May 24, 2024
Position Update – Taiwan Semiconductor (TSM)
Following Nvidia’s (NVDA) earnings report Wednesday evening, many AI/Semiconductor plays are breaking out to new highs, and we are fortunate to own one of the leaders in that space, Taiwan Semiconductor (TSM), which is also trading at a new all-time high.
This impressive rally has pushed our TSM September 130 calls that we originally purchased for $13.40 to be worth $33.50, or a potential profit of approximately 150%.
I am going to continue to hold my position as I think TSM and the AI/Semiconductor theme look terrific.
However, I wanted to bring this stock strength, and our potential profits, to your attention just in case you wanted to ring the register on a piece of your position.
May 22, 2024
NVDA Earnings and a Scheduling Note
Before we dive into the big event for the week, Nvidia (NVDA) earnings this afternoon, I do want to bring to your attention a couple scheduling notes.
First, I won’t be in front of the trading screens tomorrow. That means there won’t be a Daily Option Order Flow list on Friday morning.
However, I will be back at it Friday … before I head to the beach for Memorial Day Weekend.
And because I’m getting wiser when it comes to being a good husband, I am going to send a shorter than usual Weekly Update on Tuesday morning … evidently me writing about the stock market while my wife is entertaining the kids at the beach has not been earning me brownie points the past couple years.
Moving on …
Nvidia’s earnings today after the close is the big event for the week, as the company is the clear leader in the AI space. I expect the numbers/earnings are going to be massive, though the stock’s reaction to those numbers will be the true tell for the state of the AI plays and semiconductors, and risk in general.
Of note, I would expect the two stocks in our portfolio that have AI/Semiconductor exposure, TSM and PLTR, to move violently on this report.
NVDA – With the stock trading at 950, the options market is pricing in a move of $80 this week, or 870 to the downside and 1,030 to the upside.
Open interest is skewed slightly bullish on a ratio of 1.1:1 call vs. put.
Skew is pricing in extreme downside risk and upside interest.
May 20, 2024
Weekly Update
Note: Due to the Memorial Day holiday, next week’s Cabot Options Trader update will arrive on Tuesday, May 28. Enjoy the long weekend!
The stock market’s 5% swoon from several weeks ago has quickly become a distant memory as the indexes are back to their previous highs following another week of strong performances, as the S&P 500 gained another 1.3% last week, while the Dow rose 1%, and the Nasdaq added 1.75%.
Stocks on Watch and What Traders are Saying
This week I’m going to combine Stocks on Watch and What Traders are Saying. You will see why below …
Although growth stocks led the charge higher earlier this year in terms of performance and option order flow, that strength has shifted of late, as my order flow list has been full of consumer plays, commodities and consumer staple stocks.
This isn’t terribly surprising as these groups have been soaring as of late. For example, here are some great looking stocks from each group:
Consumer: CAVA/SG/WMT/CROX/ONON/SKX/SFM/SN
Commodities: FCX/SCCO/NEM/PAAS/CCJ/GDX/BHP
Consumer Staples: WMT/KO/PG/PEP/COST.
And here are a handful of trades from these groups this last week:
Buyer of 25,000 BHP Group (BHP) July 62.5 Calls for $1.65 – Stock at 60
Buyer of 5,000 Newmont Mining (NEM) January 65 Calls (exp. 2026) for $2.82 – Stock at 43
Buyer of 3,200 Coca-Cola (KO) June 70 Calls (exp. 2025) for $1.66 – Stock at 63
Buyer of 4,500 Coca-Cola (KO) June 70 Calls (exp. 2025) for $1.59 – Stock at 63
Buyer of 4,000 Cameco (CCJ) June 53 Calls (exp. 6/14) for $1.30 – Stock at 51
Buyer of 5,000 Cameco (CCJ) June 55 Calls for $1.50 – Stock at 52
Buyer of 16,000 Junior Gold Miners ETF (GDXJ) August 55/60 Bull Call Spreads for $0.50 – Stock at 45.8.
My point is, I keep looking at our portfolio and saying to myself that we are overexposed to commodity plays via GDX/FCX/CCJ and now we have “boring” stocks like WFC and WMT, and so few growth stocks (TSM and HOOD only). That being said, I have yet to see aggressive call buying in former growth leaders such as DDOG/SNOW/etc., and for now we are going to continue to stay away from that group.
That being said, if there is one growth stock that I have interest in today it’s Toast (TOST) as the stock responded well to earnings two weeks ago, hasn’t backed off since its initial move higher, and last week saw three call buys that are interesting. Here are those trades:
Friday - Buyer of 2,000 Toast (TOST) September 30 Calls for $1.89 – Stock at 27
Thursday - Buyer of 3,300 Toast (TOST) June 30 Calls for $0.54 – Stock at 28
Buyer of 1,000 Toast (TOST) May 29 Calls (exp. 5/31) for $0.39 – Stock at 28.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 11.97, which is its first close below 12 this year. Sheesh!
And while the VIX below 12 is certainly low, I do want to warn (of sorts) ahead of Memorial Day Weekend, and with the stock market being closed next Monday, that the VIX and options in general could remain under pressure this week.
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Monday – 5
Tuesday – 6
Wednesday – 6
Thursday - 6
Friday – 6
Events for the Week to Come
While the Federal Reserve’s Minutes from their previous meeting will get some attention, and a whopping 18 Fed speakers throughout the week will seem a bit of overkill, the big event for the market this week is likely Nvidia’s (NVDA) earnings on Wednesday. And while it’s likely the earnings numbers will be monstrous, of greater interest to traders will be the stock’s reaction to those earnings and what it means for the AI/Semiconductor sectors and stocks.
And while not as “big” as NVDA, earnings from PANW, ZOOM, LOW, TGT, etc., will also be notable this week.
Open Positions
Cameco (CCJ) December 55 Calls – Well, CCJ had a week! The stock traded as low as 49 on Monday, and then ripped higher by 7% on Friday, closing at a new 52-week high. As I “warned” when we bought this position, there are going to be some ups and downs when holding this uranium play.
Fortunately, at least for now, the week ended with a strong day, and option activity was wildly bullish in the stock on Friday as calls outpaced puts on a ratio of 4.6:1.
Freeport-McMoRan (FCX) November 46 Calls – FCX also closed at a new 52-week high on Friday as copper is where it’s at in terms of commodities, and stocks in general. Our trade is in great shape at a potential profit of approximately 85%.
Gold Miners ETF (GDX) January 33 Calls – GDX also closed at a new 52-week high on Friday as gold and silver plays continue to work in this environment. Our calls are now at a potential profit of approximately 30%.
Robinhood (HOOD) January 15 Call – HOOD gained 21% on Friday following a “double” upgrade of the stock (more on that below). Also likely helping the stock was the meme stock craze of recent days that was very likely a win for Robinhood as many traders who have interest in this trading action execute their trades via Robinhood.
Regardless of the reasons for the stock’s rise, our calls are now at a potential profit of approximately 160%
Bank of America: We double upgrade HOOD to Buy from Underperform and raise our price target to 24 which implies 30-35% return on a rebound in multiple metrics, including organic growth, margin loan utilization, and year-over-year trading activity and payment for order flow.
Marijuana ETF (MSOS) June 10 Covered Call – On Wednesday of last week we rolled our MSOS short call position to the June 10 calls, which lowered our cost basis on our covered call trade to 8.62. This trade is going to have its ups and downs, but as we continue to lower our cost basis via call sales, we are able to weather the volatility.
Novo Nordisk (NVO) September 135 Calls – NVO traded as high as 135 on Wednesday, before pulling back to 132 on Friday. Big picture, the stock looks great, though we do need the stock to really bust above 135 for our calls to explode higher in value.
Finally, on Wednesday a trader bought 4,000 Novo Nordisk (NVO) June 150 Calls for $0.55 – Stock at 133.5.
Palantir (PLTR) June 22 Covered Call – On Tuesday of last week we rolled our PLTR short call position to the June 22 calls, which lowered our cost basis on our covered call to 19.48.
Of note, while they are not peers, I expect PLTR stock will move on NVDA’s earnings on Wednesday as NVDA is the market leader when it comes to AI.
Taiwan Semiconductor (TSM) September 130 Calls – TSM gained 3% last week and looks terrific. Much like PLTR above, I would expect TSM to move on NVDA’s earnings on Wednesday.
Finally on TSM, our position is in great shape, at a potential profit of approximately 100%.
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.
Walmart (WMT) January 65 Calls – WMT is the newest addition to the portfolio after the stock ripped higher on earnings last week. While WMT won’t double overnight, or get taken over, the smart money continues to pile into retail names, and WMT is the biggest player in retail.
Wells Fargo (WFC) December 62.5 Calls – Having traded at a new 52-week high on Wednesday, WFC pulled back a bit to close the week. Big picture, WFC and its financial peers look fantastic.
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