January 26, 2024
Stocks on Watch – TSLA and INTC
The last two days I’ve received several questions from Cabot Options Trader subscribers about how I might “Buy the Dip” in TSLA and INTC, both of which fell on earnings late this week. And while I am not in a rush to buy either of these stocks, IF I were, this is how I might do so …
TSLA stock fell 12% following earnings on Thursday and is now down 26% year to date. Not exactly a great set-up for a momentum player in a bull market. That being said, if I thought the selling was overdone, I might look at either of these trades:
Buy the TSLA August 185 Calls for $27 (approximately)
Or
Buy the TSLA August 185 Calls for $27
Sell the TSLA August 250 Calls for $7.50
Net, this is the August 185/250 Bull Call Spread for $19.50
In terms of INTC, the stock is trading at 44 today, or lower by 12% today which is not great. Though in fairness, INTC was up nearly 60% in the last year, so this post-earnings decline isn’t the end of the world.
And while I’m not going to get involved (unless option activity heats up) here is how I might play INTC if I were looking to buy this weakness:
Buy the INTC September 45 Calls for $5 (approximately)
Or
Buy the INTC September 45 Calls for $5
Sell the INTC September 55 Calls for $1.50
Net, this is the September 45/55 Bull Call Spread for $3.50
Stepping back, I would expect we will be aggressively adding earnings season WINNERS to the portfolio in the next two weeks and have little interest in buying earnings season losers at this time.
January 22, 2024
Bullish Option Activity in PLTR and CELH
This morning bullish option activity has ramped up in two of our positions. Let’s start with Palantir (PLTR) …
PLTR is trading higher by 6% today as the most heavily shorted stocks are mostly ramping higher (CVNA, AFRM, etc.). And into this strong stock action, option activity is wildly bullish in PLTR as calls are outpacing puts on a ratio of 3.8:1, and calls have already traded 216% of their average daily volume. Here is a small sample of this call buying:
Buyer of 7,000 Palantir (PLTR) March 18 Calls for $1.75 – Stock at 17.70
Buyer of 3,000 Palantir (PLTR) August 30 Calls for $0.70 – Stock at 18
As we have seen, PLTR can get red hot really quickly, and it will be interesting to see if this is a one-day move or the start of something bigger.
Next up is Celsius (CELH) which got hit hard on an analyst downgrade on Friday. However, this morning a trader/traders are buying calls looking for the stock to bounce back. Here are those trades:
Buyer of 1,000 Celsius (CELH) April 70 Calls for $1.43 – Stock at 52.5
Buyer of 3,000 Celsius (CELH) March 60 Calls for $2.83 – Stock at 53.5
While the stock decline on Friday was brutal, this call buying in CELH this morning is encouraging.
January 22, 2024
Weekly Update
Despite some weakness early in the week, the indexes bounced back in a big way, closing at new all-time highs. For the week the S&P 500 gained 1%, the Dow added 1.07%, and the Nasdaq soared higher by 2%.
Stocks on Watch
The Semiconductors led the market higher last week, initially triggered by a strong earnings report from Taiwan Semiconductor (TSM) Thursday morning that sent the stock higher by 10%. And in the days that followed, options traders bought calls looking for TSM stock to move higher in the weeks and months to come, including these trades following earnings:
Thursday - Buyer of 15,000 Taiwan Semiconductor (TSM) May 100 Calls for $14.25 – Stock at 110
Friday - Buyer of 3,300 Taiwan Semiconductor (TSM) April 120 Calls for $4.20 – Stock at 114.
Despite adding fellow semiconductor Marvell (MRVL) on Thursday, this move in TSM is certainly interesting, and it is possible that we could add the stock to the portfolio if this option activity continues.
Finally, I continue to monitor 2023 Pharmaceutical leader Novo Nordisk (NVO) as well as Abercrombie & Fitch (ANF), which looks terrific, and I would anticipate my list of buy candidates will explode in size in the next three weeks as earnings season winners emerge.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 13.30, having traded at a multi-month high above 15.50 earlier in the week. I continue to think that the VIX anywhere below 17-20 is a green light telling traders they can “comfortably” add to a portfolio as hedge funds and institutions are not yet worried about a steep market decline (for now).
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Tuesday – 5
Wednesday – 5
Thursday - 6
Friday – 6
Events for the Week to Come
This week earnings season gets going in a big way, led by Netflix (NFLX) on Tuesday, Tesla (TSLA) on Wednesday, Intel (INTC) on Thursday and a host of other interesting companies such as Texas Instruments (TXN), Visa (V), ServiceNow (NOW) and on and on …
What Traders are Saying
Two of the major themes of 2023 were the wonder weight loss drugs sold by Eli Lilly (LLY) and Novo Nordisk (NVO) that sent those stocks dramatically higher, and the AI/Semiconductor story that propelled stocks like Nvidia (NVDA) to new highs.
And while it’s possible that these stories have already been priced into those sectors and stocks, it’s also possible in the case of AI and the Semiconductors we are actually still in the early innings of the spending cycle.
What I mean is Nvidia (NVDA) and Advanced Micro Devices (AMD) are up 20% and 19%, respectively, already this year, and are trading at new highs, Super Micro Computer (SMCI) exploded higher on a pre-announcement on Friday and an under-the-radar AI play like Nutanix (NTNX), which we own, is up three straight weeks, and at a new high as well.
So, what other AI exposure to do we have other than NTNX?
Palantir (PLTR) is a player in AI.
Marvell (MRVL) is a semiconductor AI play.
Snap (SNAP), while not a “traditional” AI stock, has been building out its exposure to the emerging technology.
And while not pertinent to the Cabot Options Trader portfolios, the Jacob’s Private Circle portfolio has owned Veritv (VRT) for months and recently bought Arm Holdings (ARM), both of which are AI plays and are trading at new highs (just sharing ideas for those looking to add exposure).
Stepping back, I will be watching very closely to see if this earnings season will signal that we are on the cusp of a super-cycle of spending in the AI space, and which companies will be benefiting, and that we could add to the portfolio to take advantage of this emerging trend.
Open Positions
Celsius (CELH) July 60 Call – Having looked terrific most of last week, CELH got annihilated on Friday following a downgrade. While the loss of 12% seems excessive on a simple downgrade, I will be watching to see how the stock moves in the next week or two to see if this is an overreaction, or if the stock is in trouble.
Intel (INTC) January 34 Call – Last week we closed our INTC calls for a profit of 218%. This was a wildly successful trade in terms of profits, which is most important, but it’s also “fun” to catch a former leader in the early innings of a stock turnaround.
Li Auto (LI) June 40 Call – LI, and nearly all China-related stocks, can’t get out of its own way, and this stock is really testing my patience. And while we have plenty of time until our call expires, I might sell half of this trade this week.
Marvell (MRVL) August 70 Calls – On Thursday of last week we added the MRVL August 70 Calls to the portfolio for $9.51 following a week of bullish option activity and strong stock action. Finally, Friday morning Citigroup named MRVL one of its Top Picks for 2024.
Nutanix (NTNX) April 37.5 Calls – NTNX is a stock star that continues to see strong option activity. As of the close on Friday our calls are now at a potential profit of approximately 290%.
Palantir (PLTR) April 19 Call – PLTR continues to mostly chop around aimlessly as the most shorted stocks in the market have been under pressure in early 2024 trading. That being said, option activity heated up in PLTR on Friday, including this trade:
Friday - Buyer of 6,000 Palantir (PLTR) February 19 Calls for $0.55 – Stock at 16.75.
Equal Weight ETF (RSP) June 158 Calls – The Equal Weight ETF was not the place to be last week as money raced into stocks like NVDA. Let’s see if in the weeks to come the rest of the market plays catch-up to the big technology stocks that soared higher last week.
Snap (SNAP) August 17 Calls – SNAP was under pressure again early last week, but then bounced nicely to close the week and again looks good. Also, options traders continue to buy calls, including this trade from Wednesday that added to an already large position:
Wednesday - Buyer of 12,000 Snap (SNAP) February 20 Calls for $0.41 – Stock at 15.3.
TJX (TJX) April 92.5 Calls – TJX gained 1% last week and looks solid. Much like the RSP update above, last week wasn’t ideal for most stocks like TJX, and it will be interesting to see if/when money rotates into these type of stocks if the market is truly strong.
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.
