March 14, 2024
Position Update – HOOD and CELH
This morning I wanted to update where we stand with HOOD and CELH as both stocks are breaking out to new highs.
HOOD is trading at a new high after the company reported a rise in asset growth and higher trading volume. Following this news Wall Street firm Bernstein initiated coverage on the stock with a price target of 30, which is approximately 70% higher than where the stock is trading today.
At current stock levels (18.5), our January 15 calls are now at a potential profit of approximately 135%.
Next up is CELH, which is trading at a new high as well (97) and looks terrific. At current levels our July 60 calls that we bought for $10.50 are now worth $39, or a potential profit of approximately 270%.
Please note, while CELH stock looks great, I am going to set a mental stop on our CELH calls at $25 which will give the stock some room to wiggle day to day but will also protect us from giving up a real chunk of our gains.
Finally, I am going to continue to hold our HOOD and CELH positions. However, if you would prefer to lock in some nice profits, that is a fine choice as well.
March 13, 2024
Trades Follow-up
Before I dive into a deeper look at our three trades from yesterday, I wanted to bring to your attention that there was some erroneous information in my Monday morning Week in Review.
I don’t know if it was the clocks moving forward Saturday/Sunday when I was writing the updates, or if I put too much Bailey’s in my coffee Sunday morning (I’m joking!) but I misread from my data source that the Fed was meeting Wednesday and the release of the PCE Inflation report was Friday. My bad!
Moving on …
Yesterday we sold our TJX position which was running out of time. As I’ve written in the past, with a month to go before a call’s expiration the decay of long options really accelerates. And that was the case with our TJX April calls.
Also, there are several better-looking retail/consumer-related stocks than TJX right now (BROS/SG/etc.), and I wanted to exit our position that was mostly trading sideways and prepare to move that capital into fresher ideas.
Same can be said about MRVL … there are so many semiconductors that look better than MRVL, and for that reason, and my growing “worry” about the sector (maybe) I felt it was time to move on from the stock.
In terms of our buy of NVO, it’s pretty simple; as is always the case, I want to own the leading stocks in good-looking sectors, in a strong market. And while we may not be early to our buy of NVO, as the stock has been a terrific performer for months, should the market and pharma stocks continue to move higher, NVO looks like a star of the group.
March 11, 2024
Weekly Update
Good gracious, last week was volatile for the market as the indexes moved violently day-to-day. Yet, by the close of trading on Friday the S&P 500 and Dow were only down marginally on the week, while the Nasdaq had declined by 1.5%.
Stocks on Watch
Having closed our positions in LI and NTNX, and locked in profits on many other well-performing positions lately, we certainly have the dry powder to again add to the portfolio. This brings me to two of my favorite candidates to buy …
I’ve been circling Novo Nordisk (NVO) since the stock was trading in the 105-110 range in early 2024, and with the stock trading at 133 on Friday, there is no question I should have pulled the trigger on an earlier buy. Such is trading.
Regardless, NVO stock broke out in a big way last week following the release of positive drug data, and into that move option activity remained strong, including this trade:
Thursday – Buyer of 4,500 Novo Nordisk (NVO) April 140 Calls for $4.50 – Stock at 137.
Having missed the buy of NVO in the low 100s, we may not be “early” to a purchase. That being said, the stock looks terrific and is on the top of my watch list.
And while I am admitting missing out on stocks, I was watching IBM closely when it was trading at 185 several weeks ago. However, I chose to add stocks like TSM and HOOD instead of IBM (which turned out just fine), but IBM quietly broke out last week, closing at a new high of 195.
Into that move higher a trader bought these calls Friday looking for more gains to come in the stock:
Friday – Buyer of 5,000 IBM (IBM) May 220 Calls for $2.50 – Stock at 196.
IBM is likely not going to be the fastest moving stock, but perhaps that is exactly what we should be looking to buy if money rotates out of the AI/Semiconductor theme that has been so hot.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 14.75, or higher by 10%. Of note, despite the VIX being mostly rangebound, it is starting to drift a touch higher as the daily market moves are getting more and more extreme.
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Tuesday – 4
Wednesday – 6
Thursday - 6
Friday – 5
Events for the Week to Come
This week will be super interesting as Tuesday traders will get a look at inflation data via the Consumer Price Index (CPI) and the PCE Prices (PCE) on Friday. And sandwiched in between those inflation prints is the March Federal Reserve meeting on Wednesday (no policy change expected).
On the earnings front, things have started to slow down a bit, though there are some headliners this week including Oracle (ORCL) on Monday, and retailers such as Kohl’s (KSS), ON Holding (ON), Dollar Tree (DLTR), William Sonoma (WSM), and Ulta Beauty (ULTA) throughout the week.
What Traders are Saying
“Parabolic advances usually carry further than you think, but they do not correct by going sideways.” -Bob Farrell (Merrill Lynch)
The quote above is one of the reasons why we added a QQQ hedge to the portfolio last week, as countless stocks have gone parabolic to the upside, and we are lucky to own several of those stocks. And because we have such big gains (noted in our position breakdowns below), and the price of puts was reasonable, it was in my mind a no-brainer to add downside protection.
Here is a bit more about hedging via my answers to questions fellow Cabot Options Traders submitted following our put buy:
COT Member: I read your recommendation to buy the QQQ Nov 430 Puts. My question is: What size? Is there any percentage of my Net Value Investment?
Jacob: Unfortunately, there isn’t a great answer to your question. What I mean is ...
Should the market fall 10-20% between now and November you surely didn’t buy enough.
If the market rallies, you bought too much.
That is trading.
As for me, if I allocate $10k to each call buy/trade (a round number for this email’s purpose) then I would buy $10k worth of puts also.
COT Member: If we’re going to buy a hedge, shouldn’t we buy it on a day when the market is up? Just to clarify though, I’m not really talking about timing the market. I’m talking about waiting a couple days for a bounce, or putting a limit price a couple dollars lower, to try to get a better entry point. Obviously, if there was a big immediate crash, this strategy would fail. But for long-term protection, waiting would help.
Jacob: Timing the market day-to-day is virtually impossible. So, in reality I don’t care if I bought the puts today when the market was up, or yesterday when it was down, or ...
Stepping back, I could have bought puts on an up day when the QQQs were trading at 400, or 410, or 420, or … My point is, buying puts when the market is up doesn’t really work if you step back and think of the countless up days over the past several years.
Finally, would I like to buy puts at the very top? Heck yeah! Is top ticking the market likely? Absolutely not.
This is a back-pocket hedge against our monster winners in NTNX, PLTR, MRVL, CELH, TSM, HOOD and I truly don’t care how the market moves in the short term when it comes to these puts.
Open Positions
Celsius (CELH) July 60/95 Bull Call Spread – CELH gained another 12% last week and looks terrific. Our position is now at a potential profit of approximately 200%. Not much more to add as this trade is working very well.
Robinhood (HOOD) January 15 Call – HOOD gained 2.5% last week and option activity remains red hot, including the trade noted below. We took advantage of this stock strength to lock in a profit of 91% on another piece of our position late last week.
Thursday – Buyer of 5,000 Robinhood (HOOD) April 20 Calls for $0.54 – Stock at 16.
Li Auto (LI) June 40 Call – Despite surging higher on earnings two weeks ago, LI stock fell yet again last week. My patience ran out on this position and we sold Friday so that we can move this capital to fresher ideas.
Marvell (MRVL) August 70/115 Bull Call Spread – MRVL busted out to a new high on Thursday ahead of earnings. Unfortunately, those earnings were a dud as the stock fell 11%. While we are only holding the final third of a position, which are still at a profit, my lean is to potentially exit our trade in the days to come (maybe).
Of note, following earnings the stock was raised to Buy at Wall Street firm Summit saying Carrier, Enterprise Networking, and Consumer sales will bottom in the April quarter. Also, option activity remained strong, including this trade:
Friday – Buyer of 3,500 Marvell (MRVL) April 85 Calls for $3.25 – Stock at 79.5.
Nutanix (NTNX) April 37.5/65 Bull Call Spread – With the Nasdaq having its second really bad day of the week, and with time running out on our April calls, I decided the time had come to lock in our 468% profit on the last piece of our highly successful trade. That was fun!
Palantir (PLTR) April 19 Call – PLTR had a volatile week along with the market, though by week’s end the AI play had tacked on another 4.5% of gains. At current levels our calls are at a potential profit of approximately 135%.
Permian Resources (PR) April 15 Covered Call – Our PR short volatility trade is working very well as the stock has been grinding higher. Of note, PR stock goes ex-dividend this week and I expect we will capture the $0.05 dividend.
Equal Weight ETF (RSP) June 158 Calls – Despite the indexes falling marginally last week the RSP gained another 1% as money came out of the market leaders, and into “the rest.”
Our calls are now at a potential profit of approximately 45%.
Snap (SNAP) August 17 Calls – SNAP stock got a boost last week as our friends in Washington, D.C. took aim at the social media company’s peer, TikTok. That being said, we have a long way to go until SNAP stock again approaches our 17 strike.
TJX (TJX) April 92.5/105 Bull Call Spread – TJX might be our next stock that is on the chopping block as the retailer has been bleeding lower since reporting earnings. I’m trying to be patient with this trade, but time is becoming a real issue for our April calls.
Taiwan Semiconductor (TSM) September 130 Calls – TSM has gone bonkers to the upside, along with many Semiconductor/AI plays. This is good for our position, though because I’m “worried” that things may be overheating I locked in a profit of 68% on another piece of our trade on Wednesday.
Of note, one of the call buyers that brought us into our bullish position rolled his position further out in time to give the trade more room to run. Here is that trade from Friday:
Buyer of 59,000 Taiwan Semiconductor (TSM) June 140 Calls for $19.45 – Stock at 149 (rolled from May calls).
Financials ETF (XLF) March 33 Put – Our XLF puts are essentially a “back-pocket” hedge against a steep market decline at this point.
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