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Week of October 3, 2022

The month of September was flat out ugly for the market as the S&P 500 fell 9.3%, its worst monthly drop since March 2020 (Covid). And the numbers were similarly negative this last week as the S&P 500 and Dow lost 3%, and the Nasdaq fell another 2.7%.

The month of September was flat out ugly for the market as the S&P 500 fell 9.3%, its worst monthly drop since March 2020 (Covid). And the numbers were similarly negative this last week as the S&P 500 and Dow lost 3%, and the Nasdaq fell another 2.7%.

The good news, maybe, is the month and quarter are over, and maybe, just maybe, the calendar flipping to October will stem some of the market’s recent losses. In fact, via @Ryandetrick on Twitter: “S&P 500 down 24.8% YTD at the end of September. Since WWII, only 1974 and 2002 saw worse starts to a year. Both years saw the S&P 500 gain 7.9% in Q4.”

Stocks on Watch

Until the market has a day or two of positive returns, I’m going to continue to build my watch list, but largely stay on the sidelines. On that watch list are …

Pinterest (PINS), which I wrote about last week after several days of bullish option activity. And in fact, despite the market falling last week, PINS was able to gain 3.2%, continuing its outperformance. This stock is definitely on the top of my watch list.

Next up is a stock I rarely see option trading in, and that is Warren Buffett’s Berkshire Hathaway (BRK.B). And while the stock has outperformed the S&P 500 this year, having fallen “only” 10.5%, last week there was a trader looking to buy the shallow dip in the shares. Here is that trade:

Wednesday: Buyer of 2,300 Berkshire Hathaway (BRK.B) December 280 Calls for $9 – Stock at 270.

If you want exposure to Warren Buffett and Berkshire, I have no issue with this call buy looking for a rebound into year end.

And finally, on the bear side of the coin, both Apple (AAPL) and Nike (NKE) had negative news items last week, and fell 8.3% and 14%, respectively. Both of these stocks look very susceptible to further losses and potential put buys should the market continue to weaken.


The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 31.6, or higher by 5.7%. Interestingly, despite the market approaching the 2022 lows and worries about something in the system potentially “breaking,” the fear index continues to stay elevated, but has not spiked dramatically higher.

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

Monday – 5
Tuesday – 5
Wednesday – 5
Thursday - 5
Friday – 5

Events for the Week to Come

This week traders will be focused on whether the start of the new quarter could alleviate some of the stress on the market, or if it will simply be more of the same selling pressure that has been so persistent in 2022.

Also, traders will be watching the “huge” September Jobs Report on Friday, as the state of the economy will likely shape the path of interest rate hikes in the months to come.

In terms of earnings this week, there really aren’t any major companies reporting ahead of the start of earnings season next week.

What Traders are Saying

Another wild week of trading action prompted two telling state of the market emails from a COT/COTP subscriber. Here is that email, and my thoughts:

COT/COTP Subscriber (Wednesday): The market looks like it’s firming up. The SPX is up 2% today. Should we be adding exposure?

Same COT/COTP Subscriber (Thursday): Please delete my email from Wednesday … this market is garbage! (SPX was down 2.2%)

Jacob: Trust me, I get the desire to aggressively add exposure to the market when the S&P 500 is down 24% year to date, and countless stocks are down dramatically more than that. At some point, it will be time to not simply take stabs here and there, like we have been, and instead push aggressively bullish.

But we aren’t there yet, as I’ve yet to see any true signs of market strength, and as fellow Cabot Analyst Mike Cintolo noted recently, “Just 8% of NYSE stocks closed above their 50-day lines.” Not encouraging!

And as trader @markmenervini wrote on Twitter some time ago, “During my 40 years trading none of my success came from picking a bottom right at the low. The low happens on one day, the bull market lasts for years. The big money is made spotting trends, not bottoms.”

For now, and I know it’s not “sexy” to be patient, we will continue to wait for that bull market to resume, and option activity to signal a bottom, before aggressively ramping up exposure.

Open Positions

Long positions: XBI, GOOG, M, OXY, PYPL, SBUX
Bearish Positions: SPY

Biotech ETF (XBI) January 84 Call – The XBI gained 3.5% and was strong all last week.

If I wanted to be optimistic, I would note that biotech was the first sector to turn higher during the last market run in July/August, and it’s possible that this group will kickstart an advance again in the fourth quarter.

Alphabet (GOOGL) February 120 Calls – GOOGL continues to look weak, along with its peers AAPL/MSFT/META/NVDA. It will be interesting to see if this group regains some strength in the fourth quarter.

Macy’s (M) Stock – M was unchanged on the week, and we will continue to sit on our stock position looking for a call selling opportunity.

Occidental Petroleum (OXY) December 65/80 Bull Call Spread – OXY gained 4.6% following a filing that Warren Buffett had bought even more shares last week. OXY continues to look great in comparison to its oil stock peers.

PayPal (PYPL) March 97.5 Call – PYPL fell 1% last week, though it continues to shoot higher on the rare moments the market is strong. While our calls are somewhat far out-of-the-money, because of the relative strength in PYPL shares I continue to like this position.

S&P 500 ETF (SPY) March 420/320 Bear Put Spread – For better or worse our SPY bear put spread is at a potential profit of approximately 180%.

Starbucks (SBUX) January 85/110 Bull Call Spread – SBUX was unchanged and looks totally fine. This stock looks like it will work IF the market can get in gear.

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.