December 22, 2023
Position Update – Intel (INTC)
With just three weeks to go until expiration, and Intel (INTC) stock breaking out to another new high, I am going to again raise our stop on our calls.
With the stock trading at 48 this morning, our January 34 calls that were originally bought for $3.74 are now worth $14, or a potential profit of approximately 273%.
Because we have just three weeks until expiration, I am going to move our stop from $10, up to $12. This stop would likely trigger should INTC stock fall to 46.
December 21, 2023
Scheduling Note and SNAP Call Buy Follow-up
Before I dive into a deeper look on our buy of SNAP calls yesterday, I wanted to update you on my plan for the holidays and what that means for Cabot Options Trader scheduling.
I am going to continue to be at the trading desk the rest of this week through Wednesday morning of next week. Then, next Wednesday through the final weekend of 2023, we will be traveling and celebrating the holidays with family and friends. And while I will be away from the trading desk late next week, as always, I will have my eye on the market and will react if we need to makes moves. Have a Merry Christmas and happy holidays!
Moving on …
Yesterday we added SNAP to the portfolio via a buy of the August 17 calls for $3.60. Here is a deeper look at why I thought the time was right to buy.
First off, as I wrote in the trade alert, I think SNAP stock looks terrific, option activity has been very bullish and Wall Street analysts have been ramping up their price targets on the shares.
Also, we are entering a very bullish time of year. As @RyanDetrick on Twitter noted:
“The official Santa Claus Rally starts on Friday. It is the last 5 days of the year and first two days of the next year. Turns out, these 7 days are more likely to be higher than any other 7 days of the year, up 79.5% of the time.”
And while the seasonality factors are nice, really for me it is more important for the market to be strong when we are adding to the portfolio, the sector to be leading as well (PINS/META look great also) and for the risk/reward to be right.
In terms of risk/reward, in my opinion to pay $3.60 for a call with eight months until expiration in a stock that is showing signs of life for the first time in years, was a no-brainer. And while I don’t think SNAP will run from 17 all the way back to its highs near 85 from late 2021, could it rally to 30 or 40 if the market is in gear? Absolutely.
Finally, having been stopped on our DKNG and CCJ trades in the last two weeks (which was fortunate as both stocks have continued to fall) we had room to add exposure to the portfolio. And in fact, given those recent sales, should the market continue to strengthen, we potentially could add even more new positions in the next couple of days.
December 18, 2023
Weekly Update
With the Federal Reserve signaling that the interest rate hiking cycle is over, and there may even be rate cuts in 2024 the bulls cheered this news as the S&P 500 gained 2.5%, the Dow rallied 2.9%, and the Nasdaq added 2.85%.
Stocks on Watch
Having added the RSP June 158 calls to the portfolio on Thursday, which are a general bull market play, I feel like the it’s time to focus on individual stocks that are performing well and attracting bullish option activity.
The leader in terms of stocks that fit that category is Snap (SNAP), which is on a big stock run and continues to see large call buying, including these trades from last week:
Thursday - Buyer of 10,000 Snap (SNAP) February 18 Calls for $1.41 – Stock at 17 (rolled from February 15 calls)
Monday - Buyer of 5,000 Snap (SNAP) April 15 Calls for $2.68 – Stock at 15.8.
I like this stock strength and option activity a lot. The only hesitation I have is the stock has been such a disaster for so long. Though to be honest, perhaps I need to get rid of that bias in this new interest rate environment.
And finally, I continue to be somewhat intrigued by RingCentral (RNG), which looks just “OK” but has seen several large call buys recently, including this out-of-the-money call buy from Thursday.
Thursday – Buyer of 14,000 RingCentral (RNG) February 40 Calls for $1.10 – Stock at 33.5 (rolled from January calls).
RNG doesn’t have the best chart, but this call buying is something … maybe.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 12.30, having traded below 12 on Thursday, which was its lowest level since January 2020, or before Covid.
And while I think the VIX is low, ahead of a long holiday weekend, it’s certainly possible that the “fear index” will continue to drift lower, and options prices across the market will likely continue to decay.
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Monday – 5
Tuesday – 6
Wednesday – 5
Thursday - 7
Friday – 5
Events for the Week to Come
Ahead of the long holiday weekend economic data this week will be somewhat quiet, but will have some highlights as traders will be watching for Consumer Confidence data on Wednesday, third-quarter GDP on Thursday and November PCE Inflation data on Friday.
On the earnings front it will be a light week of announcements, though FedEx (FDX) on Tuesday, Micron (MU) on Wednesday and Nike (NKE) on Thursday will garner some attention.
What Traders are Saying
It’s the time of year for Wall Street analysts to make their predictions for how the market will perform in the coming year, as well as to highlight their top stock picks. Below is a list of many of those top picks, as well as how I might play them if I wanted to get involved.
As always, if I was looking to buy calls I would target at-the-money, or slightly out-of-the-money, calls with five to 12 months until their expiration. I am going to give some ideas on the first couple of stocks, but from there you can extrapolate how I might look to play these top stocks (though if you want to run a trade by me, never hesitate to email me).
Rosenblatt: AMD (stock at 139)
Buy the AMD June 140 calls for $18
Piper: AMZN (stock at 150), PINS (stock at 37)
Buy the AMZN July 150 calls for $16
Buy the PINS August 37 calls for $6
Citi: AAPL (stock at 197)
Buy the AAPL September 200 calls for $18
Morgan Stanley: F, GM, TSLA, LHX, TMUS, BLK
Goldman Sachs: DAL, UAL
Wells Fargo: CVX, AXP
Deutsche: WYNN, LVS
JPMorgan: AMZN, GOOGL, UBER, ARM, MU, MRVL, WYNN, LVS
Bank of America: HUM, STLA, GE
Oppenheimer: TGT
Evercore: MNST
Wells: T
KeyBanc: WMT, OLLI
Barclays: PENN, CZR, RCL, CCL
Evercore: WDAY
Bernstein: KHC, MDLZ
BMO: COST, WMT
Open Positions
Cameco (CCJ) March 40 Calls – CCJ looks great and our position is working well. That being said, because our call is decaying, we are on the verge of our stop being triggered. Let’s see how the stock trades today, and in the days to come.
Intel (INTC) January 34 Call – INTC closed just short of its 52-week high on Friday and our calls are now at a potential profit of approximately 225%.
Today our calls are worth $12.25, and because we are running out of time on our January position let’s move our mental stop on our calls from $7 all the way up to $10.
Li Auto (LI) June 40 Call – LI is largely stuck in the mud along with many of its China stock peers. Let’s see how the stock reacts to the calendar flipping to 2024, which may trigger some rotation into 2023 laggards.
Nutanix (NTNX) April 37.5 Calls – NTNX closed just short of its 52-week high on Friday and looks outstanding. Our position is now at a potential profit of approximately 135%.
Palantir (PLTR) April 19 Call – Ever since PLTR was not added to the S&P 500 two weeks ago the stock has mostly chopped around. And while chopping around isn’t what we are looking for, the stock still looks fairly good … though to be fair, we want PLTR to get that strong momentum and wild call buying going again.
Equal Weight ETF (RSP) June 158 Calls – On Thursday we added the RSP June 158 calls for $7.69 following a big January call buy. Big picture, this trade will likely succeed or fail depending on the market’s performance in 2024.
TJX (TJX) April 92.5 Calls – Seemingly every time TJX shows signs of life, the sellers once again step in. My patience is running out on this position and we may move this capital into a better idea soon.
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.
