January 20, 2023
Cameco (CCJ) Expiration Update
After many months of selling calls against our Cameco (CCJ) stock position, I sold a call too close to the current stock price, the stock ran higher, and we are going to be taken out of our position for a small gain.
While I have debated rolling our short call, so as to keep the trade going, when stepping back, I would prefer to raise cash so that we have dry powder to buy earnings season winners in the next three weeks. For that reason, let’s move on from CCJ.
Finally, you don’t need to address your CCJ stock position, or the call, as the expiration process will take you out of both, and come Monday morning, we will no longer have a CCJ position.
January 17, 2023
Very impressively, the rally that started late in 2022 continued last week, as the S&P 500 gained 2.7%, the Dow rose 1.8%, and the Nasdaq tacked on another 4.5% of gains.
Maybe, just maybe, the bulls are back in charge. More on that below.
Stocks on Watch AND What Traders are Saying
This week I am combining the Stocks on Watch and What Traders are Saying sections to help explain the recent strength in the market, as well as illustrate why we bought IWM calls …
Last Thursday I decided to add a half position in the Russell 2000 (IWM) for a couple of reasons:
First, and most importantly, market conditions have been improving, and I wanted to add bullish exposure to the portfolio.
However, while I can feel the market strengthening both in the indexes and our portfolio, for better or worse, the big premium call buying in individual stocks has not been present. For example, there might be a call buy one day in PYPL, and the next day in DIS … however, there has not yet been repeated bullish option activity in any one or two particular stocks that has me excited. This has my watch list/stocks on watch virtually barren.
However, despite the lack of call buying, the market is without question strengthening below the surface, as noted by two technicians I follow:
Cabot’s Mike Cintolo: “In fact, the broad market’s strength was so eye-opening that one of two ‘granddaddy’ blastoff indicators flashed: The NYSE Advance-Decline line averaged a 2-to-1 positive reading over 10 trading days.
“Depending how you measure it (we tend to take out ‘repeat’ signals), it’s only happened a dozen or so times since 1960, with very bullish results going forward (average max gain in the S&P 500 around 25% during the following year, often with little drawdown from the signal). More important to us is that when these signals came after bear phases, they almost always led to a new bull move.”
Market technician WalterDeemer:
“The stock market generated Breakaway Momentum today for the 25th time since 1945. This is a genuine breadth thrust. It means (IMHO) we’re in a bull market. How long it lasts, and how far it carries, is something we will know only in the fullness of time.”
Will the recent market strength be the start of a new bull market? I certainly hope so.
That being said, for now, with a portfolio of nine bullish positions, I felt it was wise to start small (IWM half position), and then, should conditions continue to improve, I expect more and more stocks will attract call buying activity that will pull us into new positions, and big profits.
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 18.35, which was a multi-month low and is a very encouraging sign for the state of the market.
However, of note, because of the long holiday weekend, some of this VIX decline was “artificial” and we likely will see the VIX rise marginally early this week.
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Monday – 5
Tuesday – 5
Wednesday – 5
Thursday - 6
Friday – 5
Events for the Week to Come
After last week’s “big” economic releases, this week is a bit quieter, though there are still some potential market-moving events, including the Producer Price Index (PPI) as well as housing data on Wednesday, Thursday, and Friday.
And while the economic data releases are somewhat limited this week, earnings reports ramp up in a big way, including the following companies, led by Goldman Sachs (GS) this morning and Netflix (NFLX) on Thursday:
Long positions: BAC, XBI, GOOG, LVS, PYPL, SBUX, CCJ, PINS, VALE, IWM
Bearish Positions: SPY, BX
Bank of America (BAC) February 36 Covered Call – BAC reported earnings Friday morning that were mostly viewed as “OK”. Regardless, the stock rallied 2.2% following earnings, and our covered call is in great shape.
Blackstone (BX) March 80 Puts – Unfortunately BX gained 7% last week following an upgrade. Earnings will be released on January 26 for BX, which is one of our two bearish positions.
Biotech ETF (XBI) January 84 Call – The XBI gained 5.7% last week, which was a very positive development for our January calls. That being said, this week is expiration, so time is running out on our calls VERY fast.
Alphabet (GOOGL) February 120 Calls – GOOGL gained 5.26% last week, which is fine, but in reality we need a much bigger move higher.
Cameco (CCJ) January 24.5 Covered Call – CCJ gained 4.3% last week and is now $1 above our short strike price. Where the stock closes on Friday will determine how we will manage this position.
Las Vegas Sands (LVS) March 44/60 Bull Call Spread – LVS gained yet another 6.5% last week, and our spread is now at a potential profit of 140%.
PayPal (PYPL) March 80 Call – PYPL gained another 4% last week, and is showing some real signs of life now that the calendar has flipped to 2023.
Pinterest (PINS) March 25 Call – PINS gained 9% last week, and is now well above our 25 strike price. I continue to think PINS has the look of a leader IF the market can get in gear.
Russell 2000 (IWM) August 185 Call – As noted above, based on a strengthening market, on Thursday we bought a half position of the IWM August 185 calls for $15.625. Should the market really get in gear, I think these calls have big profit potential in 2023.
S&P 500 ETF (SPY) March 420/320 Bear Put Spread – We originally bought our SPY puts to hedge the portfolio and it’s done a good job. That being said, with SBUX and XBI expiring this week, our need for a hedge is diminishing … for now.
Starbucks (SBUX) January 85/107 Bull Call Spread – Late last week I rolled down our short call to the 107 strike, which lowered our cost basis on our trade to $4.36. We will be dancing with this position this week, headed into expiration.
Vale (VALE) June 17 Calls - VALE gained another 4.3% last week, closing at a new recent high. Our calls are now at a potential profit of 28%.