July 20, 2023
July Expiration
Tomorrow (Friday) is the expiration of our BAC and CLF covered call positions. Here are my thoughts on these two trades … with the headline being I’m not yet sure how I’m going to manage these trades.
Based on the last couple days, and especially today, the banks (BAC) and commodity stocks (CLF) are starting to lead the market higher while growth stocks may be running out of power. This recent strength in these sectors has propelled both BAC and CLF stocks above our short strike prices. And if we don’t adjust these positions, and the stocks close above those strikes we will be taken out of our positions.
This could be a good move if the selling in growth stocks (QQQ’s down 1.6% today) spills over to the rest of the market.
That being said, it could be a mistake if we don’t roll out of these trades as it’s possible we are in the early innings of a bank/commodity run.
Big picture, I’m going to watch how the market closes today, and opens tomorrow, to help guide my decision on these trades. Be on the lookout for further instructions on how we will manage these trades tomorrow.
July 18, 2023
Podcast Appearance and Position Update
Before I dive into an update of two or our positions that are busting out to new recent highs, I wanted to let you know that I will be on the Cabot Street Check podcast with fellow Cabot analyst Mike Cintolo this Friday. Here is the link to the podcast channel, and buckle up, I’m guessing Mike and I will be throwing fastballs about the market and taking shots at each other:
https://www.cabotwealth.com/cabot-street-check-podcast
One more note, if you have any questions that you want Mike or myself to address on the podcast, send your emails to:
Moving on …
The market continues to rally and more and more stocks are breaking out. This includes two of our positions, IWM and UBER.
Let’s start with the IWM which is trading at 195 today, which is a level not seen since February. The ETF’s advance is a big win for our August 177 calls that were purchased for $11.34, and are now worth $19.5. Because our calls are so far in-the-money, and with just one month until expiration, I am going to set a mental stop on our calls at $15. This stop should trigger if the IWM were to fall $4 (approximately).
Next up is UBER, which is trading at 47 or higher by 4% on the day. This is the highest stock level for UBER shares since late 2021. For now, because our UBER calls expire in December and we have taken partial profits, I am not setting a mental stop on our trade.
July 17, 2023
Weekly Update
The market surged higher yet again last week, and traders are beginning to wonder if a run at new highs is in the cards in 2023. While there is a way to go until we reach those peaks, last week’s gains of 2.4% for the S&P 500, 2.3% for the Dow, and 3.32% for the Nasdaq gives the bulls hope.
Stocks on Watch
As earnings season ramps up in the days and weeks to come my plan, unless a buy opportunity is too good to pass up, is to wait for earnings season winners to emerge and then buy. That being said, if you are looking to add bullish exposure to the market, these trades from last week are interesting.
Thursday - Buyer of 6,000 Nvidia (NVDA) September 370 Calls for $90.60 – Stock at 449.
This $54 million call buy, with NVDA trading at a new high, is a big-time premium play at NVDA continuing its monster run.
Wednesday - Buyer of 6,000 Oracle (ORCL) September 120 Calls for $4.70 – Stock at 118.
ORCL, much like NVDA, has been on a monster run, though unlike NVDA has mellowed out a bit in recent weeks. I like the set-up in ORCL, and it is a top candidate for a new position should the market continue to strengthen.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 13.35, and is once again approaching its recent lows, which is a bullish sign for the market. That, along with the bullish option activity noted below, is encouraging.
Option Order Flow was very bullish this past week as my Options Barometer came in at:
Monday – 6
Tuesday – 7
Wednesday – 7
Thursday - 6
Friday – 5
Events for the Week to Come
Following several “cooler” inflation reports last week, this week will be quieter on the economic data front. Of note, Fed Funds Futures are now pricing in a 90% chance of an interest rate hike at the July 26 Federal Reserve Meeting. Though likely due to inflation fears diminishing, the odds of another hike at the September meeting have dropped to 15%.
On the earnings front, things start to ramp up this week, led by headliners Bank of America (BAC) on Tuesday and Goldman Sachs (GS), Tesla (TSLA) and Netflix (NFLX) on Wednesday.
What Traders are Saying
Last week we took partial profits in DKNG and UBER for a couple reasons …
Most importantly, I’m sticking to the system, and when our positions reach the 60-100% profit levels, I’m locking in those gains on a piece of them, and then going for the grand slam on the balance of the trade. Going forward with these trades, there is no set level at which I’m going to sell the final piece.
Second, earnings season is about to really ramp up, which means our positions, including DKNG and UBER, will be reporting earnings and moving, and I wanted to de-risk a bit as these positions are now deep in-the-money. Also, by selling another piece of these trades I can prepare to move capital into new earnings season winners.
Finally, the trading action Wednesday, Thursday and Friday morning got a bit “hot and heavy” as growth stocks went bananas to the upside. In fact, while this is hardly a scientific gauge that I trade off of, the CNN Fear & Greed Index reached “extreme greed” levels last week.
Big picture, while I think the odds favor the market continuing to rally, I am not oblivious to the risk that it also may give back those recent gains. That risk, and our trades hitting my pre-set profit levels, made these sales a no-brainer.
Open Positions
Long positions: BAC, BSX, CLF, DKNG, IWM, SHOP, UBER, XLE
Bearish Positions: QQQ
Bank of America (BAC) July 31 Covered Call – BAC gained 2% last week ahead of earnings on Tuesday. Our call sale is in good shape headed into the event.
Boston Scientific (BSX) November 55 Call – BSX gained 1.5% last week ahead of earnings in two weeks. Option activity has been fairly slow in the stock recently.
Cleveland-Cliffs (CLF) July 16 Covered Call – CLF closed the week at 16.75, which is $0.75 above our short strike price. This trade is working well headed into expiration this Friday.
DraftKings (DKNG) January 25/45 Bull Call Spread – On Thursday we locked in a profit of 117% on the second third of our position. The stock looks terrific, and was upgraded to Buy at Bank of America on profitability inflection and market share gains
In addition, on Wednesday a trader bought 6,000 September 35 Calls for $1.58 – Stock at 31.
Intel (INTC) January 34 Call – INTC gained 4% last week, though interestingly did not participate in the market’s advance on Thursday and Friday. Stepping back, the stock looks great and option activity remains strong.
Russell 2000 (IWM) August 177 Call – The IWM gained 4% last week which is a nice move for our in-the-money calls. That being said, while our position is at a profit, time is starting to become an issue for this trade.
Nasdaq ETF (QQQ) December 370 Puts – Our lone bearish position, which is a hedge against our many bullish positions, had a rough week as the Nasdaq has been on fire. That is a fine scenario as the portfolio’s stocks like DKNG, SHOP, UBER, etc., have been racing higher.
Shopify (SHOP) January 62 Call – SHOP gained 11% last week, and looks terrific. And on top of the stock strength, option activity remains red hot including:
Wednesday - Buyer of 2,100 January 95 Calls for $2.07 – Stock at 64.5.
One last note, ahead of earnings in two weeks Roth MKM noted, “Our 2Q merchant checks suggest growth acceleration from our prior survey. We continue to recommend SHOP shares with industry leading growth in the mid-20%. PT to $73.”
Uber (UBER) December 40/50 Bull Call Spread – On Friday we locked in a gain of 59% on the second third of our trade. Option activity remains red hot in UBER including these trades from Tuesday:
Buyer of 8,000 July 45 Calls for $0.85 – Stock at 44.5
Buyer of 5,000 July 45 Calls (exp. 7/28) for $1.20 – Stock at 44.5.
Energy ETF (XLE) January 85 Calls – The XLE gained 1% last week, though unfortunately gave back some of its early week’s gains after we bought calls. Big picture, I’m not worried about the index falling on Friday as money raced into growth stocks and these short-term rotations are the name of the game these days.
