February 2, 2024
Palantir (PLTR) Earnings
Monday morning before the market open, Palantir (PLTR) will report earnings. Headed into the announcement we are holding 2/3rds of a position having taken partial profits on the first third shortly after we entered our trade.
The stock reaction to Palantir’s earnings has boom or bust written all over it. I say this because PLTR stock has high short interest, which means many traders are betting against the stock (bad), but if the earnings announcement beats expectations, those who are short could be forced to chase the stock higher to cover (good).
In addition, PLTR is an AI-related play, and in this market, if the company is delivering on its AI goals/etc., the stock could explode higher.
I’m am going to hold my position through the event as the market is strong, option activity in PLTR is bullish, but with the understanding that if PLTR stock falls, our calls will take a great deal of pain.
PLTR - With the stock trading at 16.70, the options market is pricing in a move of $2 next week, or 14.70 to the downside and 18.70 to the upside.
Open interest is skewed bullish on a ratio of 1.3:1 call vs. put.
Skew is pricing in extreme downside and upside risk.
January 31, 2024
Federal Reserve Meeting and a Sector on Watch
This afternoon at 2 p.m. Eastern the Federal Reserve will announce its stance on interest rates. While no policy change is expected, Fed Chair Powell’s news conference at 2:30 could move markets if he tips his hand on the path of future meetings (i.e., March 20 and beyond).
Of note, the options market is pricing in a potential move of less than 1% for the S&P 500 today, so in theory, this Fed event shouldn’t be a major market mover … in theory.
Moving on …
One sector that is attracting aggressive put buying today is the Regional Banks (KRE), following New York Community Bancorp’s (NYCB) earnings report that missed expectations, which sent the stock lower by nearly 40% and the KRE lower by 4%.
Following this decline in the KRE, puts are outpacing calls on a ratio of 3:1, with traders targeting the February 50.5 puts, February 50 puts, February 49 puts, as well as puts in all expiration cycles.
I have my eye on this situation as we saw in 2023 that when the Regional Banks go bad the market can get skittish in a hurry.
That being said, for now, and I mean today, I’m not too concerned as the indexes are mostly mixed despite the decline in the Regional Banks, as well as losses in market leaders such as Alphabet (GOOGL), Advanced Micro Devices (AMD),and Microsoft (MSFT).
January 29, 2024
Weekly Update
Ahead of a potential monster week for the market, with plenty of volatility, last week was fairly quiet for the indexes. The S&P 500 gained 0.7%, and the Dow and Nasdaq were mostly unchanged.
This week, on the other hand, could be a bit more dicey with a Fed meeting, the January Jobs Report and many market-leading companies reporting earnings.
Stocks on Watch
While AI and Semiconductor plays have pushed the market higher in recent weeks, and have garnered an overwhelming volume of headlines, late last week the “old blue chips” started to attract call buying activity, and made nice stock moves. First, here is some of that bullish option activity, and then more on these stocks and others.
Thursday - Buyer of 9,000 IBM (IBM) March 200 Calls for $2.50 – Stock at 191.5
Friday - Buyer of 11,000 IBM (IBM) February 190 Calls for $1.70 – Stock at 186.5
Thursday - Buyer of 5,000 Verizon (VZ) June 45 Calls for $0.90 – Stock at 42.
While it has not been “sexy” for MANY years, IBM (IBM) stock gained 10% following earnings on Thursday and is up 15% year-to-date. This stock performance as of late, and the call buying in the stock, is somewhat intriguing as IBM is likely under-owned by hedge funds and institutions after years of awful returns (think INTC early in 2023).
I’m also somewhat interested in Verizon (VZ), which very similar to IBM has been AWFUL for years, but bounced nicely on earnings last week, and attracted call buying on Thursday and Friday.
And finally, while American Express (AXP) has performed better than IBM and VZ over the past two years, big picture the stock has been mostly “meh.” However, on Friday AXP stock gained 6% following earnings, and broke above its all-time highs.
I’m interested in potentially buying any or all three of these stocks coming out of earnings.
Volatility and Events for the Week to Come
The Chicago Board of Options Exchange Volatility Index (VIX) closed last week at 13.25. I have to say the VIX closing at such low levels ahead of the Federal Reserve announcement on Wednesday (no move expected, but the indexes could still move), the Jobs Report on Friday, and 40% of the S&P 500 market cap reporting earnings throughout the week is shockingly low.
Speaking of earnings, this is the first monster week of companies reporting, including Microsoft (MSFT), Advanced Micro Devices (AMD) and Alphabet (GOOGL) on Tuesday, Apple (AAPL), Amazon (AMZN) and Meta (META) on Thursday, and MANY more throughout the week (SBUX, UPS, BA, QCOM, and on and on …).
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Monday – 6
Tuesday – 5
Wednesday – 5
Thursday - 6
Friday – 5
What Traders are Saying
As noted above, this is a MONSTER week of earnings. And because of that I thought I would share the expected dollar moves of many of these stocks this week (if you want to price these moves yourself you need to add the at-the-money calls and puts expiring the week the companies are reporting).
PFE – $1.30
GM – $1.80
UPS - $9.25
MSFT - $19
AMD - $17
GOOGL - $8.50
SBUX - $5
BA - $10
MA - $14
QCOM - $9
MRK - $3
AAPL - $7
AMZN - $11
META - $28
XOM - $3.50
ABBV - $5.75
And finally, as always if you want me to take a look at one of your stocks to price in the expected earnings move for you, don’t hesitate to email me a couple days before the company reports.
Open Positions
Celsius (CELH) July 60 Call – CELH gained 1% last week, largely in-line with the market. Of note call buyers were aggressively buying upside positions throughout the week, including:
Thursday - Buyer of 1,000 Celsius (CELH) February 56 Calls (exp. 2/2) for $0.60 – Stock at 53
Monday - Buyer of 1,000 Celsius (CELH) April 70 Calls for $1.43 – Stock at 52.5
Buyer of 3,000 Celsius (CELH) March 60 Calls for $2.83 – Stock at 53.5.
Li Auto (LI) June 40 Call – LI continues to chop around and not make any progress. The time has likely come to cut this position in half.
Marvell (MRVL) August 70 Calls – On Wednesday of last week we locked in a profit of 19% on a third of our position. While I think the stock looks terrific, and option activity remains strong (see below), I stuck to the system and took partial profits.
Friday - Buyer of 6,000 Marvell (MRVL) April 80 Calls for $2.40 – Stock at 69.
Nutanix (NTNX) April 37.5/65 Bull Call Spread – NTNX traded as high as 57.5 on Wednesday of last week before pulling back marginally on Thursday and Friday. Our position is now at a potential profit of approximately 290%.
Of note, we sold the April 65 call last week for $1.25, which lowered our cost basis on our newly formed bull call spread to $3.21.
Palantir (PLTR) April 19 Call – After PLTR traded at a recent high on Monday the stock bled back those gains for the rest of the week as the highly shorted stock group faded. Though of note, call buyers were back at it on Thursday in PLTR, including …
Thursday - Buyer of 8,000 Palantir (PLTR) March 19 Calls (exp. 3/1) for $0.75 – Stock at 16.8.
Equal Weight ETF (RSP) June 158 Calls – The RSP is once again bumping up to its multi-month high ahead of a monster week for the market (Fed and earnings bonanza).
Snap (SNAP) August 17 Calls – SNAP was down marginally last week, though it did get an upgrade on Friday from Deutsche Bank citing Snapchat+ creating incremental revenue, the advertising platform rebuild yielding strong performance results and driving growing advertiser adoption, and the Amazon partnership.
Also, call buyers continue to buy upside plays, including:
Wednesday - Buyer of 3,000 Snap (SNAP) March 18 Calls for $1.30 – Stock at 16.5
Buyer of 3,500 Snap (SNAP) February 19.5 Calls for $0.75 – Stock at 16.6
Tuesday - Buyer of 2,300 Snap (SNAP) January 20 Calls (exp. 2025) for $2.83 – Stock at 16.2.
TJX (TJX) April 92.5 Calls – TJX was higher by 1% last week and closed at a new 52-week high. Not much more to add as the stock looks great, though in fairness a quicker move to 100 or above would be terrific.
Financials ETF (XLF) March 33 Put – Our XLF puts are essentially a “back pocket” hedge against a steep market decline at this point.
Copyright © 2024. All rights reserved. Copying or electronic transmission of this information without permission is a violation of copyright law. For the protection of our subscribers, copyright violations will result in immediate termination of all subscriptions without refund. Disclosures: Cabot Wealth Network exists to serve you, our readers. We derive 100% of our revenue, or close to it, from selling subscriptions to our publications. Neither Cabot Wealth Network nor our employees are compensated in any way by the companies whose stocks we recommend or providers of associated financial services. Employees of Cabot Wealth Network may own some of the stocks recommended by our advisory services. Disclaimer: Sources of information are believed to be reliable but they are not guaranteed to be complete or error-free. Recommendations, opinions or suggestions are given with the understanding that subscribers acting on information assume all risks involved. Buy/Sell Recommendations: are made in regular issues, updates, or alerts by email and on the private subscriber website. Subscribers agree to adhere to all terms and conditions which can be found on CabotWealth.com and are subject to change. Violations will result in termination of all subscriptions without refund in addition to any civil and criminal penalties available under the law.
