October 6, 2023
Stocks on Watch – Nutanix (NTNX) and Meta (META)
Very impressively, after a post-Jobs Report market swoon this morning, the S&P 500 is now higher by 0.8% on the day, and the Nasdaq is up 1.1%. Maybe, just maybe, today is the first day of a market turn to the upside (though we could just as easily close today on the lows also).
Regardless, my top candidate for a new position should market conditions continue to improve is Nutanix (NTNX) as the stock gapped higher on earnings three weeks ago, mostly chopped around while fellow growth stocks were obliterated, and today the stock is once again approaching its 52-week high. Very interesting relative strength!
Also intriguing about NTNX is the relatively inexpensive price of options. For example, I’m currently looking at the April 37.5 calls for $4.50 which are just $1 out-of-the-money, and would give us upside exposure to NTNX for seven months.
Next up on my watch list is Meta (META) which pulled back a month ago, but since then has mostly chopped around while the market has weakened. And while the recent stock strength is intriguing, what is perhaps more interesting to me is the steady bullish option activity in the stock.
Stepping back, today is just day one of impressive market action after three weeks of heavy selling so I’m not even close to declaring an “all is clear.” That being said, the market had every opportunity to fall apart this morning, and yet the bulls stepped up … and for that reason I’m intrigued about adding more bullish exposure to the portfolio in the days to come.
October 4, 2023
Sector on Watch – Biotech
One of the earliest sectors to fall amidst the latest market rout has been Biotech as the ETF that best represents the group (XBI) is down 13% in the last month and is lower by 22% since its June highs. Not good!
And while the sector looks awful, I do want to note the last two days traders have begun to buy the XBI dip via November call buys. Here are those trades:
Today - Buyer of 8,000 Bio-tech ETF (XBI) November 74 Calls for $1.20 – Stock at 69.3
Yesterday - Buyer of 9,500 Biotech ETF (XBI) November 75 Calls for $1.15 – Stock at 70
I am not yet in the mood to buy the XBI as the sector looks awful and the market is very suspect.
That being said, I would note that I am watching the XBI for a turnaround as the last two times the market unwound the biotech stocks rebounded ahead of the market’s advance.
Finally, while I am not buying the XBI today, if you were looking to add exposure to your portfolio, and wanted to get involved with the XBI, I might target the February 70 calls for $5.50 (approximately).
October 2, 2023
Weekly Update
The bond market’s wild gyrations were once again front of mind for traders last week, though interestingly by week’s end the market was mostly mixed as the S&P 500 lost 0.75%, the Dow fell 1.34%, and the Nasdaq was virtually unchanged.
Stocks on Watch
As I wrote on Friday, option activity has been relatively quiet the last several weeks as the shocks in the bond market, as well as the potential for a government shutdown, likely had traders largely sitting on their trading hands. That being said, I did want to highlight a few trades from last week.
As I’ve written in the past, one of my favorite signals that we may be in range of a short-term bottom is large scale put selling. And we saw some of that action on Monday as a trader/traders sold puts in two Nasdaq leaders. Here are those trades:
Monday - Seller of 20,000 Oracle (ORCL) December 95 Puts for $1.45 – Stock at 108 (trader willing to buy 2 million shares at 95)
Seller of 20,000 Palo Alto Networks (PANW) December 180 Puts for $1.99 – Stock at 226 (trading willing to buy 2 million shares at 180).
I’m encouraged by these two put sales, though to be fair, the trader’s risk via these put sales is if ORCL were to fall another 12%, and if PANW were to decline by 20%.
Finally, and like I said, it’s been quiet in the options world, is this call buy in a stock I was unfamiliar with until Friday. Here is the trade that brought it to my attention:
Buyer of 2,000 Akero Therapeutics (AKRO) October 70 Calls for $4.80 – Stock at 47.
The reason I am writing about this trade is that the trader is paying a HEFTY premium for a call that is $23 out-of-the-money, with just three weeks until its expiration. This would lead me to believe that big drug data is expected to be released during the October expiration cycle (the at-the-money straddle is pricing in a $22 move this month). I am not getting involved with this trade as I would expect AKRO to be up OR down violently in the next three weeks on this drug data.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week virtually unchanged at 18. Not much more to add on the VIX this week as there were some bursts of selling of protection, as well as temporary buys.
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 – 6
Events for the Week to Come
Thank goodness, maybe, September is over, and this week we are moving in to the traditionally best months of the year for the market. That being said, 2023 has been a rule breaker of a year, so anything is possible.
The headliner of sorts this week will be the release of the September Jobs Report on Friday. For those not keeping up with the narrative of the moment, in the short term at least, the bulls are hoping that this number misses expectations.
On the earnings front, this week is the calm before the storm.
What Traders are Saying
Here are three charts that tell the story of fear in the market, then lack of interest in buying the dip, and finally why that might be a mistake:
CNN Business – Extreme Fear
JPMorgan – Low levels of interest in increasing equity exposure
@isabelnet_SA – We are getting very close to a good time historically for the market.
It will be an interesting last three months of the year for the market!
Open Positions
Cameco (CCJ) March 40 Calls – CCJ finished the week down marginally, though of note option activity was very strong throughout the week, including these trades:
Tuesday - Buyer of 7,500 x 15,000 Cameco (CCJ) November 45/50 Bull Call Spread – Stock at 40.5 (bought 7,500 45 strike calls and sold 15,000 November 50 calls)
Wednesday - Buyer of 3,000 Cameco (CCJ) November 45 Calls for $1.45 – Stock at 41.3.
Cleveland-Cliffs (CLF) October 15.5 Covered Call – CLF rose 8% last week, closing just above our short strike price. This is a great situation.
DraftKings (DKNG) January 25 Call – Somewhat quietly DKNG bucked the trend of the market last week and gained 6%. Perhaps this was due to an upgrade of the stock by JPM, which raised their rating of the stock from Neutral to Overweight and put a price target of 37 on the shares.
Freshworks (FRSH) October 22.5 Covered Call – FRSH gained 3% last week and continues to mostly move in-line with growth stocks. For better or worse, the October 22.5 calls that we sold for $1.37 are now worth $0.10.
Intel (INTC) January 34 Call – INTC gained 4% last week and seems to be shaping up again … though the mood in the semiconductors can change quickly.
Li Auto (LI) June 40 Call – LI was our big loser last week as the stock fell 9%. While I’m not thrilled by the stock decline we are holding an option that expires in nine months, and option activity remains red hot, including:
Friday - Buyer of 5,000 Li Auto (LI) January 24 Calls for $12.50 – Stock at 35.5
Wednesday - Buyer of 9,000 Li Auto (LI) January 35 Calls (exp. 2025) for $10 – Stock at 35 (rolled back from January 40 and 45 calls).
Nasdaq ETF (QQQ) December 370 Puts – The QQQs had a mixed week and for now at least we will continue to hold our hedge as is … though admittedly I’ve debated rolling to a longer-dated bearish position.
TJX (TJX) April 92.5 Calls – TJX was mostly unchanged last week and continues to look better than 95% of the market and retail stocks. Should the market get in gear I like this trade.
UBER (UBER) December 40 Calls – UBER gained 4% last week and looks pretty good. I have high hopes for this trade should the Nasdaq get in gear. Of note, Needham reiterated their buy rating on the stock last week, with a price target of 60.
Financials ETF (XLF) March 33 Put – The XLF looks dreadful which is bad for the market but good for our bearish position. I am going to continue to hold my puts which appear to be a great hedge.
Energy ETF (XLE) January 85 Calls – The XLE gained 1.3% last week and our position is in great shape. Not much more to add.
