February 3, 2025
Weekly Update
The AI theme came under heavy pressure Monday of last week, which weighed on the markets. However, by week’s end the bulls had bought the dip and impressively the S&P 500 had fallen only marginally, the Dow had eked out a small gain, while the Nasdaq “only” lost 1.5%.
Stocks on Watch
As I noted in an update late last week, I have a small but growing list of earnings winners that I have interest in adding to the portfolio. Here are those stocks:
SBUX
IBM
ABT
GE
I expect that list will continue to grow in size as earnings season really ramps up the next three weeks.
And on that note, we have plenty of dry powder to buy as we have largely stayed on the sidelines through January with new buys as the market has been moving violently day-to-day, but net/net has made little progress to start 2025 (and really since late 2024).
Should the market get in gear next week, I would anticipate adding one to three positions to the portfolio … IF the market is in gear.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 16.5, which is marginally higher on the week, but remains mostly subdued. Of greater interest to me is option activity from last week, which was very bullish Tuesday and Thursday (as noted below).
Monday – 5
Tuesday – 7
Wednesday – 5
Thursday - 7
Friday – 5
Events for the Week to Come
The most anticipated event for the week will be the release of the January Jobs Report on Friday. After that, it’s an earnings bonanza led by PLTR, AMD, AMZN, GOOGL, UBER, QCOM, SPOT and soooo many more as noted below.
What Traders are Saying
If last week wasn’t the perfect illustration of why taking partial profits is sometimes the right move, I don’t know what is.
Take, for example, GLW and MRVL, two AI-related plays that looked GREAT and had been attracting very bullish option activity. And while I was bullish on both stocks, I wasn’t so sure that they were going to continue to trade higher that I was going to break my profit taking rules. For that reason, we sold pieces of each position two weeks ago.
Fast forward to Monday morning and anything tied to AI was destroyed by the release of DeepSeek from China. As I often say, it’s not the known worry that hits stocks and the market the hardest, it’s the unknown. And in this case, seemingly out of nowhere the AI spending story came into question.
Fast forward again to Friday and we re-bought a piece of our MRVL position that we had sold previously. So why buy that call back when the stock was trading at 114 rather than when it was trading at 100 earlier in the week?
To be honest, yes, it would have been masterful to buy the call back when the stock was trading at 100, but in that moment the stock looked very questionable and option activity was mixed. And to be frank, I’ve never been a trader who aggressively tried to buy the bottom tick in a stock. Instead, I like to buy when the stock is firming up and when option activity is overwhelmingly bullish.
Stepping back to the profit-taking point … sometimes taking partial profits is a terrible mistake (initial PLTR and HOOD sales last year for example), and other times (last week) it helps you ride out rocky stock and market moves with better mental clarity.
Open Positions
Corning (GLW) May 47 Calls – Much like most of the AI-themed stocks GLW had a wild week. And while there were some ups and downs, GLW closed the week nicely and looks good. Of note, on Friday a trader executed this call roll:
Thursday: Buyer of 5,000 Corning (GLW) March 50 Calls for $1.94 – Stock at 50 (rolled from February calls).
Marvell (MRVL) June 115 Calls – On Friday we re-bought the piece of our June 115 calls that we had sold the previous week for $20.15 for $15.95 as option activity had really heated up in the stock including these buys:
Friday - Buyer of 2,000 Marvell (MRVL) March 115 Calls for $10.40 – Stock at 115
Tuesday - Buyer of 7,000 Marvell (MRVL) April 130 Calls for $3 – Stock at 104 (rolled back from April 150 calls).
Occidental Petroleum (OXY) March 52.5 Calls – OXY and other oil stocks have completely given up their momentum from weeks ago. The company will report earnings in mid-February which will be the last known catalyst while we are holding our position.
Rocket (RKT) March 20 Calls – Like I said recently, it will take a “miracle” for RKT to get back above 20.
Financials ETF (XLF) June 50 Calls – The Financials look spectacular amidst a choppy market as the XLF broke out to a new high on Thursday and Friday of last week. Also, option activity remains very strong including this trade from Wednesday:
Wednesday - Buyer of 12,000 Financials ETF (XLF) April 54 Calls for $0.60 – Stock at 51.7.
Jets ETF (JETS) January 26 Calls (exp. 2026) – The JETS ETF was mostly unchanged last week. Not much more to add, other than the sector still looks good.
Sofi (SOFI) July 16 Calls – SOFI fell on earnings Monday morning, though the decline was hardly a disaster. And of note, if I were to get involved with a SOFI trade today, I would buy the exact calls we are holding which tells me for now at least we will remain in this trade.
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