February 22, 2023
Wynn Resorts (WYNN) and Position Update (SPY Puts)
Yesterday we took partial profits on our recently purchased SPY September 400 puts. While I like holding a full put position in the portfolio, because we have taken partial profits on so many positions recently and have had so many positions expire in the last two months, our market exposure is very light.
With this lack of exposure, as well as sticking to the system of taking partial profits (26% on this trade), I rang the register on a third of our position.
Moving on …
We are holding a bullish position in casino/gaming player Las Vegas Sands (LVS),and this position is at a profit of over 100%. Because we own this position, I am unlikely to add Las Vegas Sands peers Caesars (CZR), which reported an earnings beat this morning, or Wynn Resorts (WYNN), even though both stocks look terrific.
However, if I DID have interest in adding exposure to this group, WYNN would be my target following this call buy this morning:
Buyer of 20,000 Wynn Resorts (WYNN) June 90 Calls for $21.90 – Stock at 91
I really like the way WYNN stock looks, as well as this $44 million call buy.
That being said, until we exit our LVS trade I am not going to get involved with CZR or WYNN.
However, IF I were looking for exposure to WYNN, I would likely target the September 110 calls for $14 (approximately).
February 22, 2023
Stocks on Watch – Taiwan Semiconductor (TSM)
Earlier this morning I wrote a Stocks on Watch on Wynn Resorts (WYNN), following a large premium call buy. In that Stocks on Watch I noted that I was unlikely to buy WYNN, as we already own peer Las Vegas Sands (LVS).
And while I am unlikely to buy WYNN because of sector exposure, on the other hand, we have no exposure to the semiconductor space and I am growing intrigued by Taiwan Semiconductor (TSM) following several days of call buying, including these trades:
Today - Buyer of 42,000 Taiwan Semiconductor (TSM) May 70 Calls for $18.95 – Stock at 87 ($80 million call buy)(rolled from March 70 calls)
Yesterday - Buyer of 5,000 Taiwan Semiconductor (TSM) April 95 Calls for $2.46 – Stock at 88.5.
TSM has been weak since it was reported that Warren Buffett had exited most of his holdings in the stock. That news, along with the market softening in recent days, has caused TSM to fall from 98 to 87.
However, should the market, and TSM, stabilize, the stock is near the top of my watch list for a new position. Though of note, IF I were to get involved with the stock, I don’t love the call buys above in terms of strike selection. Instead, I might target the September 90 calls for $8 (approximately).
February 21, 2023
Weekly Update
What started out looking like another positive week for the market later turned into a week of little gains or losses, as economic data and Fed speak weighed on stocks on Thursday and Friday. For the week the S&P 500 and Dow fell marginally, while the Nasdaq rose just over 0.5%.
Stocks on Watch
Option activity was largely mixed again last week, as hedge funds and institutions have not yet ramped up exposure to the market via options. That being said, if I wanted to look for a bullish angle for the market, the trades below in TSLA and META are encouraging.
Tuesday - Buyer of 11,000 Tesla (TSLA) April 240 Calls for $11 – Stock at 201
Thursday - Buyer of 15,000 Meta (META) June 140 Calls for $41.60 – Stock at 174 (rolled from February calls).
TSLA has exploded higher in early 2023, having gained 68% year-to-date. And while I don’t like buying calls $40 out-of-the-money, as the odds of success are low, in the case of TSLA, nothing would shock me.
In terms of the META trade, this was a buy of $62.5 million of call premium, and is without question a vote of confidence for the stock which is higher by 43% year-to-date.
On the bear side, while bitcoin is higher by 48% year-to-date, traders continue to buy puts on COIN and SI, which are two “easy targets” should the crypto market fall apart again. Here are two trades from last Thursday in those stocks:
Buyer of 3,000 Coinbase (COIN) April 40 Puts for $2.46 – Stock at 66
Buyer of 10,000 Silvergate (SI) March 17.5 Puts for $2.52 – Stock at 22.5.
I have no interest in getting involved with COIN or SI to the downside or upside, as the crypto roller coaster is a ride I don’t have interest in getting on.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week mostly unchanged at 20.
Interestingly, despite the market moving violently day-to-day, including a gain or loss of more than 1% for the Nasdaq in 14 out of the last 15 trading days, the VIX has been relatively range bound between 18-20 over that same stretch of time.
The reason for the lack of a move higher in the VIX, in my opinion, is that despite the daily volatility the QQQs are higher by 5% in the last month while the S&P 500 is up 1.8%. Essentially, the market is choppy, but trending higher … for now.
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Monday – 5
Tuesday – 5
Wednesday – 6
Thursday - 5
Friday – 5
Events for the Week to Come
Like so many weeks before it, the tone this week will likely be set by a Federal Reserve event (Fed Minutes) Wednesday and inflation data (PCE report) Friday.
On the earnings front, this week traders will be watching reports from Walmart (WMT) and Home Depot (HD) on Tuesday, Nvidia (NVDA) on Wednesday, as well as a long list of retail, oil and Chinese tech companies.
What Traders are Saying
As Cabot Options Traders know, hedge funds and institutions use options to get bullish and bearish exposure just like we do. And one of the more frequent buyers of puts is famed short seller Jim Chanos (famously shorted Enron, among others).
Below is a table of Chanos positions, as shared by ZeroHedge, highlighting that the hedge fund manager owned 49 put positions as of December 31, 2022.
When looking at the list of stocks Chanos is/was betting against, the highlights to me are TSLA, which he has publicly attacked in the past, as well as former high flyers BYND, COIN, ZOOM, SI, AFRM and others.
Big picture, the data above could be somewhat stale as these positions were as of the end of last year. Regardless, I found this look inside one of the top market bears interesting, and wanted to share with the COT/COTP group.
Open Positions
Bank of America (BAC) March 36 Covered Call – On Wednesday we bought back the February 36 call that we had sold for a nice profit, and then sold the March 36 call for $0.60.
Of note, as I wrote in the trade alert, I expect we will also capture the $0.22 dividend in March.
Big picture, this trade is working nearly perfectly.
Blackstone (BX) March 80 Puts – BX was mostly unchanged last week. Not much more to add, other than time is definitely an issue with the balance of our trade as March is now the front month.
Disney (DIS) September 105 Calls – Coming out of earnings, DIS does not look great. That being said, it is exactly where we bought our calls.
Also, early last week JPMorgan wrote DIS “is our favorite, due to the company’s strong asset mix and what we expect to be a rapid decline in streaming losses in the next year ... we expect margins to improve as the company pares away what had become a bloated cost structure.” Resumes Overweight, $135.
Finally, on Wednesday a trader bought 6,000 Disney (DIS) April 115 Calls for $2.65 – Stock at 108.
Las Vegas Sands (LVS) March 44 Call – LVS was mostly unchanged last week, and continues to look outstanding. Our calls are now at a potential profit of approximately 135%.
Russell 2000 (IWM) August 185 Call – The IWM rose marginally last week and our calls remain in great shape, trading $8 in-the-money as of Friday’s close.
S&P 500 ETF (SPY) September 400 Puts – For better or worse our SPY puts are in good shape as we bought our hedge at the right time. We will continue to hold this position just in case the market weakens.
Vale (VALE) June 17 Call – Like I predicted in the VALE earnings preview, the stock hardly moved on earnings Friday. Commodity stocks tend to move with the price action of those commodities, and not on earnings.
