August 10, 2023
Stocks on Watch – Disney (DIS)
While 99% of rumors about takeovers turn out to be false, when there is option activity that coincides with those rumors, I might bump that failure rate down to 95%. Which brings me to Disney (DIS) …
For the past several months there have been subtle rumors that Apple (AAPL) might take a run at Disney (DIS). For example, this morning Wall Street firm Gordon Haskett wrote:
Whether the AAPL DIS speculation “is just noise is TBD, but something to keep in mind is Tim Cook will be celebrating his 12-year anniversary as Apple’s CEO later this month. With milestones like that he may be on a slightly different timetable than Iger.”
And today option activity in DIS is running red hot, including 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
In fact, as of 11:30 eastern calls are outpacing puts on a ratio of 2:1 (265k calls vs. 141k puts).
I am not going to get involved with DIS as the stock has been dead money for years.
However, if I wanted to play a takeover, or really any move higher, I might look at the January 90 calls for $8 (approximately).
August 7, 2023
Stocks on Watch – Cameco (CCJ)
As I’ve written in the past, commodities can get red hot in the blink of an eye. And taking that even further, uranium can go nuclear (see what I did there?) even faster than oil/copper/gold. This brings me to call buying activity in uranium stock Cameco (CCJ).
The last two days option activity in CCJ has been very bullish, including these trades on the September 37 strike:
Friday – Buyer of 10,000 September 37 Calls for $0.57 – Stock at 33.75
Today - Buyer of 10,000 September 37 Calls for $0.75 – Stock at 34.4.
And that is not all of the call buying in CCJ as today calls are outpacing puts by a ratio of 19:1 (37k calls vs. 2k puts).
Now what makes a bullish play in CCJ tough, but also potentially lucrative, is that the price of uranium and CCJ are going to move based on global headlines. And for those not in the know, the country of Niger recently suspended uranium exports to some countries following a military coup … and it’s been estimated that Niger supplies around 5% of the world’s uranium.
How this coup will play out and how it will impact the price of uranium is way above my paygrade … I’m just an options trader. That being said, those who are experts in that part of the world are almost certainly going to play uranium and CCJ through options, and I will be watching closely to see if they continue to execute bullish positions.
August 7, 2023
Weekly Update
Last week was the first week in what feels like months that the sellers really took control. And while it was hardly a disaster in terms of the indexes as the S&P 500 fell 1.3%, the Dow lost 1.11% and the Nasdaq declined by 2.85%, the pain was worse in individual stocks, many of which fell hard on earnings.
Stocks on Watch
As I’ve written the last two weeks, I believe we are in the midst of a rolling bull market. And we saw some of that action last week as growth stocks fell, while money poured into oils and commodities. For some context, the Nasdaq (QQQ) lost 2.85%, while the Energy ETF (XLE) gained 1.22%.
And we could also see the hot money moving into bullish options positions in the oil and commodities sectors, as noted below:
Buyer of 1,000 PBF Energy (PBF) October 50 Calls for $3 – Stock at 47
Buyer of 25,000 Suncor Energy (SU) October 32 Calls for $1 – Stock at 30.5
Buyer of 2,000 Freeport McMoRan (FCX) August 46 Calls (exp. 8/11) for $0.58 – Stock at 44.65
Buyer of 3,500 Exxon Mobil (XOM) August 108 Calls for $1.55 – Stock at 107
Buyer of 1,250 Exxon Mobil (XOM) December 105 Calls (exp. 2025) for $17.20 – Stock at 105
Buyer of 8,000 Devon Energy (DVN) August 53 Calls (exp. 8/11) for $0.35 – Stock at 51
Buyer of 2,500 Freeport- McMoRan (FCX) August 44 Calls (exp. 8/11) for $0.60 – Stock at 43.25
Buyer of 2,000 Ovintiv (OVV) October 60 Calls for $0.60 – Stock at 48.5
Buyer of 1,000 Ovintiv (OVV) September 50 Calls for $2 – Stock at 48.5
Buyer of 4,000 Antero Resources (AR) January 37 Calls for $0.99 – Stock at 27.7.
The Cabot Options Trader/Pro portfolios already own positions in the XLE and FCX so I believe we have adequate exposure to this group. That being said, I do like to see that traders continue to press their bets looking for a continued move higher.
And finally, as I noted on Friday, I’m pretty intrigued by Fluor (FLR) following a strong stock reaction to earnings (higher by 15%) as well as the call buying below:
Buyer of 5,500 Fluor (FLR) September 37.5 Calls for $1.10 – Stock at 36 (rolled out of 3,000 August 32.5 calls).
The call buying on the September 37.5 strike continued throughout Friday afternoon and by day’s end the trader had purchased 8,500 of these calls. I’m pretty interested in this set-up …
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 17.25, or higher by 30% on the week.
Of note, very surprisingly to me, because we are in the heart of earnings season, it was a super slow week of options trading by the hedge funds and institutions. Perhaps this could be explained by the big move in the bond market that caught so many traders offsides.
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Monday – 6
Tuesday – 6
Wednesday – 5
Thursday - 5
Friday – 5
Events for the Week to Come
This week will be relatively quiet on the economic data front, though traders will be looking at inflation data on Wednesday and Thursday via Consumer Price Index (CPI) and Producer Price Index (PPI) on Thursday.
And while economic data releases will be light, it is another big week of earnings as seen below:
What Traders are Saying
The market “theme” the last several weeks as earnings season got in gear is to sell off those stocks that had run into their quarterly results after those numbers were released. TSLA, NFLX, and MSFT were some of the early indicators that this could be a rough earnings season, and last week stocks such as AAPL, UBER, FTNT, and countless others followed the same playbook.
Now, is this simply a case of these stocks needing a breather after a big run higher? Or is this a bond market story once again as the playbook is to sell growth stocks when the treasury rates rally? Or maybe a case of both scenarios hurting the market in the short term?
Regardless, this week will be another good test for earnings plays and for the risk on/off them as high flyers such as Celsius (CELH), Datadog (DDOG), TradeDesk (TTD) as well as blue chips such as Disney (DIS) and UPS (UPS) will report. I will be keeping an eye on the stock reactions to these earnings reports to get a feel for risk.
Open Positions
Boston Scientific (BSX) November 55 Call – BSX fell 2% last week and continues to test my patience. Though of note, a trader on Monday bought this position:
Buyer of 3,000 Boston Scientific (BSX) September 52.5 Calls for $1.50 – Stock at 52.
Cleveland-Cliffs (CLF) August 16 Covered Call – CLF fell 5% last week, though is still above our short strike price, which is good.
DraftKings (DKNG) January 25 Call – DKNG reported earnings that easily beat expectations late last week. In reaction to those earnings the stock gained 6% on Friday.
Freeport McMoRan (FCX) January 44 Calls – FCX fell 2.5% last week, though it continues to look good. Option activity remains bullish.
Intel (INTC) January 34 Call – INTC fell 4.5% last week, though impressively “held the line” on Thursday and Friday as the market weakened. Option activity remains strong including these trades:
Friday - Buyer of 6,000 Intel (INTC) March 41 Calls for $2.15 – Stock at 35.5
Wednesday - Buyer of 11,000 Intel (INTC) November 39 Calls for $1.30 – Stock at 34.70.
Russell 2000 (IWM) August 177 Call – The IWM fell just over 1% last week, largely in-line with its index peers. Should the ETF continue to decline, our mental stop at $15 will take us out of our position.
Nasdaq ETF (QQQ) December 370 Puts – Last week was another reminder of why we own our QQQ puts, as the index fell sharply. The old trading expression, “Buy them when you can, not when you have to,” comes to mind when the growth-heavy index plummets.
Shopify (SHOP) January 62 Call – SHOP reported very strong earnings last week and the analyst community raised their price targets on the shares, including:
JMP Securities: 72 from 70
Morgan Stanley: 59 from 54
Piper Sandler: 59 from 50
RBC: 80 from 75.
Also of note on Friday a trader bought this position looking for the stock to rebound from its earnings sell-off:
Friday - Buyer of 5,000 Shopify (SHOP) October 70 Calls for $1.92 – Stock at 60.
UBER (UBER) December 40 Calls – UBER reported very strong earnings last week; however, the stock fell much like its peers that had run higher into earnings and then got hit. Though of note, option activity remained very strong throughout the week including:
Friday - Buyer of 4,500 Uber (UBER) August 42.5 Calls for $3.95 – Stock at 46
Wednesday - Buyer of 4,000 Uber (UBER) September 50 Calls for $1.20 – Stock at 46.8
Wednesday - Buyer of 7,000 Uber (UBER) August 46.5 Calls (exp. 8/4) for $0.65 – Stock at 46.5.
Energy ETF (XLE) January 85 Calls – The XLE gained 1.22% last week as money moved out of growth stocks and into oil plays. Our position is in good shape.
