stock at 13
Wednesday – Buyer of 5,000 Robinhood (HOOD) June 15 Calls for $1.15 – Stock at 13.25
Friday – Buyer of 4,000 Robinhood (HOOD) May 14 Calls for $1.48 – Stock at 13.75
Friday – Buyer of 3,000 Robinhood (HOOD) June 15 Calls for $1.30 – Stock at 13.75.
I’m intrigued by HOOD and the stock is definitely on my watch list.
Next up is Novo Nordisk (NVO), which I’ve written about several times, and which I should have bought. Regardless, on Friday traders continued to buy calls looking for the stock to move higher this year, including:
Friday – Buyer of 1,200 Novo Nordisk (NVO) July 140 Calls for $4.60 – Stock at 124
Buyer of 3,000 Novo Nordisk (NVO) April 125 Calls for $5.50 – Stock at 124.
And finally, somewhat quietly General Electric (GE) has become a stock star once again as the stock is up 80% in the last year, and late last week a trader bought a large call position looking for further gains. Here is that trade:
Thursday – Buyer of 5,000 General Electric (GE) April 155 Calls for $3.75 – Stock at 148.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 14.25, or marginally higher on the week.
Of note, with the VIX at 14.25, and the market starting to have more and more wild days (the IWM moved between 1-3% every day last week), I’m giving more thought to adding a SPY/QQQ/IWM put to the portfolio just in case the market is getting closer to a decline. Maybe …
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Monday – 5
Tuesday – 6
Wednesday – 5
Thursday - 6
Friday – 5
Events for the Week to Come
Economic data releases will be fairly uneventful this week, with the release of the Federal Reserve’s Minutes from its prior meeting likely garnering most of traders’ attention.
In terms of earnings, while Retailers Wal-Mart (WMT) and Home Depot (HD) are interesting, the big event of the week will be Nvidia (NVDA) on Wednesday after the market close.
What Traders are Saying
Calling a top in an emerging technology or trend is virtually impossible. That being said, maybe, possibly, we saw a short-term top in AI on Friday. This is what I mean …
While Nvidia (NVDA) gets most of the headlines as the leader of the AI boom, Super Micro Computer (SMCI) may be the second most followed AI beneficiary. In fact, the stock started 2023 trading around 80, and very impressively rallied as high as 350 last year. Nice year for SMCI. However, that was nothing …
SMCI started 2024 trading at 284, soon after upped guidance, and in reaction the stock EXPLODED higher, trading as high as 1,077 on Friday! Just an INSANE run.
However, on Friday as the stock was on one of its seemingly daily stock runs, the sellers finally stepped in, driving SMCI from a high of 1,077 to a close at 803. Yeesh!
So, was that nasty SMCI stock reversal the top? Only time will tell. That being said, it wouldn’t shock me if AI-related plays cool off or chop around in the short term … though of note, the reaction to Nvidia’s earnings on Wednesday will also be a great tell on where AI stocks are going in the short term.
Open Positions
Celsius (CELH) July 60 Call – On Friday we sold a third of our CELH calls for a profit of 21.42%. And while I think the stock looks great, as always, I stick to the system first and foremost, which meant it was time to ring the register on a piece of our position.
Ford (F) February 12 Covered Call – As I had expected, and wrote about on Wednesday, the F February 12 call that we sold was exercised by the owner of the call so he/she could collect the dividend.
That means that our position was closed for a quick profit of 3.35%. This trade worked perfectly.
Li Auto (LI) June 40 Call – LI continued its slow ascent again this past week, which is good. Though to be fair, we need the stock to rip higher for our calls to really gain traction again.
Marvell (MRVL) August 70 Calls – It’s becoming increasingly clear that MRVL stock is moving with the AI stocks, which means there are plenty of ups and downs. Regardless of that, options players continue to buy calls no matter where MRVL stock is at on a given day.
I would expect MRVL will move with NVDA on Wednesday.
Nutanix (NTNX) April 37.5/65 Bull Call Spread – NTNX closed at yet another new high and our trade is in outstanding shape at a potential profit of approximately 370%.
The company will report earnings on February 28.
Palantir (PLTR) April 19 Call – On Tuesday of last week we locked in a gain of 90% on a third of our PLTR calls as the volatility in AI-related plays became slightly concerning, and I wanted to play it “safe” with our wild position.
And while we locked in some profits, I still have high hopes for PLTR trading higher in the months to come.
Equal Weight ETF (RSP) June 158 Calls – The RSP busted out to a new high last week as money in the short term at least rotated out of the hyper-growth stocks, and into the “rest of the market.” This is a good situation for our calls.
Snap (SNAP) August 17 Calls – SNAP continued to move in a range between 11 and 12 last week. I am likely going to sell a piece of our position this week and move this capital into fresher ideas … or at least that is my tentative plan.
TJX (TJX) April 92.5 Calls – TJX was steady yet again last week ahead of earnings on February 28. Not much more to add other than this trade is working well and the stock looks great.
Taiwan Semiconductor (TSM) September 130 Calls – TSM is the newest addition to the portfolio following a strong earnings reaction and very bullish option activity that continued through last week, including:
Thursday - Buyer of 3,000 Taiwan Semiconductor (TSM) March 135 Calls (exp. 3/1) for $2.57 – Stock at 130
Buyer of 4,000 Taiwan Semiconductor (TSM) March 140 Calls for $2.10 – Stock at 130.5.
Financials ETF (XLF) March 33 Put – Our XLF puts are essentially a “back pocket” hedge against a steep market decline at this point.
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