November 10, 2023
Position Update – PLTR
While I am going to discuss the call buying activity in Palantir (PLTR) in my Monday morning Week in Review, I did want to bring to your attention how wild this activity is today, just in case you wanted to sell a piece of your position into this strength, or are generally interested in this highly controversial stock.
First off, by the numbers, call buying is outpacing puts on a ratio of 2.5:1 (370k vs. 150k).
However, what is so interesting about this call buying is so much of it is targeting a move higher today, next week, and the week after. Though to be fair, the buying is across the board in terms of time frames as well as upside strikes (19-23 strikes).
Regardless, the stock is trading today at a new multi-month high and our calls are now at a potential profit of approximately 17%. I am going to continue to hold my position looking for greater gains, but if you want to ring the register on some profits, that is a fine choice as well.
As noted above, I am going to dive deeper into this call buying in the Monday Week in Review, however, I wanted to bring this call buying to your attention today.
November 8, 2023
Li Auto (LI) Earnings
Tomorrow morning, before the market open, Li Auto (LI) will report earnings. Headed into the announcement, the stock, which has been a wild ride, is mostly unchanged since we added our position. And while the stock is mostly unchanged, our calls are down marginally since we bought, mostly due to option decay.
I am going to continue to hold my position through earnings because of the monstrous longer-term call buying, which brought us into our trade and has continued since.
That being said, as we have seen, LI stock can move violently, and should the company’s numbers disappoint, our calls could yet again be under pressure. Because of that risk, if you want to reduce your exposure, you must sell before the close of trade today.
LI - With the stock trading at 39.5, the options market is pricing in a move of $3 this week, or 36.5 to the downside and 42.5 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 big upside interest.
November 6, 2023
Weekly Update
How quickly the market can change directions as one week we are on the verge of a steep decline, and the next week the indexes explode higher. This last week fell into the big winner camp as the S&P 500 gained 5.35%, the Dow rallied 5.07% and the Nasdaq added 6.61%.
Stocks on Watch
Very quickly bullish option activity switched from completely dead to rip-roaringly bullish, especially in beaten down stocks and sectors that had been hurt by expectations of higher interest rates for longer. For example …
The ARK ETF (ARKK), which is the flag bearer for hyper-growth stocks, came into last week lower by 26.5% on the year. But then last week, as the interest rate picture may have changed, ARKK rallied a staggering 19%! And bullish option activity ramped higher with it, including these trades in the growth space:
Buyer of 30,000 Ark ETF (ARKK) January 45/51 Bull Call Spread for $0.87 – Stock at 40.35
Buyer of 15,000 Square (SQ) December 55 Calls for $1.50 – Stock at 50
Buyer of 52,000 Doordash (DASH) February 70 Calls for $22 – Stock at 88.5 (rolled from November calls).
Another sector that has been hurt by expectations of higher interest rates has been Real Estate and REITs. However, last week the Real Estate ETF (IYR) gained 8%, and call buyers chased that group higher, including these trades:
Wednesday - Buyer of 8,500 Real Estate ETF (IYR) November 77 Calls for $0.77 – Stock at 75.5
Thursday - Buyer of 23,000 Real Estate ETF (IYR) November 79 Calls (exp. 11/10) for $0.50 – Stock at 78.
Let’s see if this change of expectations towards interest rates continues this week, and if it has, which would likely be a better environment for stocks, we will continue to add to the portfolio.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed Friday at 15, or lower by 30% on the week, which is very encouraging for the bulls. Also, bullish option activity, which had been dormant for the past several weeks, and maybe even months, came alive in a big way Thursday and Friday. Maybe, just maybe, the bulls are ready to re-assert themselves … maybe.
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Monday – 5
Tuesday – 5
Wednesday – 5
Thursday - 6
Friday – 7
Events for the Week to Come
This week will be very light in terms of economic data releases and Federal Reserve speeches in comparison to previous weeks.
On the earnings front it will be yet another busy week, led by Berkshire Hathaway today, Uber and Datadog on Tuesday, Disney on Wednesday and many more.
What Traders are Saying
On Friday afternoon we added the Palantir (PLTR) April 19 Calls to the portfolio for $3.10, in a trade I labeled “High Risk/High Reward.” Here is a bit more about this trade and why I think it is going to be so interesting.
First off, PLTR stock gained 20% on Thursday following earnings, and option activity was wildly bullish both that day and Friday. I always like that set-up, especially in a market that is strengthening.
Second, PLTR has very high short interest, which means there are plenty of traders betting against the stock. This could be bad, as those traders could turn out to be right … OR, if the stock continues to move higher, those that are short the stock could be forced to buy the stock back, which essentially gives PLTR rocket fuel the higher the stock goes.
And because PLTR is such a highly debated stock, it could easily move 5% a day, which is going to be stressful to watch. That being said, without a bit of risk and stress, there can’t be high reward. And to pay $3.10 for a slightly out-of-the-money call was a perfect way to play that risk/reward ratio.
Finally, because this is a very controversial stock, option activity on the call and put side is off the charts. For example, PLTR traded 426k calls vs. 165k puts on Friday which would put those volumes in the top 2-3% (approximately) of all stocks that trade options.
So how is this trade going to work out? I think the odds favor it being a success, IF the market remains in gear. Though I can tell you it won’t be for the faint of heart.
Open Positions
Cameco (CCJ) March 40 Calls – CCJ gained 11% and is trading right near its 52-week high. Also, option activity remains very strong including this trade from late last week:
Buyer of 12,000 Cameco (CCJ) November 45 Calls for $0.47 – Stock at 42.5.
Cleveland-Cliffs (CLF) November 15 Covered Call – CLF closed Friday at 17, which is $2 above our short strike price. This trade is working well, though the odds of the stock being called away from us in two weeks are high.
DraftKings (DKNG) January 25 Call – DKNG gained 27% last week, with 16.5% of those gains coming on Friday following a blow-out earnings report. Our position is now at a potential profit of approximately 120%.
Intel (INTC) January 34 Call – INTC tacked on another 7.3% of gains and our trade is now at a potential profit of 33%. INTC looks great, and the stock should continue to move higher if the market is in gear.
Li Auto (LI) June 40 Call – LI added another 4% last week, and is trading higher by 9% in the pre-market this morning. If China-related stocks join the party, LI could move explosively higher.
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 soon.
Nutanix (NTNX) April 37.5 Calls – NTNX rallied 8% last week and looks great. Much like most of our bullish stocks, should the market be in gear, I think NTNX has stock star written all over it.
Palantir (PLTR) April 19 Call – See “What Traders are Saying” above.
TJX (TJX) April 92.5 Calls – TJX gained 4.5% last week ahead of earnings on November 15. Of note, on Friday as the stock traded at a multi-week high a trader bought these calls looking for a move to the 52-week high:
Buyer of 1,000 TJX (TJX) January 100 Calls for $0.69 – Stock at 91.5.
Financials ETF (XLF) March 33 Put – VERY quickly the XLF rebounded impressively last week, which is bad for our puts. That being said, this bearish position doesn’t expire until March so this feels like a perfect hedge.
Energy ETF (XLE) January 85 Calls – The XLE “only” gained 2.5% last week, though that is fine as the hot money was moving into sectors that had underperformed the market and the XLE recently.
