May 16, 2024
Stocks on Watch – BHP Group (BHP) and Walmart (WMT)
Our RSP June 158 Calls are working well, and are now at a potential profit of approximately 43%. And while the trade is working, with June expiration approaching next month, I am debating selling this position and moving this capital (and more) into a fresher idea. This leads me to …
BHP Group (BHP) stock, which has been on a nice run in the last month as commodity plays have been hot. And this afternoon a trader bought this call position, looking for the stock to move higher in the coming weeks and months:
Buyer of 25,000 BHP Group (BHP) July 62.5 Calls for $1.65 – Stock at 60.
I like this set-up in BHP, though it’s going to be super tough for me to add even more commodity exposure to the portfolio with FCX and GDX working well, and CCJ not yet performing.
Also, BHP is involved in a potential takeover of a rival/peer, which adds a bit more risk to getting involved.
This may just be a stay-away, especially with our exposure to commodities fairly high.
Next up on my watchlist is Walmart (WMT) which is trading higher by 7% today following earnings – a monster move for a stock like WMT. And when looking at prices for upside calls, I am intrigued by just how inexpensive they are if we want to get involved.
While WMT is not a “sexy” stock, when a liquid stock like WMT makes a move of this size after performing well all year headed into this event, I have to say I’m heavily debating getting involved.
May 13, 2024
Weekly Update
Note: Last Friday I joined Cabot Street Check, our weekly podcast hosted by my colleagues Chris Preston and Brad Simmerman, to discuss what I’m seeing from the options market and what it means for the stock market as a whole. Mike Cintolo and Michael Brush, Chief Analyst of our Cabot Cannabis Investor newsletter, also joined. We had a good chat – click here to check it out.
Somewhat quietly, the Dow has rallied eight straight days, and is leading the market higher as of late. Such is the rotation of the market, especially during earnings season (which I touch on below).
For the week the S&P 500 gained 1.4%, the Dow rallied 1.75% and the Nasdaq gained 1%.
Stocks on Watch and What Traders are Saying
If we were to go back and look at the most successful trades at Cabot Options Trader over the years, growth stocks would largely lead in terms of volumes of trades, as well as biggest gainers.
However, when the market is not in love with growth stocks, I pivot … and in the last couple of months after a torrid start to the year for growth stocks, we have been moving the portfolio in other directions. Heck, we own GDX, FCX, and CCJ right now!
And the last two weeks as earnings season has been ramping up, there is no question that growth stocks have been under pressure. Here is a small sample of former growth leaders that were down 10-30% on earnings recently:
DDOG, PLTR, SHOP, DUOL, ABNB, EPAM, AMD, DASH, QRVO, NET, EXPE and on and on.
This shakeup in growth, at least in the short term, has meant money is racing into other sectors, which brings me to two stocks that have been on torrid runs, and attracted call buying last week.
Teva Pharmaceutical (TEVA) was a pharma giant for many years, and then the stock fell on hard times. However, last week the stock rallied 18% on earnings, and saw this big call buy looking for higher prices in the months to come.
Wednesday – Buyer of 8,000 Teva Pharmaceutical (TEVA) September 18 Calls for $0.64 – Stock at 16.
As I’ve mentioned in the past, I really like finding sleeping giants that perk back up, and TEVA is definitely on my watchlist given the stock move and call buying.
Next up is Prudential Financial (PRU), which broke out to a new high on Friday and is up 14% year-to-date. And on Friday a trader bought calls looking for the stock to continue to move higher. Here is that trade:
Friday – Buyer of 3,400 Prudential Financial (PRU) June 120 Calls for $1.65 – Stock at 118.5.
PRU looks like many financial stocks … absolutely fantastic. And while we already own WFC, I am not averse to adding another financial play if the strength continues in this sector.
Stepping back to growth stocks, perhaps the recent sloppiness is just a short-term shakeout and we will ramp up our exposure to the group again soon. Though I will say, I’ve seen very few of these stocks bounce from their recent weakness, and for now at least option activity has been quiet in the group.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 13.
My goodness the VIX is getting super cheap again. And while we already own a hedge via our QQQ puts, if I wasn’t hedged, a VIX at 13 or below means puts in the SPY/QQQ/IWM are very inexpensive as a form of portfolio protection.
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
The headliner this week in terms of economic data reports, and inflation, is the Consumer Price Index (CPI) on Wednesday, and of slightly less interest, the Producer Price Index (PPI) on Tuesday.
On the earnings front, the following companies will report this week, led by retail giants Home Depot (HD) on Tuesday and Walmart (WMT) on Thursday.
Open Positions
Cameco (CCJ) December 55 Calls – CCJ is the newest addition to the portfolio following several days of strong stock action and call buying activity. The stock got hit on Friday, though I’m not too concerned about that weakness (for now) as the sector can be wild.
Freeport-McMoRan (FCX) November 46 Calls – FCX had another strong week as the stock approaches its 52-week high. Copper is clearly an emerging commodity leader as peer SCCO also looks great.
Gold Miners ETF (GDX) January 33 Calls – Similar to FCX above, the GDX is trading right at its 52-week high which is great for our position. While I am not a gold bug, I can spot a trend, and for now this group is trading very well.
Robinhood (HOOD) January 15 Call – HOOD stock initially responded well to earnings, but then gave up those gains and bled lower. This is concerning to me, though with nice profits in the bank I’m willing to give this trade a bit more rope … for now.
Marijuana ETF (MSOS) May 10 Covered Call – The May 10 calls that we sold will expire this Friday. I would anticipate rolling these calls to a June call position at some point this week, though it will depend on where the MSOS is trading … essentially, we are in wait-and-see mode as the call continues to lose value (good).
Novo Nordisk (NVO) September 135 Calls – Somewhat quietly NVO is getting back in gear again as the stock rebounded after its earnings sell-off and is bid above 130 this morning. This is an interesting development.
Palantir (PLTR) May 22 Covered Call – PLTR got hit on earnings, and then continued to bleed lower in the days that followed. I don’t love this price action, though because we sold a defensive covered call, our position is in “OK” shape ahead of expiration this Friday.
Equal Weight ETF (RSP) June 158 Calls – The RSP has been on a very nice run as the AI/Mega-Cap stocks have chopped around, and the rest of the market has been in gear. This is a great development for our calls, though time is running out on our June position.
Taiwan Semiconductor (TSM) September 130 Calls – TSM closed at a multi-month high on Friday and looks terrific. Our position is in great shape, and call buyers continue to look for higher prices, including this trade from last week:
Wednesday – Buyer of 6,000 Taiwan Semiconductor (TSM) July 145 Calls for $7.60 – Stock at 142.
Nasdaq ETF (QQQ) November 430 Puts – Not much new to add this week regarding our QQQ hedge that we will continue to hold just in case the market again weakens.
Wells Fargo (WFC) December 62.5 Calls – WFC closed Friday at a new high and looks fantastic along with its financial peers. Of note, option activity remains red hot, including this call buy from Wednesday: Buyer of 10,000 Wells Fargo (WFC) May 63 Calls (exp. 5/31) for $0.50 – Stock at 61.15.
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