June 23, 2023
Stocks on Watch - Zoom Video (ZM)
Zoom Video (ZM) is again attracting out-of-the-money call buying activity today. Here is that trade from this afternoon:
Buyer of 6,000 Zoom Video (ZM) July 74 Calls for $1.10 – Stock at 6
This call buy will add to the sizeable out-of-the-money open interest that has mostly been bought in the last two weeks including:
19,000 July 75 Calls (bought on 6/9 and 6/12)
24,000 July 80 Calls (bought between 6/9 and 6/14)
I have not yet been able to find a catalyst for this unusual call buying as the company won’t report earnings until August, and I don’t see any large investor day type of events in the next month.
I’m going to dig a bit deeper into ZM before getting involved with a position but wanted to share this odd option activity.
June 21, 2023
Position Update – Nasdaq ETF (QQQ) Puts
Very quickly, the Nasdaq ETF (QQQ) puts that we purchased on Friday for $17.87 are now worth $21.5, or a potential profit of 20%.
My plan, for now, is to continue to hold our bearish position, as I’m starting to see some market leaders get hit. For example, Advanced Micro Devices (AMD) is down 6% today, while Tesla (TSLA) is lower by 5%.
And while AMD, TSLA and other market leaders pulling back today might be concerning for the bulls, I would note that for now, all of these stocks look mostly fine.
Finally, while I am going to continue to hold my puts, if you would prefer to ring the register on a portion of your trade, that is a fine choice as well.
June 20, 2023
Weekly Update
The good times for the bulls continued as the S&P 500 rose for a fifth consecutive week, its longest such streak since November 2021, and it was also the best week for the S&P 500 since March.
And while the S&P 500 gained 2.6% on the week, it was once again the Nasdaq that led the charge as the tech-heavy index gained 3.25%, while the Dow rose 1.25%.
Stocks on Watch
Having added a bearish position to the portfolio on Friday, I’m certainly open to ramping up our bullish exposure even more IF the market continues to show strength. Here are two of my top candidates based on option activity late last week.
While NVDA, AAPL, and MSFT have garnered much of the praise and attention from traders in the last month, very quietly Oracle (ORCL) has also been a monster winner, having gained 54% year-to-date, and more recently broke out following an earnings beat last week.
Following that earnings beat and stock move higher, late last week a trader/traders bought two call positions looking for great gains. Here are those trades:
Thursday - Buyer of 7,500 Oracle (ORCL) July 135 Calls for $1.60 – Stock at 126
Wednesday - Buyer of 3,000 Oracle (ORCL) June 125 Calls (exp. 6/23) for $0.89 — Stock at 122.
I like ORCL quite a bit, though of note, should we get involved, one might assume we are not “early to the party” given the big stock run this year.
Next up is Hewlett Packard (HPE), which had mostly chopped around for most of 2023 but has come alive in the last three weeks, having raced higher from a low of 14 in early June to a high Friday of 17.50. And late last week call buyers aggressively bought calls in HPE, looking for the stock to continue its run higher. Here are those trades:
Friday - Buyer of 3,000 Hewlett Packard (HPE) July 18 Calls for $0.40 – Stock at 17.40
Thursday - Buyer of 4,000 Hewlett Packard (HPE) November 20 Calls for $0.50 – Stock at 17.35 (also buyers of January 22 calls).
The call buying in HPE is interesting. Though of note, paying $0.40 and $0.50 for calls are not exactly big premium/high conviction trades.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 14.15, after briefly trading Friday at 13.50, its lowest level since December 2019. Volatility in the market is now below pre-pandemic lows.
This low VIX, which absolutely can stay low for much longer, is part of the reason I decided to buy QQQ puts for the portfolio on Friday (more on this in “What Traders are Saying” below).
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
Events for the Week to Come
This will be a very heavy week of Fed member speeches (11 in total), led by Fed Chairman Jerome Powell on Tuesday and Wednesday. Of note, following the central bank decision to keep interest rates unchanged at the June meeting, the bond market is now pricing in a 70% chance of a hike at the July meeting.
On the earnings front, it is going to be a super quiet week, with the only real headliner being FedEx’s (FDX) report on Tuesday.
What Traders are Saying
Last week I wrote in this “What Traders are Saying” section regarding our buy of Shopify (SHOP) calls, “Options trading is all about pushing the chips to the center of the poker table when the risk/reward is lined up in your favor and when the signals are telling you it’s time to act.”
I bring this up because it is why I added Nasdaq ETF (QQQ) puts to our portfolio on Friday (somewhat). This is what I mean:
Admittedly, the signals were NOT there for me to add a bearish position in the QQQs as the index has been very strong, and put buying in the market leaders has been quiet.
However, with the VIX trading at 13.5, and the price of puts soooo low, the risk/reward in buying at-the-money puts for $17.87, which would give us bearish exposure for six months, was just too good to pass up.
Also, with three growth stocks in the portfolio (UBER, DKNG, SHOP) again, it was a no-brainer to add the QQQ puts to protect these positions.
And finally, this QQQ put buy could work in two ways should the Nasdaq fall. The first is directionally, as the puts would gain in value as the index declines. The second is should the market fall, the puts would likely also gain in value volatility wise as the VIX and options prices across the market would rise across the board.
Stepping back, no one knows where the Nasdaq is going in the short term, especially after the index has risen 30% in the first half of the year. That being said, the risk/reward in buying puts against a bullish portfolio was just too good to pass up with the VIX trading at 13.5.
Open Positions
Long positions: BAC, BSX, CLF, DKNG, IWM, SHOP, UBER
Bearish Positions: QQQ
Bank of America (BAC) July 31 Covered Call – BAC was unchanged last week, which is perfectly fine for our short volatility trade.
Boston Scientific (BSX) November 55 Call – BSX came alive last week, having gained 6% on sector-related news that surgeries/procedures have been ramping up in the medical space. All of a sudden our calls are back in good shape.
Cleveland-Cliffs (CLF) July 16 Covered Call – CLF gained 3% last week and our covered call trade is working well. Not much more to add.
DraftKings (DKNG) January 25 Call – DKNG was down marginally last week though it still looks terrific after weeks of solid gains.
TechnipFMC (FTI) June 14 Covered Call – FTI closed above our short strike price on Friday, which means we are now without a stock or option position in the stock. We walked away with a profit of $221 per covered call executed, or a yield of 16.94% in three months’ time.
Russell 2000 (IWM) August 177 Call – The IWM was mostly unchanged last week as the small-cap index continues to mostly move in-line with economic data as well as the regional banks that have a large weighting in the ETF.
Nasdaq ETF (QQQ) December 370 Puts – On Friday, as the VIX made a new multi-year low, I felt the risk/reward in rolling out of our SPY puts so that we could buy the QQQ December 370 puts was just too good to pass up.
As I noted in the trade alert, I am NOT calling a market top with this put buy.
Shopify (SHOP) January 62 Call – On Monday of last week we locked in a profit of 20.75% on a third of our recently purchased SHOP calls. Option activity remains RED HOT in the stock.
Of note, at some point I may sell an out-of-the-money call against our January 62 call, but I’m not there just yet (perhaps the January 90 call, or something like that).
Uber (UBER) December 40/50 Bull Call Spread – Also on Monday we locked in a gain of 23.07% on our UBER bull call spread. Uber looks fantastic.
Of note, on Thursday a trader bought 27,500 August 45 Calls for $2.52 – Stock at 43.3 (rolled from September calls).
