June 21, 2024
June Expiration
Today is the expiration of our three June covered call positions. Here is where we stand with each …
PLTR is trading at 24, and we are almost surely going to have our position called away today. This is a perfectly fine scenario as we bought the stock for 22.54 two months ago, sold the May 22 calls for $2.27, and then rolled that position into the sale of the June 22 calls for a total of $0.79 (after we bought back the May calls for $0.20).
When it is all said and done, we will walk away with a profit of $252 per covered call, or a yield of more than 11% in two months’ time. Nice trade.
MSOS is next up, and this trade isn’t working nearly as well as PLTR, but is also fine.
The stock is trading at 7.20, and the June 10 call that we sold for $0.76 is surely going to expire worthless this afternoon, which follows the May call being closed for a gain of $38 per call sold as well.
Net/net our cost basis on our position once the June call expires will be at 8.62, and sometime in the next week or two (hopefully when the stock rallies) we will sell a new call to again lower our cost basis.
Finally, LYFT is also not my favorite, though is fine. Here are the details …
Two weeks ago, we bought LYFT stock at 15.3 and sold the June 16 call for $0.73. The good news is the call that we sold will expire worthless, but the bad news is the stock is trading below our breakeven, which is fine, but I would prefer the stock higher.
Regardless, at some point in the next couple weeks (hopefully when the stock rallies), we will sell a new call to again lower our cost basis.
Finally, you will not need to address any of these three positions today, and we will simply let the expiration process play itself out.
June 17, 2024
Weekly Update
Despite some troubling signs under the surface of the market, mega-cap tech once again led the indexes’ charge higher. And because of the heavy weighting of these tech stocks in the S&P 500 and Nasdaq, those indexes gained 1.8% and 3.75%, respectively, while the Dow fell 0.4% on the week.
Stocks on Watch
While the headlines scream the stock market is at new highs, as I highlight below in “What Traders are Saying”, fewer and fewer stocks are participating in the market’s advance. My options screening tool is picking up on similar action, as there has been less and less repeated call buying in stocks outside of NVDA/AAPL and a handful of others.
And while that is somewhat of a concern, I do want to note that there hasn’t been big put buying either, so it is not time to run for the hills.
In fact, one “bull market” stock that is on my radar for a new buy is Micron (MU) as the stock broke out to a new high last week, and attracted this large call buy looking for higher prices in the months to come. Here is that trade:
Thursday – Buyer of 8,000 Micron (MU) October 155 Calls for $11.65 – Stock at 141.
MU can be a tricky stock to chase as memory and storage stocks get red hot, and then ice cold, very quickly.
That being said, the chart looks fantastic, and the call buying, as well as other bullish trades in the stock, is intriguing.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 13, once again probing the lows of the last several months. While there are plenty of concerns about the market, which I dive into in “What Traders are Saying” below, the low levels in the VIX continue to offset those concerns.
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Monday – 5
Tuesday – 5
Wednesday – 6
Thursday - 5
Friday – 5
Events for the Week to Come
Before I dive into this week’s potential market-moving events, I did want to note the stock market will be closed this Wednesday in observance of Juneteenth.
After last week’s barrage of market moving items, this week will be much quieter in terms of catalysts (no “big” events) and a somewhat barren earnings slate as noted below:
What Traders are Saying
As I mentioned above, there have been some troubling signs under the surface of the market as the mega-cap tech stocks are mostly dragging the indexes higher. In fact, in 16 of the last 18 sessions the RSP (Equal Weight S&P 500) has underperformed the SPY. Essentially, stocks outside of AAPL/NVDA/MSFT/etc. have been underperforming the mega-caps, meaning most stocks aren’t rallying, and in many cases they are actually falling.
The relative underperformance of the RSP (most of the market) vs. the S&P 500 is at its worst levels since 2008/2009, as seen below:
So, what does this mean for the market?
It literally could be a non-event as the 18 trading sessions from above are just that, 18 days, and that is a relatively short amount of time.
Also, it’s possible, and maybe even likely, that this phenomenon is stretching too far, and at some point the mega-caps will cool off and money will rush back into “everything else,” which would likely be very bullish for the market.
Or …
Or it’s also very possible that this weakening breadth is a warning sign that the hedge funds and institutions are no longer aggressively buying outside of the mega-caps, and should those stocks finally fall, it could get ugly for the market.
Regardless, this is the topic of the day, and really for the past two weeks, for traders closely watching the market, and something I am keeping a close eye on.
Open Positions
Cameco (CCJ) December 55 Calls – CCJ fell nearly 3% last week as commodity stocks came under pressure. This selling in commodities is why I decided to close our FCX (great trade) and GDX (mostly a breakeven) positions. And while FCX/GDX looked suspect, CCJ still looks great and option activity remains bullish.
Robinhood (HOOD) January 15/27 Bull Call Spread – HOOD gained another 1.7% last week and looks spectacular. Our trade is in great shape, though because of the under-the-surface weakness I may set a new mental stop on our position just in case the selling pressure moves on to the best-looking stocks.
Lyft (LYFT) June 16 Covered Call – LYFT came under pressure shortly after we added the covered call to the portfolio. That is not exactly what we wanted, but is also OK as we may turn this trade into a rolling call selling position.
Essentially, if the June 16 calls that we sold for $0.73 expire worthless on Friday, we will then sell a new call.
Marijuana ETF (MSOS) June 10 Covered Call – The MSOS is bleeding lower and lower which is not what we want for our covered call. The only good news about this price action is the June 10 calls that we sold for $0.76 are almost surely going to expire worthless on Friday.
Novo Nordisk (NVO) September 135 Calls – NVO continues to trade at its highs which is a great development for our calls that are now back at a profit. Of note, call buyers were aggressive all last week, including this buy on Monday:
Buyer of 5,300 Novo Nordisk (NVO) December 200 Calls for $1.55 – Stock at 144.
On Holding (ONON) January 42.5 Calls – ONON fell marginally last week as the selling pressures started to slightly hit the best of the best-looking stocks. That being said, so far so good with ONON which was started at Outperform at Bernstein with a $50 target last Monday.
Palantir (PLTR) June 22 Covered Call – PLTR closed Friday at 23.5 which is $1.50 above our short strike price. Should PLTR close above 22 on Friday we will walk away with a really nice yield in two months’ time. That being said, PLTR stock is crazy, so who knows where the stock will be in five days.
Taiwan Semiconductor (TSM) September 130/190 Bull Call Spread – TSM continues to ride the AI/Semiconductor wave to new highs week after week, and option activity remains red hot, including these trades below:
Monday – Buyer of 8,000 Taiwan Semiconductor (TSM) November 190 Calls for $9.75 – Stock at 169
Thursday – Buyer of 1,000 Taiwan Semiconductor (TSM) March 170 Calls for $27 – Stock at 173.
Nasdaq ETF (QQQ) November 430 Puts – Our puts are flat out not working as the Nasdaq has been on a monster run. That is bad, but also good, as TSM/HOOD/PLTR/etc. race to new recent highs.
Walmart (WMT) January 65 Calls – WMT looks spectacular, even though its Dow peers have come under selling pressure. And of note, JPM upgraded WMT to Overweight with a $81 price target last week, noting “the stock adds a strong balance of defense and offense on both the top and bottom lines in a soft (to softening) consumer backdrop .. we believe estimates remain beatable while there is the potential for an uptick in the multiple as we expect WMT to go on a multi-year double-digit EPS growth algo given market share gains, rising alternative profit pool benefits, and International segment profit inflection.”
Wells Fargo (WFC) December 62.5 Calls – Should the market continue to weaken, WFC is next on the chopping block as the financial stocks have gone from strong to suspect very quickly. That being said, a couple good days for WFC could put our position right back in good shape … though I would like to see those good days before I regain confidence in the stock.
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