August 8, 2024
U Earnings and Portfolio Earnings Review
Before I dive into Unity’s (U) earnings today after the close, I wanted to touch base regarding the earnings reactions from several of our stocks this week.
PLTR is trading at a new post-earnings high today and option activity is red hot in the stock. I really like the way PLTR is trading especially given the recent market weakness. Our calls are in good shape.
LYFT got hit hard on earnings, which is not great for our covered call. The only thing holding me back from selling our position is option activity in LYFT was very bullish yesterday after that stock decline and continues to be so today. I don’t have high hopes for LYFT rebounding to previous highs, but given the option activity, I do want to see if we can recoup some of the losses.
HOOD is trading marginally higher today following earnings though still looks mostly buried, along with 95% of the stocks I am watching. Essentially HOOD is a bull market stock, and if the market isn’t in gear, HOOD will likely chop around.
Our calls are still in good shape, and option activity is strong following earnings, so I will continue to hold the balance of our position.
Moving on …
Our U trade is NOT working heading into earnings this afternoon as the stock got hit hard when the market came under pressure.
I am going to hold my position as is, as call buying remains very bullish, including a buy today of 10,000 August 14.5 calls expiring tomorrow (pure earnings bet/gamble).
And while I am going to take the earnings risk, clearly the stock looks dreadful, so if you would prefer to cut the position down in size before earnings you must Sell to Close a piece, or the entire position, before the close of trade today.
U - With the stock trading at 14.5, the options market is pricing in a move of $2 this week, or 12.5 to the downside and 16.5 to the upside.
Open interest is skewed bullish on a ratio of 1.8:1 call vs. put.
Skew is pricing in extreme downside risk and upside interest.
August 7, 2024
Hood (HOOD) Earnings
Hood (HOOD) will report earnings today after the close. Headed into the event we have taken partial profits twice, and are holding the final piece of our trade that is at an approximate profit of 70%.
With market conditions improving (maybe) and profits in the bank I am going to hold my position through earnings.
However, there is risk, as earnings season continues to be dicey. And because of that risk, if you would prefer to avoid the potential volatility, you must sell your position before the close of day.
HOOD - With the stock trading at 17.5, the options market is pricing in a move of $2 this week, or 15.5 to the downside and 19.5 to the upside.
Open interest is skewed bullish on a ratio of 2.1:1 call vs. put.
Skew is pricing in extreme downside fear and upside interest.
August 6, 2024
NVO and LYFT Earnings
Before I dive into our next batch of earnings from this week, I did want to note that PLTR is trading higher by 14% after reporting results last night. Good start to earnings season, though given market conditions, I’m sure there will be some misses as well.
NVO will report earnings tomorrow before the market open. Heading into the event we took partial profits once on our position, and the balance of our trade is at a loss as NVO and its peer LLY came under pressure in the last month. And while NVO came under pressure in July, interestingly the stock has perked back up in the last week, and maybe/possibly it and LLY are ready to re-emerge.
Regardless, let’s see how NVO responds to earnings tomorrow, and from there we will decide how to manage the balance of this trade.
NVO – With the stock trading at 130, the options market is pricing in a move of $8 this week, or 122 to the downside and 138 to the upside.
Open interest is skewed bullish on a ratio of 1.5:1 call vs. put.
Skew is pricing in typical downside fear and upside interest.
Next up is LYFT, which has been a bit of a train wreck since the company upped guidance nearly two months ago. Much like the NVO/LLY description above, LYFT and peer UBER have been weak in tandem with each other as traders have been pricing in weakness in the consumer.
And while our trade has not been working, of note, UBER is trading higher by 10% today following earnings this morning, and fellow peer DASH is also showing signs of life since that company reported earnings.
Let’s see if LYFT follows suit tomorrow morning …
LYFT – With the stock trading at 11, the options market is pricing in a move of $1.50 this week, or 9.50 to the downside and 12.50 to the upside.
Open interest is skewed bullish on a ratio of 1.6:1 call vs. put.
Skew is pricing in extreme downside and upside interest.
August 5, 2024
Market Update and Palantir (PLTR) Earnings
While not good, the market has recovered from the opening lows, which were somewhat scary, and as of noon Eastern the S&P 500 is “only” down 2% on the day, and the VIX which traded as high as 66 has now fallen all the way to 32.
Where the indexes will close is truly anyone’s guess.
Palantir (PLTR) is the next of our stocks to report earnings today after the market close, and this is likely going to be our wildest stock when it comes to earnings reactions.
Headed into the event, our once nicely profitable trade is now at a loss, though, for now at least, those losses are “manageable.”
I am going to hold my position as is through earnings as PLTR has given back some of its gains in recent weeks though is hardly a disaster. Also, option activity remains bullish.
That being said, if you don’t want to take the earnings risk, and there IS risk, you must Sell to Close before the end of the trading day today.
PLTR - With the stock trading at 24, the options market is pricing in a move of $3.50 this week, or 20.5 to the downside and 27.5 to the upside.
Open interest is skewed bullish on a ratio of 1.5:1 call vs. put.
Skew is pricing in extreme downside risk and upside interest.
August 5, 2024
Weekly Update
Please note, S&P 500 futures are indicated lower by approximately 4.5% this morning, while the Nasdaq is looking down 5.5%. I go into some of the reasons why below.
Regardless of the reasons, I do not expect to buy or sell many positions today. Instead, as I’ve said for weeks as the trading action had become murkier, I continue to preach patience.
Moving on to our Week in Review …
Well, that was a roller coaster of a week filled with worries, then jubilation, and finally concern yet again. By week’s end the S&P 500 had fallen 2.44%, the Dow had lost 2.43%, and the Nasdaq had pulled back another 2.37%. And if those numbers weren’t enough, the Russell 2000 lost a somewhat staggering 7.16% on the week.
Stocks on Watch and What Traders are Saying
After surging higher on Wednesday, the market completely fell apart Thursday and Friday. So what caused this roller coaster action?
Wednesday following earnings from AMD, ANET, and other AI-related plays it felt like the AI story that had been under pressure of late was back on solid ground as the Nasdaq, led by the semiconductors, rallied approximately 3%. The good times were back!
Unfortunately, the bears absolutely obliterated that hope Thursday and Friday as the indexes fell hard, led by the Russell 2000 (IWM), which fell 9% from its Wednesday highs.
So what triggered such an ugly sell-off?
To be honest, it could be a number of things, led by:
Middle East tensions are flaring up again.
The polling data for the presidential election might be tightening up (I don’t think the market truly cares who is president, but it hates uncertainty).
Recession fears ramped higher following weak economic data late last week. This sent the bond market into a tizzy of sorts as the odds of a 50-bps interest rate cut spiked … and when the bond market moves quickly, it sends reverberations through the equity markets.
The stock market in Japan completely melting down.
Or maybe, the market was just due to cool off after a torrid start to the year.
So where does that leave us with potential buy candidates for the portfolio?
As I’ve been preaching for two and now three weeks, be patient! The market is moving WAY too fast to be adding exposure. Could you imagine buying on Wednesday when the market was surging higher, only to watch the indexes and most stocks get slammed on Thursday and Friday? No thank you!
In fact, even the best-looking stocks headed into last week came under pressure. Take, for example, General Electric (GE), which I wrote about the previous week following a big earnings beat and strong stock reaction. The stock broke out to a new high on Wednesday … and then fell $10 to close the week, and traders started buying puts on the stock on Friday, including this trade:
Buyer of 5,000 General Electric (GE) October 150 Puts for $6 – Stock at 160.
My point is, now is not the time to be a hero. Instead, I will continue to build my watch list and when the conditions improve, and I mean for more than one day, then we will get back in the buying game.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 23.5, which was a rise of 40% on the week and the highest daily close this year (and is bid above 50 this Monday morning!).
And while that rise in the VIX sounds big, 23.5 was actually a big drop for the fear index, which traded as high as 29.5 at one point Friday. Essentially, there was an hour stretch on Friday when the VIX was surging higher at a rate of change that felt like panic buying … though as the trading action on Friday calmed down, so did the VIX.
Finally, on the VIX, the move on Friday above 28 was the highest level the fear index has traded since the Regional Banking Crisis of March 2023.
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
The same macro worries from last week (recession/politics/Middle East/Japan) will almost surely continue to dominate traders’ attention this week, though of note, major economic data points are much quieter this week.
On the earnings front it is another very busy week, led by PLTR on Monday, SMCI and UBER on Tuesday, DIS and SHOP on Wednesday and so many more throughout the end of the week.
Open Positions
With the market “crashing” this morning there isn’t much of a reason to break down our bullish and bearish positions. Essentially, anything I write could be proven to be “stale” by the time you read this.
Instead, here is my general plan for today …
As noted above, I am unlikely to buy or sell much today. Perhaps if things truly worsen, we might sell a position or two. Though I somewhat doubt that will be the case as the options markets will be VERY wide.
Stepping back … today may be “scary” and our bullish positions will get hit, while our QQQ puts explode in value.
Finally, as we have seen several times in the over 10 years I’ve been running Cabot Options Trader/Cabot Options Trader Pro, our biggest winning positions have come in the aftermath of market crashes.
It’s going to be interesting!!!
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