July 27, 2023
Intel (INTC) Earnings
Intel (INTC) will report earnings today after the close. Headed into the announcement we are holding a full position that is essentially at a small profit (7%).
This is going to be an interesting report and stock reaction. What I mean is earnings season so far has been so/so.
Glamour growth stocks like NFLX/TSLA/MSFT/NOW have pulled back following earnings, while “sleepy” stocks like BA/JPM have reacted well to their announcements.
This brings me to INTC. I really could see the stock tanking or flying higher on earnings tonight. I say this because the company has been a bit of a mess for years, and should it continue to look like a mismanaged operation, the stock could tank.
Conversely, if the company appears to have righted the ship, the stock could re-emerge.
Essentially, this is a toss-up.
With those risks noted, if you would prefer to lock in a profit of approximately 7% ahead of the announcement on a piece or the entire position, that is a fine choice.
As for me, I’m going to take the risk based on mostly bullish option activity the past two months (though it has been mixed the last three days headed into the announcement).
INTC - With the stock trading at 34.5, the options market is pricing in a move of $2.50 this week, or 32 to the downside and 37 to the upside.
Open interest is skewed bullish on a ratio of 1.7:1 call vs. put.
Skew is pricing in typical downside risk and upside interest.
July 24, 2023
Weekly Update
Sector and index rotation was the name of the game last week as money raced out of tech to end the week and into sectors that had not been participating in the market’s advance recently. That being said, this is not necessarily a bad sign as the S&P 500 gained 0.7%, the Dow rallied 2.08% and the Nasdaq lost 0.6%.
Stocks on Watch
I don’t necessarily have a ton of hot candidates for new buys right now. That isn’t because there aren’t countless stocks breaking out, but with earnings season ramping up in a big way this week and next, and our portfolio performing pretty well, I’m largely sitting on my hands waiting for earnings season winners to emerge, and to then buy those stocks.
And while earnings season has just begun, here are some of the potential stars from last week:
ABT gained 6% following earnings
JNJ rose 6.5% following earnings
GS gained 8% on earnings
MS added 9.5% on earnings.
There was a clear theme with these stock moves as ABT/JNJ are in the med-tech/pharma space, while GS and MS are financials. This week 30% of the S&P 500 will report earnings and we should get a much more diverse list of potential earnings stars ready to emerge.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 13.60. This low level in the VIX ahead of the Federal Reserve event this week is somewhat surprising to me. Though I suppose the lack of fear as expressed by the VIX would imply that the Fed will raise rates by 25bps, which is exactly what traders are expecting.
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Monday – 6
Tuesday – 7
Wednesday – 5
Thursday - 5
Friday – 5
Events for the Week to Come
The big macro event for the week will be the Federal Reserve announcement on Wednesday. Of note, the bond market is pricing in a nearly 100% chance that the Fed will raise interest rates by 25 basis points.
And while the Federal Reserve announcement is the headliner for U.S. equities, traders will also be watching the Bank of Japan and the European Central Bank’s decision on interest rates also this week.
On the earnings front, it’s going to be a monster week as MSFT, META, GOOGL, and countless more market leaders will report earnings, including:
What Traders are Saying
In the past, when the market is strong, I’ve written about “rolling bull markets.” And we saw that kind of rolling trading action last week, as growth stocks were hot while oils/healthcare were cold early in the week, and then there was a quick rotation back into oils and healthcare, and growth cooled off.
Essentially, traders aren’t looking to sell stocks, but instead they are just moving new money into buys of new sectors. Fellow Cabot Analyst Mike Cintolo and I joined the Cabot Street Check Podcast on Friday where we talked about this in greater depth. The link to the video/podcast is below:
So how did this rolling bull market action impact the Cabot Options Trader portfolio? Let’s take a look at a couple of our positions …
On Monday and Tuesday of last week a stock like UBER (growth) gained nearly 7%, while the XLE and BSX essentially went nowhere.
Then, late on Tuesday, money started to race into the XLE and BSX as those two stocks gained 3% and 2%, respectively, to close the week, while UBER went back to chopping around.
And while the Nasdaq selling off by more than 2% on Thursday is a bit concerning, in my opinion the selling was just a part of the rolling bull market as the Dow closed the week on a 10-day winning streak, which further illustrates that traders aren’t liquidating positions and instead are simply moving money to new stocks and sectors.
Open Positions
Bank of America (BAC) July 31 Covered Call – I decided to let our BAC covered call trade expire as the premiums in the August expiration cycle aren’t that attractive. That being said, should the stock fall, and option volatility rise, we could get back into a position.
Boston Scientific (BSX) November 55 Call – BSX will report earnings on Thursday before the market open. Potentially pointing to a positive report for BSX was a blowout report from peer ABT last week.
Cleveland-Cliffs (CLF) August 16 Covered Call – On Friday ahead of expiration we bought back the July 16 call that we were short for $0.11 and sold the August 16 calls for $0.85. The company will report earnings today after the close.
DraftKings (DKNG) January 25 Call – DKNG “only” gained 1.5% last week as one of the hottest stocks in the market took a small breather. DKNG looks terrific.
Intel (INTC) January 34 Call – INTC had a roller coaster of a week, though after some volatility the stock was higher by 3% at week’s end. Also of note, option activity remains hot headed into earnings on Thursday including these trades from last week:
Buyer of 10,000 Intel (INTC) November 40 Calls for $1.30 – Stock at 34.6
Buyer of 10,000 Intel (INTC) September 37 Calls for $1.07 – Stock at 34.
Russell 2000 (IWM) August 177 Call – The IWM gained 1.5% last week largely on the back of the regional banks which are a large component of the ETF. Of note, late last week I put a mental stop on our calls at $15.
Nasdaq ETF (QQQ) December 370 Puts – The sharp 2% decline for the Nasdaq on Thursday is a reminder of why we own puts in the portfolio as that day was somewhat “scary” for the index that is up approximately 25% year-to-date.
Shopify (SHOP) January 62 Call – SHOP fell 4% last week, with most of those losses coming on Thursday when the Nasdaq got hit. Though of note, option activity remains bullish ahead of earnings in two weeks, including these trades:
Buyer of 3,000 Shopify (SHOP) July 70 Calls (exp. 7/28) for $1 – Stock at 66.5
Buyer of 5,500 Shopify (SHOP) September 90 Calls for $0.90 – Stock at 67.5.
UBER (UBER) December 40 Calls – UBER gained another 5.5% last week and looks terrific ahead of earnings in two weeks. Our position is in great shape.
Energy ETF (XLE) January 85 Calls – As noted in What Traders are Saying above, the XLE rebounded nicely to close the week with a nearly 4% gain. Many components of the XLE will report earnings this week and next.
