August 4, 2023
Stocks on Watch (FLR) and Position Update (DKNG)
Earnings season continues to be a minefield. Take a wrong step and your stock will blow up (FTNT/SQ/RMD today). However, if you get through the battlefield, great success awaits you. Which brings me to two stocks …
Let’s start with our position in DKNG as the stock is trading higher by 7% today following a big earnings beat. As you might imagine, I am going to continue to hold our position as the stock looks terrific and option activity remains very strong.
Another earnings season winner that I have my eye on for a potential next position is Fluor (FLR) which announced a monster earnings beat this morning, and in reaction the stock is trading higher by 16%. And into this big stock move a trader rolled out of a successful August trade into a September call buy looking for a continued move higher. Here is that trade:
Buyer of 5,500 Fluor (FLR) September 37.5 Calls for $1.10 – Stock at 36 (rolled out of 3,000 August 32.5 calls).
I’m definitely intrigued by FLR’s stock reaction to earnings, as well as the bullish option activity.
August 4, 2023
DraftKings (DKNG) Earnings
DraftKings (DKNG) will report earnings today after the close. Headed into the announcement, the stock has pulled back a couple percent along with the market in the last couple of days.
I am going to hold my position through the earnings announcement as we have partial profits in the bank, and the stock looks pretty good.
That being said, as I noted yesterday, earnings season has been a total minefield. And because of that, if you would prefer to lower your risk you must sell to close your position before the end of the trading day today.
DKNG - With the stock trading at 30, the options market is pricing in a move of $4 this week, or 26 to the downside and 34 to the upside.
Open interest is skewed bullish on a ratio of 1.1:1 call vs. put.
Skew is pricing in typical downside fear and upside interest.
August 2, 2023
Shopify (SHOP) Earnings
The market is trading lower this morning after ratings agency Fitch downgraded the long-term rating for the U.S. from AAA to AA+. Or, it’s also possible that the market is weak today because it was simply due for a breather after a big run higher.
This afternoon, after the close, Shopify (SHOP) will report earnings. I think the stock looks pretty good headed into the announcement; option activity remains strong, and because we have partial profits, I am going to take the earnings risk.
That being said, there is no question there is risk. What I mean is I don’t love the way strong stock performers have reacted to earnings in the last two weeks. Essentially, these stocks run into earnings, report strong results, and the stocks fall. Think MSFT/NFLX/DV/RMBS and countless more.
As noted below, the options market is pricing in a big move for SHOP on earnings. This should be interesting …
SHOP - With the stock trading at 63, the options market is pricing in a move of $8 this week, or 55 to the downside and 71 to the upside.
Open interest is split evenly call vs. put.
Skew is pricing in extreme downside and upside risk.
July 31, 2023
BIG Trade – META
Below is the biggest trade I’ve seen in the options market in years. Here are the details from a trade executed just minutes ago:
Buyer of 55,000 Meta (META) November 270 Calls for $65 – Stock at 323 (rolled from August calls)
The trader who bought these META calls risked $357 million on this trade.
The last time we saw a trade this large in terms of dollars risked was when Softbank aggressively bought calls in leading tech stocks several years ago (which if you remember turned out to be a big misfire).
This should be interesting!
July 31, 2023
Uber Earnings (UBER)
Uber (UBER) will report earnings tomorrow morning before the market open. Headed into the event, we are holding a deep in-the-money Call for Cabot Options Traders and a deep in-the-money Bull Call Spread for Cabot Options Trader Pro. Both trades are working very well.
I am going to hold the remaining third of my position through earnings as the stock looks great, and we have nice profits in the bank on two partial sales.
That being said, there is no question there is risk headed into the event. What I mean is UBER stock has been on a big run, and similar stocks that have run into earnings (NFLX/TSLA/etc.) have sold off following the earnings release.
Because of that risk, if you would prefer to lock in your gains, you must sell before the close of trade today.
UBER - With the stock trading at 48.5, the options market is pricing in a move of $4 this week, or 44.5 to the downside and 52.5 to the upside.
Open interest is skewed bullish on a ratio of 1.2:1 call vs. put.
Skew is pricing in typical downside risks and upside interest.
July 31, 2023
Weekly Update
As earnings season approaches the midway point, and following the Federal Reserve’s announcement of a 25-basis point interest rate hike last week, the market continued its ascent. For the week the S&P 500 gained 1%, the Dow rose by 0.65% and the Nasdaq added 2%.
Stocks on Watch
When looking at the portfolio, this is how I would break down our holdings:
Growth – UBER, SHOP, DKNG, INTC (kind of)
Commodities – CLF, XLE, FCX
Med-tech – BSX
General Market – IWM
With this in mind, and in attempt to keep the portfolio somewhat diversified, I am intrigued by Consumer Staple play Keurig Dr. Pepper (KDP) which gained 4% last week following earnings, and has attracted large call buying activity including this large buy last week:
Buyer of 25,000 Keurig Dr. Pepper (KDP) September 34 Calls for $0.55 – Stock at 32.5.
KDP isn’t likely going to be the fastest rising stock, but maybe that is what the portfolio needs now … maybe.
Another not-the-fastest-horse-in-the-race stock that hit my radar following several large call buys last week is Medtronic (MDT). Here are those trades:
Wednesday - Buyer of 17,000 Medtronic (MDT) September 95 Calls for $0.80 – Stock at 90
Wednesday - Buyer of 23,000 Medtronic (MDT) October 95 Calls for $1.60 – Stock at 90
Thursday - Buyer of 2,000 Medtronic (MDT) September 95 Calls for $1.20 – Stock at 90.
MDT stock looks ok, though it has mostly chopped around with its med-tech peers. That being said, the large out-of-the-money call buying above is intriguing.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 13.33, which is again approaching the lower end of its recent range.
Of note, Bank of America’s Equities Volatility Insights report noted last week regarding the VIX and the price of options, “Since our data began in 2008, it has never cost less to protect against an S&P drawdown in the next 12 months, as high rates align with low implied vol and correlation to offer a historic entry point for hedges.” (Translation: The price of puts to protect a portfolio are historically cheap.)
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Monday – 5
Tuesday – 5
Wednesday – 7
Thursday - 5
Friday – 6
Events for the Week to Come
The headliner of the week in terms of economic data reports is the July Jobs Report on Friday.
And while the Jobs Report is always interesting, earnings season will take center stage for traders as 25% of the S&P 500 will report this week, including AMZN, AAPL, AMD, SHOP, UBER, QCOM, CAT.
What Traders are Saying
Trying to time a buy on a stock that has been unloved for years can be tough. Take, for example, Intel (INTC) …
While the Semiconductor ETF (SMH) has risen nearly 200% the past five years, INTC is lower by 23%. Essentially, unless you bought INTC in early 2023, or bought and sold the stock perfectly on short time frames, any stock purchase for the past five years would have been a loser.
Other such stock losers that one would think would have worked the past five years while the S&P 500 rallied by 65% are:
VZ – Lower by 34%
T – Down 38%
DIS – Lower by 23%
MMM – Down 46%
BA – Lost 34%.
And while timing the bottom is tough, as buys of these stocks the past five years would have mostly failed, IF you catch an INTC that may be finally re-awakening, like we did for Cabot Options Trader, or BA, which was a big winner for the Jacob’s Private Circle portfolio last week, IF these stocks re-emerge our positions could potentially be monster winners as investors race to get back involved.
As always, I will let option activity, which brought us into these two trades, dictate how we will manage these positions going forward.
Open Positions
Long positions: BSX, CLF, DKNG, FCX, IWM, SHOP, UBER, XLE
Bearish Positions: QQQ
Boston Scientific (BSX) November 55 Call – BSX is testing my patience as the stock mostly chopped around last week. This position may be sold soon if I don’t see signs of life.
Cleveland-Cliffs (CLF) August 16 Covered Call – CLF gained 7% last week and looks solid. Our trade is working well.
DraftKings (DKNG) January 25/45 Bull Call Spread – DKNG tacked on another 4.2% of gains last week. Our position is now at a potential profit of 130% ahead of earnings on Thursday.
Freeport McMoRan (FCX) January 44 Calls – On Tuesday of last week we added FCX to the portfolio following several days of bullish option activity. In the days that followed FCX drifted slightly lower as money raced into other sectors, which plays into the “rolling bull market” theory I’ve written about recently.
Intel (INTC) January 34 Call – On Friday, after INTC stock rallied on earnings we sold a third of our calls for a profit of 33.68%. We will go for the home run on the balance of this trade, especially as traders loaded up on more and more bullish positions Friday afternoon, including:
Buyer of 10,000 Intel (INTC) January 29 Calls for $8.75 – Stock at 36.5
Buyer of 8,500 Intel (INTC) September 39 Calls for $0.70 – Stock at 36.25.
Russell 2000 (IWM) August 177/203 Bull Call Spread – The IWM gained 1.8% last week and our adjusted bull call spread is now at a potential profit of 96%.
Nasdaq ETF (QQQ) December 370 Puts – The QQQs sold off hard on Thursday and I was thankful we owned our puts. Fast forward 24 hours later and the QQQs rebounded sharply, and those puts came under pressure again. Such is the daily rotation of this market.
Shopify (SHOP) January 62/90 Bull Call Spread – SHOP gained 2% last week and looks pretty good headed into earnings on Wednesday. Our position is in good shape headed into the announcement.
Uber (UBER) December 40/50 Bull Call Spread - UBER gained 2% last week and our trade is now at a potential profit of 85%. UBER will report earnings tomorrow before the market open.
Energy ETF (XLE) January 85 Calls – The XLE gained 1% last week and we took advantage of the early week strength to lock in a profit of 19.45% on our calls. This trade is working well.
