December 15, 2023
Dumpster Diving Ideas – PFE and AR
Ahead of the Federal Reserve announcement this afternoon, the market and option activity are fairly quiet. In fact, as of 11:30 Eastern, I only have two bullish trades on my Daily Watchlist, and those call buys are in two stocks that have greatly underperformed the market this year. Let’s dive in …
Pfizer (PFE) has been a total trainwreck for years, having traded as high as 62 in late 2021, and having fallen to a new five-year low today at 26.2 after the company slashed its 2024 guidance this morning. It’s been truly awful underperformance for PFE which is down 49% year to date, while the Healthcare ETF (XLV) that tracks many of the leading pharmaceuticals is unchanged on the year.
However, into this nasty stock decline, a trader/traders have bought 6,000 March 27.5 Calls for $0.87 and 10,000 March 29 Calls for $0.50 – Stock at 26.
I really don’t like dumpster diving, as any dips bought in PFE the last couple years have been rewarded with even more stock declines. That being said, I will admit, calls are definitely cheap in PFE if I were looking to throw some calls in my back pocket looking for a longer-term rebound. Perhaps something like …
Buy of the PFE January 27.5 Calls (exp. 1/17/2025) for $2.50
Next up is Antero Resources (AR), which is a natural gas play. And not surprisingly, as natural gas is trading at a multi-year low, similarly, AR stock is trading at its 52-week low. Yet despite the weakness in AR stock, in the last two days a trader/traders have bought the dip via options. Here are those trades:
Yesterday - Buyer of 5,000 Antero Resources (AR) May 24/30 Bull Call Spread for $1 – Stock at 20.6
Today - Buyer of 1,200 Antero Resources (AR) May 23 Calls for $1.67 – Stock at 20.5
Much like PFE above, I am not going to buy AR just yet. However, if I was looking to throw some calls in my back pocket, looking for a rebound in the next year, I might …
Buy the AR January 20 Calls (exp. 2025) for $5
December 11, 2023
Weekly Update
Despite some early-in-the-week wobbles, the bulls were able to rally into the close of the week and again tack on gains. For the week the S&P 500 gained 0.8%, the Dow was unchanged, and the Nasdaq rose by 0.7%.
Stocks on Watch
With the market continuing to slowly move higher, I am looking to potentially add exposure to the portfolio this week. Here are a couple stocks I’m watching due to bullish option activity:
ARM Holdings (ARM) IPO’d in the middle of September to much fanfare. Shortly after the IPO the stock traded as high as 69 before pulling back to the mid-40s in the months that followed. However, as the market strengthened in recent weeks, ARM stock rose, and is now testing the IPO highs. And on Friday a trader opened a bullish trade looking for ARM to break out to the upside. Here is that trade:
Friday - Buyer of 1,000 ARM Holdings (ARM) March 70 Calls for $4.45 – Stock at 65.
I like this set-up in ARM, as well as the reasonable price of options. This stock is near the top of my watch list.
Next up is somewhat odd call buying in retailers Nordstrom (JWN) and Kohl’s (KSS) on Friday. Here are those trades, and then my thoughts:
Friday - Buyer of 25,000 Nordstrom (JWN) December 17 Calls for $0.16 – Stock at 16
Friday - Buyer of 10,000 Kohl’s (KSS) December 26.5 Calls for $0.30 – Stock at 24.7.
While the premiums paid on these call buys is relatively small, what makes these trades interesting is that the call buyers bought these trades at nearly the same time, and both trades are looking for the stocks to move higher this week. (And this morning it was announced peer Macy’s (M) had received a takeover bid.)
Finally, a trader/traders bought Zoom Video (ZM) calls on Friday afternoon. These call buys may turn out to be losers in the short term, as after the close on Friday it was announced that ZM stock was going to be removed from the Nasdaq 100. First, here are those trades:
Friday - Buyer of 1,000 Zoom Video (ZM) August 90 Calls for $4.40 – Stock at 73
Friday - Buyer of 1,700 Zoom Video (ZM) March 80 Calls for $3.50 – Stock at 73.
It will be interesting to see if ZM stock can shake off this Nasdaq news, and if there will be further call buying activity, which would be intriguing.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 12.40, which is right at a multi-year low. This very low level in the VIX ahead of a big week of economic data and the Federal Reserve event highlights how little fear traders have of a big market decline. Though in fairness, we are also approaching the holiday season, which typically is slow for the markets, and which helps explain the VIX below 12.5.
Option Order Flow was fairly bullish this past week as my Options Barometer came in at:
Monday – 5
Tuesday – 6
Wednesday – 5
Thursday - 6
Friday – 6
Events for the Week to Come
This week will be all about inflation data and the Federal Reserve as traders will be closely watching the Consumer Price Index (CPI) on Tuesday morning, Producer Price Index (PPI) on Wednesday morning, and then the Federal Reserve announcement on Wednesday afternoon (no interest rate move expected).
On the earnings front it will be relatively quiet outside of Oracle (ORCL) reporting on Monday, Adobe (ADBE) on Wednesday, and Costco (COST) on Thursday.
What Traders are Saying
Below is an interesting chart form Bank of America, highlighting the Percentage of Stocks that Outperformed the S&P 500 this year. As you might imagine, given the outperformance of the “Magnificent Seven” (AAPL, MSFT, AMZN, NVDA, META, NFLX, TSLA) and their heavy weighting in the index, accompanied by the “meh” performance of most stocks this year, this was a historical year, as seen below:
It is interesting the percentage of stocks that outperformed the S&P 500 is the lowest since 1998 and 1999, which were the last years of the internet boom. In the three years that followed that low outperformance of stocks, the S&P 500 fell 10% in 2000, 13% in 2001 and 23% in 2002.
And while I’m not forecasting a nasty sell-off like we saw in the early 2000s, I found this chart noteworthy, and something we at least have to have on our radars headed into 2024.
Open Positions
Cameco (CCJ) March 40 Calls – CCJ was mostly unchanged last week, though of note call buyers seemingly don’t stop looking for more upside in the shares into year end. Our position is now at a potential profit of approximately 62%.
DraftKings (DKNG) January 25 Call – On Monday of last week our mental stop was hit, and we sold the last third of our DKNG position for a profit of 184%. This trade worked very well, and if the stock can get back in gear, and option activity heats up again, we could get back involved.
Intel (INTC) January 34 Call – INTC fell 2% last week as semiconductor stocks were mostly under pressure. Our calls are now at a potential profit of approximately 140%.
Li Auto (LI) June 40 Call – LI fell another 4% last week as China stocks were again under pressure. My patience is running thin with this stock, though because we have so much time until expiration I’m willing to give it more rope.
Nutanix (NTNX) April 37.5 Calls – NTNX gained another 3% last week, closing at a new 52-week high. Our calls are now at a potential profit of 125%.
Palantir (PLTR) April 19 Call – As I wrote in the Weekly Review last Monday I thought PLTR could be under pressure as the stock was not added to the S&P 500 the previous Friday. That turned out to be the case as PLTR fell 9% on Monday. Though of note, bullish option activity again picked up steam later in the week, which is encouraging.
TJX (TJX) April 92.5 Calls – TJX was mostly unchanged last week, which is somewhat discouraging as other retailers such as AEO, FL, OLLI have been strong. My patience is running out on this trade.
Financials ETF (XLF) March 33 Put – At this point our XLF puts are largely a back-pocket hedge just in case something goes really sideways in the market.
