May 19, 2023
May Covered Calls – FTI, BAC, CLF
Today is the expiration of our three May covered call trades. Here is where we stand with each, with the headline being that we are simply going to let the calls that we sold expire, and you don’t need to take action today.
FTI is trading at 13.65, and it is likely, though not a guarantee, the May 14 call that we sold for $0.45 will expire worthless this afternoon.
Unless the stock makes a move above 14 this afternoon, we will let this call expire, and then come early next week we will sell a new call.
This trade worked well.
BAC is trading at 28.60, and it is a near certainty that the May 32 call that we sold for $0.38 will expire worthless this afternoon. We will not need to address this position today.
Next week we will evaluate a new call sale against our stock position.
CLF is trading at 15.25, and it is a near lock that the May 17 call that we sold for $0.48 will expire worthless this afternoon. We will not need to address this position today.
Next week we will evaluate a new call sale against our stock position.
Be on the lookout for June/July call sales Monday/Tuesday of next week.
May 17, 2023
Alibaba (BABA) Earnings
Alibaba (BABA) will report earnings tomorrow before the market open. Having gone through the wringer with its China stock peers, BABA and the group are showing signs of life yet again in the last week.
While we need a big move higher for our calls to really get back in gear, I don’t see a great reason to sell ahead of earnings, especially as we might get more clarity on the upcoming spinoff.
BABA - With the stock trading at 90, the options market is pricing in a move of $5 this week, or 85 to the downside and 95 to the upside.
Open interest is skewed bullish on a ratio of 2.3:1 call vs. put.
Skew is pricing in typical downside risk and upside interest.
May 15, 2023
Weekly Update
Mega-cap tech again outperformed last week, while the banks continued to look suspect/horrible, and the action under the surface is flashing warning signs. And despite the narrow leadership of tech the S&P 500 was only down 0.3%, the Dow lost 1.11%, while the Nasdaq gained 0.4%.
Stocks on Watch and What Traders are Saying
This week I am going to tie the Stocks on Watch and What Traders are Saying sections together, as they are somewhat linked.
The simple reason is I continue to not see steady bullish option activity confirming the market “wants to” move higher.
This is not terribly surprising given the sideways action in the S&P 500, which was perfectly illustrated by @bespokeinvest on Twitter this weekend: “Seven months since the October low, it doesn’t feel like a bear market, but ... it hardly has the feeling of a bull market ... The S&P 500 is essentially right around the same levels it was at 12 months ago, nine months ago, six months ago, or three months ago!”
Essentially, while the market has had its ups and downs in the short term, the big money has not been made being long or short the market (and why the big options players haven’t been playing).
Now, that isn’t to say that there haven’t been many one off call buys. But there have been few steady accumulation trades in any particular stocks, outside of Uber (UBER) which we bought, and my next top target Boston Scientific (BSX). Here are those trades in BSX, which is exactly what I’m looking for in more stocks:
Buyer of 5,000 Boston Scientific (BSX) June 55 Calls for $0.58 – Stock at 53
Buyer of 5,000 Boston Scientific (BSX) August 57.5 Calls for $1 – Stock at 53
Buyer of 10,000 Boston Scientific (BSX) August 55 Calls for $2.20 – Stock at 53.3
Buyer of 7,000 Boston Scientific (BSX) August 57.5 Calls for $1.05 – Stock at 53
Buyer of 7,500 Boston Scientific (BSX) June 55 Calls for $0.55 – Stock at 51.
Stepping back, fellow Cabot Analyst Mike Cintolo wrote it better than I could describing the current environment:
“Right now, I would say there are three main positives I see. The first is something I’ve written about, and it’s simply that the major indexes, all of them, really haven’t gone down net-net during the past year despite a ton of Fed rate hikes, recession fears and now a rolling run on regional banks. To me, if the market wanted to cave in recent months, it easily could have as the Fed continued to tighten even as a couple of giant banks walked the plank.
“Even so, it’s a mixed environment at best, with a few mega-cap stocks doing well but most of the broad market under pressure—and for growth stocks, the repeated sharp drops are making it difficult to make headway. There is plenty of dry bullish tinder out there in general, but until we see a spark, it’s still a meat grinder situation.
“The way we’re looking at it is simple: If the market really gets going, there should be plenty to sink our teeth into given the good number of growth setups—but until then, whether we chop sideways or whether the sellers reappear, putting a bunch of money to work likely wouldn’t lead to much good.”
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 17, or marginally lower on the week. I don’t have much more to say about the VIX this week as the “fear index” remains stuck in its tight range, much like the S&P 500.
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Monday – 5
Tuesday – 6
Wednesday – 6
Thursday - 5
Friday – 5
Events for the Week to Come
This week will be fairly light in terms of economic data reports, though heavy with Federal Reserve speakers. Also, as the debt ceiling debate continues to tick towards becoming an issue, expect some market wiggles as news and rumors float out of Washington, D.C.
On the earnings front, the following companies will report this week, with major retailers Walmart (WMT), Home Depot (HD) and Target (TGT) getting the most attention:
Open Positions
Long positions: BABA, BAC, CLF, DIS, FTI, IWM, UBER
Bearish Positions: SPY
Alibaba (BABA) October 105 Call – BABA showed some signs of life last week as the stock gained 2.5%. That being said, we have a long way to go before our calls would really come alive.
Bank of America (BAC) May 32 Covered Call – The BAC May 32 calls that we sold for $0.38 will expire worthless on Friday (good). At some point we may roll to a new call sale, but this likely won’t happen until the stock rebounds a dollar or two.
Cleveland-Cliffs (CLF) May 17 Covered Call – The CLF May 17 calls that we sold for $0.48 will expire worthless on Friday (good). Much like BAC above, at some point we may roll to a new call sale, but this likely won’t happen until the stock rebounds some.
Disney (DIS) September 105/130 Bull Call Spread – DIS stock got hit on earnings last week, and we are likely going to exit this position and move the capital to fresher ideas.
TechnipFMC (FTI) May 14 Covered Call – FTI closed Friday at 14.10, which is a near perfect spot for our covered call. The call we sold will expire on Friday, which means we may need to act before then.
Russell 2000 (IWM) August 177 Call – The IWM continues to chop around aimlessly along with the market, which isn’t ideal. My patience is running out on this trade as the regional banks have seemingly put a ceiling on the IWM.
S&P 500 ETF (SPY) September 400 Put - Because of the weakness under the surface of the market I will continue to hold our hedge, as I could easily see these puts ripping higher if the market finally succumbs to the selling pressure.
Uber (UBER) December 40/50 Bull Call Spread – Late last week, after a week of bullish option activity we added the December 40/50 bull call spread to the portfolio for a price of $3.25. I really like the way UBER looks, IF the market can break out of its recent range.
