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Week of May 6, 2024

Last week was full of ups and downs for the market, as the inflation/economic story continues to swing with every data point. And while there was volatility, by week’s end the S&P 500 and Nasdaq had risen marginally, while the Dow had gained 1%.

May 8, 2024
Robinhood (HOOD) Earnings

Today after the close Robinhood (HOOD) will report earnings. Headed into the announcement the stock has been mostly rangebound, much like most stocks, for the past several weeks.

I am going to hold my position through the event as we have twice taken profits and option activity has been strong.

That being said, I do want to warn that earnings season has been a total mine field as of late, and should HOOD disappoint, the stock could get hit hard. For that reason, if you want to reduce your risk you must Sell to Close before the end of the trading day today.

HOOD - With the stock trading at 18, the options market is pricing in a move of $2.50 this week, or 15.5 to the downside and 20.5 to the upside.

Open interest is skewed bullish on a ratio of 2.4:1 call vs. put.

Skew is pricing in extreme downside risk and upside interest.

May 6, 2024
Palantir (PLTR) Earnings

Today after the close Palantir (PLTR) will report earnings. Headed into the event the stock is trading at 25, and we are holding the May 22 Covered Call with a breakeven at 20.27.

To refresh, ideally the stock closes above 22 on May expiration, at which point our position will close for a profit of 8.53%.

I am going to hold my position through the event as the stock looks pretty good, option activity is red hot today, and we have nearly $5 of room to the downside until our position takes much pain.

And while I am going to hold my position through the quarterly report, if you do not want to take the risk, you could close your trade today for a profit of approximately $100 per covered call that you sold.

PLTR - With the stock trading at 25, the options market is pricing in a move of $4 this week, or 21 to the downside and 29 to the upside.

Open interest is skewed bullish on a ratio of 1.4:1 call vs. put.

Skew is pricing in extreme downside and upside risk.

May 6, 2024
Weekly Update

Last week was full of ups and downs for the market, as the inflation/economic story continues to swing with every data point. And while there was volatility, by week’s end the S&P 500 and Nasdaq had risen marginally, while the Dow had gained 1%.

Stocks on Watch

The top candidate on my watchlist for a new position based on bullish option activity last week is without question Cameco (CCJ), which is a uranium play. Here are some of the call buys from CCJ as well as the uranium ETF from last week:

Monday – Buyer of 15,000 Cameco (CCJ) December 55 Calls for $6 – Stock at 49.75

Wednesday – Buyer of 12,500 Cameco (CCJ) December 60 Calls for $3.30 – Stock at 47.5 (rolled from December 50 calls)

Thursday – Buyer of 5,000 Cameco (CCJ) December 55 Calls for $4.43 – Stock at 47

Thursday – Buyer of 20,000 Uranium ETF (URA) June 30 Calls for $2.10 – Stock at 30.5.

I like the look of CCJ, as well as all uranium plays. That being said, with GDX and FCX in the portfolio already, it will be somewhat tough to add another commodity play. However, should the CCJ call buying continue this week, we will get involved.

One stock that Cabot Options Traders are very familiar with, and was our biggest score of all-time with a profit of over 1,000%, is Peloton (PTON) as option activity led us into a position early in Covid, and we held that position through its big move higher.

Since then, PTON stock is a DISASTER as the shares closed below 3 following earnings last week. And while I’m unlikely to get involved, I will say following the recent earnings disappointment options traders aggressively bought calls, including this trade from Thursday:

Buyer of 15,000 Peloton (PTON) October 5 Calls for $0.28 – Stock at 3.

I do want to note, and this could be wildly incorrect, but there was very strong call buying in meme stocks such as GME/AMC on Thursday and Friday, and if I were to go out on a limb I wonder if PTON may fall in meme stock territory. Though again, that is me simply thinking out loud.

And finally, on the bearish side of the coin, all last week traders bought puts on Airline stocks, including these trades:

Buyer of 5,000 Delta Airlines (DAL) June 50 Puts for $1.49 – Stock at 51.35

Buyer of 7,000 American Airlines (AAL) November 12 Puts for $0.75 – Stock at 13.75

Buyer of 3,000 JetBlue (JBLU) January 5 Puts for $0.69 – Stock at 5.5

Buyer of 5,000 United Airlines (UAL) June 45 Puts for $0.42 – Stock at 52.35

Buyer of 5,000 American Airlines (AAL) September 12 Puts for $0.50 – Stock at 14.

I’m going to keep an eye out for further bearish activity in this sector, and if it continues, we may bet against the airlines via a put buy in the JETS ETF (JETS) which is the best representation of this group of stocks.

Volatility

The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 13.5, which was its lowest close since late March. This is a very encouraging sign for the market in my estimation as the VIX’s surge to 20, and briefly above it, in mid-April appears to be a thing of the past. Essentially, traders don’t see a need to buy protection against a steep market decline.

Option Order Flow was fairly mixed this past week as my Options Barometer came in at:

Monday – 6

Tuesday – 5

Wednesday – 5

Thursday - 5

Friday – 5

Events for the Week to Come

After a blockbuster week of economic data points and a Federal Reserve event, this week should be fairly quiet on the macro-economic side of things.

Conversely, earnings season continues to be extremely busy this week as the focus turns from the “big boys” of the S&P 500 to the slightly smaller firms reporting.

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What Traders are Saying

This is going to be short, as the Cabot Options Trader/Jacob system remains the same, and continues to mostly work (though as always, I will get trades wrong from time to time) …

Two weeks ago, when the S&P 500 and Nasdaq were approximately 5% off their highs, and countless stocks were breaking down, the market felt at risk of a much bigger decline.

However, while the VIX was moving higher it was not exploding well above 20, and option activity was mixed and there was not widespread put buying in market leaders. And because of those two important factors to my system, we mostly didn’t make any big moves.

Fast forward a couple weeks and the indexes have bounced some, and sentiment is improving. Essentially, sitting on our hands and not panicking was the right move as the market weakened.

And while this recent market rebound is encouraging, I would note option activity remains mixed … which means we are not yet racing to add a ton of bullish exposure either.

My point is, continue to keep an eye on the VIX, and more importantly option activity via my Daily Barometer, to get a read on how the hedge funds and institutions are positioning.

Open Positions

Freeport-McMoRan (FCX) November 46/70 Bull Call Spread – FCX was down marginally last week, though it looks terrific. Our position remains in great shape.

Of note, we sold the November 70 calls for $1.20, as we turned this trade into a bull call spread with a cost basis of $3.30.

Gold Miners ETF (GDX) January 33 Calls – The GDX and Gold continue to move wildly day-to-day. Not much more to add other than they both look strong.

Robinhood (HOOD) January 15 Call HOOD will report earnings on Wednesday after the market close. Headed into the event the stock has been mostly chopping around with its financial peers as well as crypto, which it somewhat moves with.

Marijuana ETF (MSOS) May 10 Covered Call – On Thursday of last week we sold the MSOS May 10 covered call in an attempt to sell expensive option premium. This trade will have its ups and downs as the sector is volatile, but that is why we received such a nice premium via the call sale.

Novo Nordisk (NVO) September 135 Calls – NVO gave up some of its recent gains following earnings last week. I may sell a piece, or the entire position, in the coming days unless the stock comes alive.

Palantir (PLTR) May 22 Covered Call – PLTR will report earnings today after the close. This will be a make-or-break situation for our covered call that is in good shape ahead of the event.

Equal Weight ETF (RSP) June 158 Calls – The RSP has been chopping around with the market for weeks, which is “fine.” That being said, I may sell the final piece of this position and prepare to move this capital into better ideas.

Snap (SNAP) August 17 Calls – SNAP continued its big move higher last week and very quickly our calls are coming back to life. With the strong stock move, call buying continues, including:

Tuesday: Buyer of 7,000 Snap (SNAP) August 16 Calls for $1.92 – Stock at 15

Tuesday: Buyer of 10,000 Snap (SNAP) June 17/20 Bull Call Spread for $0.40 – Stock at 15.2.

Taiwan Semiconductor (TSM) September 130 Calls – TSM had a nice week as the stock broke out to a new post-earnings high. I have high hopes for this trade, though if the semiconductor/AI theme cools off again, TSM will likely fall again.

Nasdaq ETF (QQQ) November 430 Puts – Not much new to add this week regarding our QQQ hedge that we will continue to hold just in case the market weakens.

Wells Fargo (WFC) December 62.5 Calls – WFC has been chopping around along with its financial peers since we got involved two weeks ago. That being said, when stepping back the stock looks terrific and option activity remains strong, including:

Tuesday: Buyer of 3,000 Wells Fargo (WFC) June 62.5 Calls for $0.90 – Stock at 59.65.


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Jacob Mintz is a professional options trader and editor of Cabot Options Trader. Using his proprietary options scans, Jacob creates and manages positions in equities based on unusual option activity and risk/reward.