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June 4, 2024
Stocks on Watch – Starbucks (SBUX)
In the last week option activity has been wildly bullish in Starbucks (SBUX), including these trades from today:
Buyer of 3,300 Starbucks (SBUX) January 90 Calls for $4.50 – Stock at 82.5
Buyer of 8,000 Starbucks (SBUX) June 84 Calls (exp. 6/7) for $0.40 – Stock at 82.8.
These two trades are a very small sampling of the call buying in SBUX as of late, as weekly call options have been extremely active, and trades targeting longer time frames have been picking up steam.
In terms of the stock action, SBUX has been a dog for most of the last year, and the stock really tanked on earnings in early May trading as low as 72 post earnings. And while the stock had been under pressure, SBUX has slowly risen to a high of 82.5 today.
I am going to keep SBUX on my radar for further call buying activity, and should the under-the-surface selling in the market subside, we could add SBUX to the portfolio in the days to come.
June 3, 2024
Weekly Update
It was a down week for the market as the Dow initially led the indexes lower early in the week, then was followed by the Nasdaq later in the week. Though on a positive note, the market rebounded nicely from its lows on Friday afternoon.
By week’s end the S&P 500 was down marginally, while the Dow and Nasdaq both lost 1%.
Stocks on Watch
Fortunately, we have mostly avoided the market sell-off of recent weeks as we have stayed out of the way of the Dow, and then growth stock, sell-offs. This is largely due to the fact that call buyers have not been targeting those groups, which is a perfect example of how my system works in bull and then bear market conditions (mostly).
However, should the indexes stabilize, I am intrigued by the reaction to HP (HPQ) earnings on Wednesday which sent the stock higher by 17%, and attracted these call buys:
Buyer of 1,000 HP (HPQ) November 45 Calls for $1.80 – Stock at 39
Buyer of 3,000 HP (HPQ) August 40 Calls for $1.90 – Stock at 39.
On the bearish side of the coin, if the AI/Semiconductor theme is in trouble one of the leaders from that sector is ARM Holdings (ARM), which looks good for now, though a trader/traders accumulated puts on Friday looking for the stock to fall:
Buyer of 1,700 ARM Holdings (ARM) August 100 Puts for $3.60 – Stock at 123
Buyer of 5,000 ARM Holdings (ARM) August 110 Puts for $8.80 – Stock at 117.
Betting against ARM, which is a highly volatile stock, would be tough. However, this put buying is interesting.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 13, having traded just short of 15 when the market was on the lows of the day on Friday.
Despite the Dow falling more than 2,000 points in the last week and change, the VIX never truly exploded higher, and option activity was solidly mixed throughout this recent sell-off. This is encouraging in my opinion.
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Tuesday – 5
Wednesday – 5
Thursday - 5
Friday – 5
Events for the Week to Come
After a nasty couple weeks of trading for the Dow, and more recently growth stocks, traders will be watching to see how these groups trade this week, which is the start of a new month of trading, which can be a bit “funky.”
On the macro-economic front, traders will be watching the European Central Bank’s (ECB) decision to potentially cut rates on Wednesday, and then the U.S. Jobs Report on Friday.
In terms of earnings, it is a somewhat quiet week, though traders will be watching for stock reactions from CrowdStrike (CRWD) on Tuesday, Lululemon (LULU) on Wednesday, Samsara (IOT) on Thursday and more.
What Traders are Saying
The last two weeks have not been kind for the bulls, as noted by these two stats:
@AndrewThrasher: Through Wednesday, the Dow Jones is down -4.7% over the last 8 days. If it hits the -5% level today, it’d be the fastest -5% drawdown since just before the Covid Crash (7 days) and before that, Oct. ’18 (6 days).
@DeanChristians: For the first time in history, more than five NYSE issues declined for every one that advanced in 2 out of 4 sessions, with the S&P 500 less than 1.5% below a multi-year high.
NOT good as the Dow lost 2,000 points in just over a week; later last week, leading growth stocks such as CRM, DELL, NTNX, MRVL, S and many more were obliterated on earnings.
However, historically the market’s gains so far this year bode well for the indexes, as shared by @RyanDetrick: The S&P 500 is up about 5% in May with two full days to go. After a 5% gain in May, June has been higher 5 out of 6 times and the past three times the rest of the year added at least double digits.
It’s going to be interesting …
Open Positions
Cameco (CCJ) December 55 Calls – On Thursday of last week we locked in a profit of 21% on the first third of our CCJ calls. While I think the stock looks terrific and call buying was aggressive (see below) as I’ve noted in the past, commodity stocks can get red hot, but then turn ice cold, very quickly.
Tuesday - Buyer of 5,000 Cameco (CCJ) December 65 Calls for $3.95 – Stock at 54.25.
Freeport-McMoRan (FCX) November 46 Calls – FCX pulled back some early last week, then stabilized nicely even as the market got hit. I continue to like our trade quite a bit, though a move back to the highs would be even more encouraging.
Gold Miners ETF (GDX) January 33 Calls – What I said about FCX is identical to my feelings about GDX as the stock mostly chopped around last week even as the market was under pressure.
Robinhood (HOOD) January 15 Call – HOOD broke out to a new high last week, potentially sparked by news that the company initiated a large stock buyback. Our trade is in outstanding shape and I will continue to hold my calls as is given the wildly bullish option activity.
Marijuana ETF (MSOS) June 10 Covered Call – The MSOS got hit along with the market last week, which is not ideal, but is hardly the end of the world for our covered call. Of note, the June 10 calls that we sold for $0.76 are now worth $0.08.
Novo Nordisk (NVO) September 135 Calls – NVO had a solid week as the stock continues to flirt with its highs. That being said, our calls have lost value as option decay slowly eats away at our position. Essentially, while the stock is trading well, we need it to really bust to new highs for our calls to explode in value.
On Holding (ONON) January 42.5 Calls – ONON is the newest addition to the portfolio after several weeks of strong stock action and option activity. And that continued on Friday as a trader bought 2,000 ON Holding (ONON) July 42.5 Calls for $2.35 – Stock at 42.25.
Palantir (PLTR) June 22 Covered Call – PLTR had a nice close to the week despite growth stocks fading after it was announced the company received a big government contract. Regardless, the stock closed just short of 22, which is perfect for our covered call trade.
Taiwan Semiconductor (TSM) September 130 Calls – TSM pulled back with growth stocks last week, though it’s bid higher this morning. And of note, on Friday into the stock’s recent lows a trader bought the dip via this trade:
Friday - Buyer of 5,000 Taiwan Semiconductor (TSM) August 140 Calls for $15.50 – Stock at 149.
Nasdaq ETF (QQQ) November 430 Puts – At the market lows on Friday morning there was no doubt we needed our QQQ puts. As the old saying goes, “Buy puts when you can, not when you have to.”
Walmart (WMT) January 65 Calls – WMT closed Friday at a new high and our trade is in great shape. Not much more to add as this slow and steady riser looks terrific.
Wells Fargo (WFC) December 62.5 Calls – WFC and bank stocks in general have fallen from their highs the last couple of weeks. This is not ideal for our trade, though it’s hardly the end of the world either. Big picture, we need WFC higher, but because these calls expire in December I am willing to give this trade some time.
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