November 17, 2023
Position Update - Cleveland Cliffs (CLF)
Today is the expiration of our Cleveland Cliffs (CLF) November 15 covered call. With the stock trading at 17 I would expect we are going to finally have our stock position called away from us after MANY months of successfully selling calls.
I am going to let this position expire, and come Monday we will not own a CLF stock or option position, and will have collected a nice profit (this weekend I will calculate the final yield).
However, if you want to continue to sell calls, before the close of trade today you would need to Buy to Close the November 15 call that you are short, and then sell a new call … perhaps the December 17 call for $0.70 (approximately).
November 16, 2023
Position Update – Intel (INTC)
Following an upgrade this morning Intel (INTC) is trading higher by 4.5% today, and is breaking out to another new 52-week high. This stock strength has helped push our January 34 calls that were originally bought for $3.74 all the way up to $8.80, or a potential profit of approximately 135%.
This stock strength is impressive, as is the daily call buying, which has continued this morning including this trade:
Buyer of 12,000 Intel (INTC) December 43 Calls for $1 – Stock at 42.
I am going to continue to hold my calls as is, though at the same time I am going to set a mental stop on our calls at $7 which will take us out of our position should INTC stock fall.
Finally, did I really sell a piece of our position hours before the earnings announcement that triggered this stock run?!!! Grrrr!
November 14, 2023
TJX (TJX) Earnings
Tomorrow before the market open TJX (TJX) will report earnings. Headed into the event TJX stock is trading just short of its 52-week high.
I am going to hold my position through the earnings announcement as TJX stock looks great, and the market has been strengthening.
That being said, there is earnings risk as we have seen tons of earnings successes, as well as failures, this earnings season. And because of that risk, if you want to lower your exposure you have to sell to close a piece, or your entire position, before the close of trading today.
TJX - With the stock trading at 93, the options market is pricing in a move of $3.40 this week, or 89.6 to the downside and 96.4 to the upside.
Open interest is skewed slightly bullish on a ratio of 1.2:1 call vs. put.
Skew is pricing in typical downside risk and upside interest.
November 13, 2023
Weekly Update
While the market slid on Thursday, which put the recent rally in question, the bulls took the opportunity to buy that dip in a big way on Friday. When it was all said and done it was another strong week for the market as the S&P 500 gained 1.3%, the Dow rallied 0.65%, and the Nasdaq added 2.3%.
Stocks on Watch
The market seems to be in gear, as the three leading indexes gained ground again last week. However, despite the S&P 500, Nasdaq and Dow trading well in recent days, the Russell 2000 (IWM) has been a mess. In fact, while the S&P 500 and Nasdaq are higher by 15% and 32%, respectively, on the year, the IWM is lower by 2.5%.
With that in mind, and if I thought the IWM was going to revert to the mean of sorts, assuming the IWM might try to catch a bit to the other indexes into year end, I am somewhat intrigued by a buy of IWM calls, something like …
Buy of the IWM April 170 calls for $10 (approximately).
I think this trade would work if the market really runs into year end. My only hesitation, for now, is that the Regional Banks (KRE) are such a heavy weighting in the IWM, and those banks have been a total mess, which makes a Russell 2000 stock run a bit tricky.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 14.20, or marginally lower on the week. Not much more to add about the “fear index” other than this low level in the VIX would lead me to believe that the big options players aren’t worried about a deep market decline in the near term.
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Monday – 5
Tuesday – 5
Wednesday – 5
Thursday - 5
Friday – 5
Events for the Week to Come
The focus for traders this week will be inflation data via the Consumer Price Index (CPI) on Tuesday and Producer Price Index (PPI) on Wednesday, as well as President Biden’s meeting with China President Xi Jinping, also on Wednesday.
On the earnings front the volume of companies reporting is starting to slow down, though this week traders will be focused on the retail sector as companies such as Home Depot (HD), Target (TGT), TJX (TJX), Walmart (WMT) and more report quarterly results.
What Traders are Saying
I occasionally refer to options traders who buy weekly options that are out-of-the-money and with just a few days until expiration, and that have a low likelihood of success as options “crackheads” as these trades fail time after time, yet the trader can’t help themselves from buying more and more.
We oftentimes see those options crackheads buying in the most controversial stocks, which also have high short interest. Essentially, they are looking for a short squeeze to cause an explosive move higher in the stock. Think back to the GameStop (GME) and AMC (AMC) short squeezes of a couple years ago.
And we are potentially seeing similar action in Palantir (PLTR), which is certainly a sounder company than GME, but without question the company is controversial and has high short interest.
For example, here is a SMALL sample of this call buying from Friday as traders piled into cheap calls looking for a short term move higher:
Buyer of 15,000 Palantir (PLTR) November 20 Calls for $0.25 – Stock at 19.20
Buyer of 9,000 Palantir (PLTR) December 22 Calls for $0.45 – Stock at 19.6.
Again, this is a super small sample of the short-term call buying as hundreds of thousands of calls were bought targeting this Friday, the next Friday, etc. In fact, calls outpaced puts on a ratio of 2.5:1 on Friday.
So, what are these “crackheads” playing in PLTR? It could be …
… a short squeeze, potentially fueled by the call buying as the market makers who sell the calls to the buyers of the options must buy stocks to hedge off their risk, or…
… an Artificial Intelligence (AI) run, as PLTR was called the “Lionel Messi of AI” recently by a Wall Street analyst, or…
… a simple run on growth stocks.
Or it could even be the inclusion of PLTR in the S&P 500, which has been speculated about since the CEO said on the company’s earnings call, “With these results, our company is now eligible for inclusion in the S&P 500, a milestone that we have been working towards and knew was within reach.”
Regardless of the reasoning, I like the way PLTR stock looks, and this call buying could provide rocket fuel to that strong stock action if it really gets in gear.
Open Positions
Cameco (CCJ) March 40 Calls – CCJ gained 1.3% last week and call buying continues to be very strong. Our position is in good shape.
Cleveland-Cliffs (CLF) November 15 Covered Call – CLF closed Friday at 16.5, which is $1.50 above our short strike price headed into expiration this Friday. Let’s see where the stock is trading on Thursday and Friday of this week before deciding how we will manage this good situation.
DraftKings (DKNG) January 25 Call – DKNG rallied another 3.75% last week and our position is now at a potential profit of approximately 145%.
Intel (INTC) January 34 Call – INTC gained 1.85% last week and looks terrific. Our position is now at a potential profit of approximately 50%. Also of note, on Wednesday a trader bought 4,000 September 37/40 Bull Call Spread for $1.54 – Stock at 38.
Li Auto (LI) June 40 Call – LI gained 1.6% last week, though it did fall 1.8% on Friday following earnings. Moving forward I would assume LI will trade with Chinese tech stocks.
Nasdaq ETF (QQQ) December 370 Puts – While all of the bullish positions above benefited from the market’s rally, not surprisingly it was a negative for our QQQ put position. And should the market continue to strengthen, I will be exiting this position VERY soon (maybe in the next couple of days).
Nutanix (NTNX) April 37.5 Calls – NTNX gained another 4% and our position is back in good shape at a potential profit of approximately 20%.
Palantir (PLTR) April 19 Call – PLTR rallied 4.2% last week. See “What Traders are Saying” above for more thoughts on the stock and option activity.
TJX (TJX) April 92.5 Calls – TJX was mostly unchanged ahead of earnings on Wednesday morning. Expect a full earnings write-up Tuesday afternoon.
Financials ETF (XLF) March 33 Put – The XLF was mostly unchanged last week, and I will continue to hold this bearish position which doesn’t expire until March.
Energy ETF (XLE) January 85 Calls – The XLE fell 3.8% as it continued its third week of underperformance as money raced into tech. Because we have partial profits on two-thirds of this position I am going to hold this position … for now.
