August 14, 2023
Weekly Update
Stop me if you have heard this before, but inflation data and the moves in the bond market continue to be the major drivers of the market’s moves. And last week traders weren’t thrilled with these inputs as the S&P 500 fell by 1%, the Dow gained 0.5% and the Nasdaq continued its recent weakness with a further decline of 2%.
Stocks on Watch
As I note in the Volatility/Option Order Flow section below, option activity was fairly strong last week. And while the call buying is not triggering a handful of new additions to the Options Trader portfolios, mostly because of the market weakness, I am intrigued by these stocks …
We had great success with a buy of Las Vegas Sands (LVS) position earlier this year following a big call buy. And on Friday a trader rolled from one large position into a new call buy. Here is that trade:
Buyer of 46,000 Las Vegas Sands (LVS) December 50 Calls for $8.75 – Stock at 56 (rolled from September calls).
LVS looks “OK” as the stock has mostly chopped around for months. That being said, this call buy is intriguing because of the size and premium paid.
Next up is Cameco (CCJ) which I continue to watch as traders have not stopped buying calls, including these trades:
Friday - Buyer of 13,000 Cameco (CCJ) August 36 Calls for $0.24 – Stock at 34.7
Wednesday - Buyer of 4,250 Cameco (CCJ) September 30 Calls for $4.80 – Stock at 34.3
Wednesday - Buyer of 3,000 Cameco (CCJ) August 35 Calls for $0.48 – Stock at 34.35
Monday - Buyer of 10,000 Cameco (CCJ) September 37 Calls for $0.75 – Stock at 34.4.
CCJ is without question on the top of my watch list given the stock strength and steady bullish option activity.
And finally, while I said I wasn’t going to buy Disney (DIS) in a Thursday Stocks on Watch, I do have to say I’m intrigued by the big call buying that continued throughout that day, and included these trades:
Buyer of 10,000 Disney (DIS) October 100 Calls for $1.29 – Stock at 89.5
Buyer of 13,000 Disney (DIS) September 95 Calls for $1.50 – Stock at 90.5
Buyer of 11,000 Disney (DIS) November 110 Calls for $1.10 – Stock at 91.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 15.5, which is hardly screaming panic … for now.
Also encouragingly, despite another week of losses for the indexes, option activity, while not overwhelmingly bullish, does remain fairly strong.
Option Order Flow was fairly mixed/bullish this past week as my Options Barometer came in at:
Monday – 5
Tuesday – 5
Wednesday – 6
Thursday - 6
Friday – 5
Events for the Week to Come
Earnings this week has a lean towards the retail space as HD, TGT, WMT and more will report. Here is the full lust via Earnings Whispers:
What Traders are Saying
In the last couple of years, as the market has become more and more choppy/unpredictable I’ve adjusted the way I manage trades for Cabot Options Trader and Cabot Options Trader Pro.
In years past, I would sell half of my position for a profit of 20-30% and then let the balance run as far as possible.
However, as market conditions have changed, and the runaway bull market has at least temporarily transitioned to a less enthusiastic bull, I’ve changed the way I managed our winning trades.
For Cabot Options Trader I continue to take partial profits at 20-30%; however, I’ve reduced the sale percentage to a third, so that I can then sell another third at a profit between 60-100%. This has largely been the right strategy as this has allowed me to lock in gains in stocks like UBER and DKNG recently, but also hold on to these trades should the stock weaken temporarily.
This strategy would be a mistake if these stocks truly explode higher as we now only hold a third of a position.
For Cabot Options Trader Pro, I’ve been taking partial profits, but also spreading off our premium at risk as our wining trades move higher. For example, into stock strength we have sold FAR out-of-the-money calls in SHOP, DKNG, IWM and more recently in the XLE. All of these adjustments have been outstanding as the stocks noted above have risen, but haven’t come anywhere near our call sales strike prices.
The downside to this spreading is that should any of these stocks move dramatically higher, I will have capped our upside.
Stepping back, hopefully the wild bull market returns, I can again adjust my strategies and we can really let our positions run for 1,000% profits. However, until that time we need to trade the current market conditions, which means aggressively taking partial profits and spreading off our risk.
Open Positions
Boston Scientific (BSX) November 55 Call – We closed our BSX trade for a loss last week as medical device stocks have been punished in recent weeks.
Cleveland-Cliffs (CLF) August 16 Covered Call – CLF is in the news this morning as it’s being reported that the company has made a takeover offer to peer United States Steel (X). That offer has been rejected.
DraftKings (DKNG) January 25 Call – DKNG initially fell last week on news that peer Penn National Gaming (PENN) had entered into a “relationship” with ESPN. However, on Friday when the market was weak, DKNG gained 6%, which is encouraging.
Also of note, Truist upgraded DraftKings to Buy from Hold with a price target of 44, up from 31. The analyst cites the company’s inflection to profitability in Q2 as the management navigated around numerous early threats, and the path to “significant and sustainable” profitability has become much smoother.
And finally, on Thursday into the stock weakness a trader sold 10,000 October 22.5 Puts for $0.52 – Stock at 28.5.
Freeport McMoRan (FCX) January 44 Calls – FCX fell by 2.5% last week, which isn’t great, but is also not the end of the world. Of note, option activity remains strong including ..
Buyer of 8,000 Freeport McMoRan (FCX) September 46 Calls for $0.88 – Stock at 42.5
Buyer of 7,000 Freeport McMoRan (FCX) September 45 Calls for $1.20 – Stock at 42.7.
Intel (INTC) January 34 Call – INTC was mostly unchanged last week, which was super impressive compared to its peers as the Semiconductor ETF (SMH) fell by 6%. Hmmm.
And I’m not the only one noting this as Wall Street research firm Wolfe wrote: “Long Intel vs. short NVIDIA? Consider me very intrigued. It has been a one-way street for years, and I’m not saying that this is the start of a secular move but could definitely see this ratio working its way higher over the next few months.”
Also, option activity remains strong including these buys from last week:
Buyer of 5,000 Intel (INTC) March 41 Calls for $1.93 – Stock at 34.5
Buyer of 2,000 Intel (INTC) October 38 Calls for $1.10 – Stock at 35.
Russell 2000 (IWM) August 177 Call – With just over a week to go until expiration, and our mental stop triggered, we sold our adjusted IWM calls last week for a small profit.
Nasdaq ETF (QQQ) December 370 Puts – Very quickly our QQQ puts are back alive as the Nasdaq has been under pressure for the past three weeks. We will continue to hold our hedge.
Shopify (SHOP) January 62 Call – SHOP is starting to be a problem as the stock continues to drift lower along with the Nasdaq. That being said, we have profits in the bank, and option activity remains strong, including:
Monday - Buyer of 6,000 Shopify (SHOP) January 68 Calls for $4.20 – Stock at 48.5
Thursday - Buyer of 1,000 Shopify (SHOP) October 65 Calls for $1.97 – Stock at 56.7.
UBER (UBER) December 40 Calls – UBER has been bleeding lower with the Nasdaq; however, because we have taken partial profits twice, I’m willing to give this trade more rope.
Energy ETF (XLE) January 85 Calls – The XLE continues to look great as the energy play gained another 3% last week. Our trade is in terrific shape.
