February 10, 2023
Stocks on Watch – Lyft (LYFT) and Uber (UBER)
LYFT is the stock disaster of the day, following an earnings report that led one analyst to say …
After “22 years on the Street last night’s LYFT call was a Top 3 worst call we have ever heard .. a debacle for the ages. We are downgrading from Outperform to Neutral. There are serious questions if Lyft’s business model can scale from here.”
In reaction to the “debacle” of an earnings release/call, LYFT stock is trading down by 36%, or lower by $6.
And while I am not going to buy LYFT, as I rarely try to catch a falling knife, that doesn’t mean others (perhaps some COT/COTP members) don’t have interest. For that reason, I wanted to share with you some of the bullish trades in LYFT in early trading action today.
Buyer of 10,000 Lyft (LYFT) July 12.5 Calls for $1.40 – Stock at 10.5
Buyer of 6,000 Lyft (LYFT) June 12.5 Calls for $1.24 – Stock at 10.5
Again, I am not going to buy LYFT, as I find it hard to believe the stock is going to soar higher in the near future (unless an activist gets involved).
Instead, I am going to continue to build my watch list of earnings season winners, which interestingly includes LYFT’s peer, Uber (UBER), which reported a blowout earnings report earlier this week.
February 6, 2023
Pinterest (PINS) Earnings
Pinterest (PINS) will report earnings after the close today. Headed into the event we are holding half of a position, having sold the first half of our calls last Thursday for a profit of 18.05%.
The reaction to PINS’ earnings this afternoon is going to be super interesting, and I could see the stock crashing, or exploding higher. It really feels like a toss-up situation. Here is what I mean …
On the one hand, social media peer SNAP reported awful earnings two weeks ago and the stock got hit hard. Conversely, META, which is also a peer, reported relatively strong earnings, and the stock exploded higher. Because of the mixed reaction to PINS’ peers, I don’t have a great read on the sector.
Also, while the market fell on Friday, and is lower again today, big picture, the indexes have been shaping up and the couple-day pullback feels totally normal.
Again, without a great read on the market, it makes it a bit of a challenge to predict how traders might react to Pinterest’s earnings.
Essentially, it feels like a toss-up situation.
That being said, because we have profits in the bank on half, and option activity is without question bullish today, including a buyer of 10,000 February 29 Calls (exp. 2/10) for $1.21, I am going to take the earnings risk and hold my position through the event.
However, if you don’t want to take the earnings risk, and there is risk as our calls are in the money and have limited time until expiration, you must sell to close before the end of the trading day today.
Buckle up!
PINS – With the stock trading at 27.75, the options market is pricing in a move of $4 this week, or 23.75 to the downside and 31.75 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.
February 6, 2023
Weekly Update
Following a monster week of earnings, a Federal Reserve interest rate hike, and the January Jobs report, “risk on” continues to be the theme in early 2023 as the Nasdaq once again led the indexes higher. By weeks’ end the S&P 500 had gained 1.64%, the Dow fell marginally, and the Nasdaq had rallied another 3.35%.
Stocks on Watch
This week’s Stocks on Watch is made up of two “boring” stocks, as well as a high flier. Let’s dive right in …
Comcast (CMCSA) and Delta Airlines (DAL) are two stocks that are not flashy, and unlikely to triple overnight. However, because the price of call options on these two stocks is so inexpensive, call buys in these stocks could be monster winners should they move dramatically higher. And last week call buying activity picked up in these stocks. Here are those trades:
Thursday - Buyer of 3,300 Comcast (CMCSA) July 45 Calls for $1.10 – Stock at 40.75
Monday - Buyer of 4,000 Comcast (CMCSA) July 40 Calls for $2.62 – Stock at 39.5
Friday - Buyer of 10,000 Delta Airlines (DAL) June 45 Calls for $1.30 – Stock at 40.
The repeated call buying in CMCSA is intriguing, and I have the stock on my watch list.
And in the case of DAL, fellow Cabot analyst Mike Cintolo has been warming up to the airlines. Here is a small sample of what he wrote recently:
“One pattern we’ve seen play out a few times since the pandemic, usually in cyclical areas, is the following: Conditions in a certain industry rapidly improved, causing players to show outrageous earnings growth which helped the stocks have a run. But then the stocks petered out (at best) or were hit hard (at worst), as investors figured the earnings bump would soon disappear as conditions returned to normal … but then it turned out conditions did not return to normal, with earnings and cash flow remaining huge and helping the stocks enjoy another leg higher.
“Today, this is playing out in what we look at as the “new” travel boom, with what could be a multi-year increase in travel and experiences as (a) travelers make up for a couple of years of pandemic-induced cabin fever, (b) people emphasize good times with their family instead of saving money, and (c) some potentially structural changes in the sector that will keep capacity limited and prices elevated. Indeed, many hotel and airline firms are still in a catch-up phase compared to pre-pandemic activity levels—and we think they could blow through that in the quarters to come, which, combined with cutbacks during the dry times of 2020/2021, should lead to even higher earnings than what’s been seen so far.”
Based on the call buying in DAL as well as UAL/AAL recently, I’m warming up to the airline stocks too.
Finally, the story of the last two weeks has been the dramatic move higher in the “trash” stocks. And while I don’t feel like chasing, there is little doubt that the momentum players are back buying way out-of-the-money calls, as shown by a trade in Carvana (CVNA) below:
Thursday - Buyer of 4,000 Carvana (CVNA) January 65 Calls for $2.83 – Stock at 17.
I do not like this trade, as the odds of CVNA falling more than $50 is low. That being said, you never know …
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 18.33, which was mostly unchanged on the week.
Of note, with the Nasdaq higher by 15% year-to-date, and the VIX at 18, I have begun pricing out new bearish trades, as the price of protection is relatively cheap, and could pay off big if the Nasdaq gives up its early 2023 gains.
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
With the Federal Reserve meeting behind us, and the January Jobs report released, in theory the “big” events mostly have passed. That being said, the Fed’s blackout period is now over, which means we will be hearing more and more from Fed officials via public speeches.
Also, while META/AAPL/AMZN/GOOGL have released earnings, this week there is still an enormous list of companies reporting, including:
What Traders are Saying
Late last week my Cabot Wealth Daily, which you can read here, was focused on the bull/bear case for Testa (TSLA). At the end of that article, I highlighted a bullish as well as bearish options trade. This article sparked this question from a COT/COTP subscriber:
“I’m intrigued by your comments on playing an options trade in TSLA. I’ve held positions in TSLA for 10 years and have achieved some tremendous profits. Would you recommend either of these option plays you alluded to, or another trade for TSLA? Always value your opinion and a suggestion would be appreciated.”
This is what I wrote back (though note that prices have moved):
“I’m good with either of the TSLA options trades in the article, which were:
Buy of the September 170 calls for $35 (bullish)
Buy of the September 165 puts for $27 (bearish).”
And of note, option activity in TSLA has been crazy bullish the last couple days, including these trades Friday, followed by my thoughts on each trade:
Buyer of 5,000 February 250 calls for $1.45.
I don’t like this call buy as TSLA would need to rally $60 in the next two weeks for these calls to finish in-the-money.
Buyer of 2,000 January 600 calls (exp. 2025) for $11.85.
This is not my favorite trade either, as TSLA would need to rally $410 for these calls to finish in-the-money. Instead, if I wanted to buy calls expiring in 2025, I would target the 200 or 210 strike.
Buyer of 8,000 April 220 Calls for $15.
This is my favorite of the trades, if I wanted to get bullish exposure to TSLA.
Stepping back, TSLA has rallied nearly 70% from its recent lows in the blink of an eye, so a pullback would not surprise me. That being said, TSLA is a beast, and when the momentum is strong in this cult stock it can go much further than one might expect.
Open Positions
Bank of America (BAC) February 36 Covered Call – BAC closed $0.40 above our short strike, which is a great scenario for our covered call. We will simply let the decay fall out of this option in the days/weeks to come.
Blackstone (BX) March 80 Puts – BX was mostly unchanged last week, though of note, on Thursday as the stock began to pull back, a trader bought 3,000 March 95 Puts for $3.30 – Stock at 100.
Disney (DIS) September 105 Calls – Ahead of earnings on Wednesday DIS stock was mostly unchanged last week. Of note, on Thursday a trader bought 1,000 April 115 Calls for $5.40 – Stock at 112.
Alphabet (GOOGL) February 120 Calls – Having rallied 8% ahead of the company’s earnings report, GOOGL stock fell marginally on Friday. At this point our calls are pretty much dead, though if you want you can sell the last piece for $0.15.
Las Vegas Sands (LVS) March 44 Call – LVS fell 1% last week as the hot money moved into hyper-growth stocks. And while a small decline is not what we want, it is hardly the end of the world either. Our calls closed the week at a potential profit of 180%.
PayPal (PYPL) March 80 Call – Ahead of earnings on Thursday PYPL closed near its recent highs. I will update you on how we will proceed with this position ahead of the announcement.
Pinterest (PINS) March 25 Call – Ahead of earnings today after the close, on Thursday we sold half of our position for a profit of 18.05%. Now I need to decide how we will manage the balance of this position … expect to hear from me later this morning.
Russell 2000 (IWM) August 185 Call – Also on Thursday we took profits of 33.76% on half of our IWM calls. I think the index looks terrific, though I would also not be surprised if the IWM and the other leading indexes pull back.
S&P 500 ETF (SPY) March 420 Puts – My lean with our SPY puts is to sell this position, and move the capital into a hedge with more time until expiration. This move may come this week depending on market conditions.
Vale (VALE) June 17 Call – Gold and silver pulled back last week, which weighed on VALE. Should these precious metals continue to fall, this could potentially be a bad situation for VALE … but let’s see if that in fact happens.
