June 12, 2024
Position Update – TSM and HOOD
Briefly, ahead of the Fed event later this afternoon, I wanted to update you on where we stand with two of our biggest winning trades that are breaking out to new highs today.
First let’s start with TSM, which is trading at 175 today ...
The TSM September 130 calls that we originally purchased for $13.40, are now worth $48, or a potential profit of approximately 260%.
Next up, here is where we stand with HOOD, which is trading at 24 …
The HOOD January 15 calls that we purchased for $2.70, are now worth $10.50, or a potential profit of approximately 290%.
I am going to continue to hold both of these trades into the Fed event as both stocks look great and option activity has been red hot in both.
However, if you would prefer to ring the register on these trades, that is a fine choice as well.
Finally, while I don’t anticipate the Fed will make any moves on interest rates today, I did want to bring to your attention that the options market is pricing in a move of approximately 0.6% for the S&P 500 this afternoon (somewhat muted expectations).
Despite some selling pressures early last week, the indexes rebounded nicely on nearly every small dip, and by week’s end the S&P 500 had gained 1%, the Dow was mostly unchanged, and the Nasdaq had risen by 1.8%.
June 10, 2024
Weekly Update
Stocks on Watch
As I noted on Friday, there are some wild crosscurrents under the surface of the market. And as fellow Cabot analyst Mike Cintolo tweeted late last week, “This isn’t predictive per se, but sort of amazing – S&P 500 hit a new high yesterday, but less than half its stocks were even above their respective 50-day lines. Just tells you about the environment out there.”
So, what do we do in such an environment?
One way to play this is by selling covered calls like we did in LYFT on Friday. Another way is to try to figure out where the hot money may be rotating next, which brings me to …
The last two weeks call buying has been moving more and more into beaten down big brands such as Starbucks (SBUX) and Nike (NKE). Here are just two trades from last week in each stock that highlight this activity:
Buyer of 3,200 Starbucks (SBUX) June 80 Calls (exp. 2026) for $15.60 – Stock at 82.25
Buyer of 3,000 Starbucks (SBUX) January 90 Calls for $4.50 – Stock at 82.25
Buyer of 2,000 Nike (NKE) March 87.5 Calls for $17 – Stock at 97
Buyer of 8,500 Nike (NKE) September 100 Calls for $4.75 – Stock at 97.
I’m intrigued by this call buying as it’s possible that these “safe” brands might be second half of 2024 plays … though of note, both charts leave a lot to be desired.
And on the bearish side of the coin, I do want to highlight a large put buy, likely targeting a pullback on the Federal Reserve announcement this week, in the Biotech ETF (XBI), as this group moves violently with expectations of rate hikes/cuts. Here is that trade:
Friday – Buyer of 30,000 Biotech ETF (XBI) June 87 Puts (exp. 6/14) for $0.30 – Stock at 92.
I am not going to get involved with this trade, though I will say it is a super cheap hedge just in case biotech and the market fall hard this week.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 12.20, which is again near its recent lows. This low VIX ahead of the Federal Reserve event this Wednesday is fairly surprising to me … not because I expect the Fed to make a move on interest rates, but historically the market has reacted violently, at least in the short term, when the Fed Chairman speaks after the policy meeting.
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Monday – 5
Tuesday – 5
Wednesday – 5
Thursday - 5
Friday – 6
Events for the Week to Come
This week will be all about macro events on Wednesday as traders will get a look at inflation via the Consumer Price Index (CPI) that morning, followed by the Federal Reserve announcement, and more importantly Fed Chairman Jerome Powell’s press conference afterward.
And while earnings for this week are light on companies reporting, there are some big hitters as traders will be watching for Oracle (ORCL) on Tuesday, Broadcom (AVGO) on Wednesday, and Adobe (ADBE) on Thursday.
What Traders are Saying
I get asked from time to time what is the difference between Cabot Options Trader and Cabot Options Trader PRO. In recent years, as the bull market has run, the biggest difference between the two services is how I’ve been managing our winning trades. For example …
As FCX, GDX, TSM and HOOD have run to their highs, recently I’ve been selling out-of-the-money calls against our deep in-the-money calls in the PRO service – essentially turning these trades into bull call spreads.
The advantage to doing so is that we are collecting a premium via these call sales which lowers our cost basis on these trades.
For example, very recently the PRO service sold HOOD far out-of-the-money calls against our deep in-the-money calls, which dropped our cost basis on our HOOD position from $2.70 all the way to $0.82. And because we sold calls that are nearly 70% out-of-the-money, we really haven’t capped our upside, unless …
Should HOOD rally MORE than 70%, I will have capped our upside via this call sale. This is the downside to the strategy. However, a run higher of 70% in the next seven months seems like an unlikely scenario, and even it does, our HOOD position would close for a profit of more than 800%.
As I said above, I’ve executed similar trades in FCX, GDX, TSM for the PRO service as well as recent past trades in NTNX, CELH and more, and fortunately nearly all of these trades have worked fairly well.
Stepping back, if you are interested in learning more about the PRO service or bull call spreads, don’t hesitate to reach out to me via email or to our very friendly and helpful customer service team by calling 1(800) 326-8826.
Open Positions
Cameco (CCJ) December 55 Calls – CCJ fell 4% last week as commodity stocks came under pressure. That being said, despite the small pullback the stock still looks fantastic and option activity remains very bullish.
Freeport-McMoRan (FCX) November 46/70 Bull Call Spread – Copper plays, much like all commodities, came under pressure last week, which sent FCX lower by 7%. This is not what we are looking for, though this is also not out of the ordinary for copper stocks that can move violently. Of note, into this decline a trader on Wednesday bought 23,000 Freeport-McMoRan (FCX) November 55/70 Bull Call Spreads for $3 – Stock at 50.
Gold Miners ETF (GDX) January 33/50 Bull Call Spread – Much like CCJ and FCX above, the GDX came under pressure last week. And while commodities were weak in the short term, let’s see how the group reacts to the Fed event Wednesday before making any moves.
Finally on GDX, a trader bought 9,000 Gold Miners ETF (GDX) December 43 Calls for $1 – Stock 35.35 on Wednesday.
Robinhood (HOOD) January 15/37 Bull Call Spread – HOOD gained another 1.5% last week, and looks spectacular. Our position is now at a potential profit of approximately 240%.
Also, on Friday a trader bought 1,000 Robinhood (HOOD) January 25 Calls for $4.80 – Stock at 23.35.
Lyft (LYFT) June 16 Covered Call – On Friday we added a new short volatility position to the portfolio via a sale of the LYFT June 16 covered call with a cost basis of 15.30. Essentially, we want LYFT to trade sideways or higher over the next two weeks, though we are also OK if the stock declines a bit, but not too far.
Of note, here are the two upgrades I wrote about following LYFT raising their guidance:
LYFT raised to Buy at Loop, Gordon Haskett
LYFT raised to Buy from Underperform at BAML.
Marijuana ETF (MSOS) June 10 Covered Call – The MSOS continues to bleed lower which is fine, though to be frank, we would prefer the stock higher.
Of note, the June 10 call that we sold for $0.76 is now worth $0.05, and at some point we will buy this call back as there is so little upside to being short this option for such a small premium.
Novo Nordisk (NVO) September 135 Calls – Welcome back to the party NVO, as the stock continued its run higher again last week, and is now trading at a new all-time high. This stock strength, and the bullish option activity below, leads me to believe we are in a good spot with this trade that is back to a profit.
Friday – Buyer of 1,000 Novo Nordisk (NVO) September 140 Calls for $11.20 – Stock at 143
Wednesday – Buyer of 1,000 Novo Nordisk (NVO) September 145 Calls for $8.40 – Stock at 142
Tuesday – Buyer of 5,000 Novo Nordisk (NVO) September 145/160 Bull Call Spread for $3.70 – Stock at 137.5.
On Holding (ONON) January 42.5 Calls – ONON was mostly unchanged last week which is fine given the stock’s run higher in recent weeks. Should the market and retail stocks remain in gear, I really like this position.
Palantir (PLTR) June 22 Covered Call – PLTR gained 7% last week, which is great for our June 22 covered call as the stock is now $1 above our short strike price (good).
Of note, on Tuesday a trader bought 5,000 Palantir (PLTR) August 20 Calls for $3.05 – Stock at 21.5.
Taiwan Semiconductor (TSM) September 130/190 Bull Call Spread – TSM gained another 5.6% last week and closed at a new all-time high. Our position is now at a potential profit of approximately 180%. And of note, on Thursday a trader bought 1,000 Taiwan Semiconductor (TSM) March 200 Calls for $10 – Stock at 162.5.
Nasdaq ETF (QQQ) November 430 Puts – Our lone bearish trade remains under pressure as the Nasdaq races to new highs. That is fine as this is a back pocket hedge just in case things go badly.
Walmart (WMT) January 65 Calls – Last week we closed the first third of our WMT trade for a profit of 24%. I think the stock looks terrific, and on Thursday a trader bought 2,000 Walmart (WMT) August 70 Calls for $1.20 – Stock at 67.35.
Wells Fargo (WFC) December 62.5 Calls – WFC has been bleeding lower of late, which is not ideal. Let’s see how WFC and its financial peers respond to the Fed event on Wednesday before cutting our losses on this trade.
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.
