October 27, 2023
Stocks on Watch and Position Update – Amazon (AMZN) and Financials ETF (XLF)
The “vibes” of earnings season are improving a touch today as Amazon (AMZN) and Intel (INTC) are both trading higher by 9%. This follows countless stocks that got hit following earnings earlier in the week as the market was continuing its recent slide.
I am intrigued by AMZN as the stock is reacting well to earnings, and more importantly a trader just opened a massive call position. Here is that trade:
Buyer of 150,000 Amazon (AMZN) February 115 Calls for $21 – Stock at 129 (rolled from November 120 calls).
I am now interested in AMZN as this new February call buy/roll is risking $315 million, and should the market get in gear, AMZN could re-emerge from recent weakness.
However …
I am also aware that even with AMZN’s rise of 9% today, the stock is only up 2% on the week as mega-cap technology was hit hard on Wednesday and Thursday.
Also, and perhaps of greater concern to me is the banks continue to be under pressure. And while GS/MS/BAC trading poorly shouldn’t weigh on a stock like AMZN, I find it hard to believe AMZN is going to rise dramatically if a critically important sector like the financials is struggling.
Finally, the Financials’ weakness is good for our XLF puts, which are a direct bet against the banks. And just to update you on where our puts stand, if you want to ring the register on a piece of your puts, you could lock in a profit of approximately 40% this morning on our bearish trade.
One more note … Did I really sell a piece of INTC right before the stock rallied 9% on earnings?!!! Sigh! Earnings season in a rough market is never easy!
October 26, 2023
Position Update – QQQ Puts
For better or worse our QQQ Puts, which are one of our two hedges in the portfolio, are now at a potential profit of approximately 45%. For the time being I am going to continue to hold this bearish trade, though at some point I may roll these deep-in-the-money puts to a put position closer to the current stock price and with more time until expiration.
And while I am going to continue to hold my puts, if you would prefer to ring the register on another piece of this trade, the December 370 puts that we bought for $17.87 can now be sold for $25.50 (approximately).
October 23, 2023
Stocks on Watch – NVDA and TSLA
The market has been under pressure the last two weeks, and the selling has hurt several of the mega-cap tech companies that have led the indexes for years. It has not been pretty. And while there is absolutely fear in the air, I did want to note that option activity is fairly strong in early trade today, including these big-premium call buys in two of those mega-cap tech players, NVDA and TSLA:
Buyer of 10,000 Nvidia (NVDA) December 380 Calls for $61.45 – Stock at 424
Buyer of 32,000 Tesla (TSLA) February 200 Calls for $34.75 – Stock at 215 (rolled from November calls)
These call buys of $61 million at risk in NVDA, and $111 million in TSLA, are the first truly large call buys my scanning tool has picked up on in weeks, if not months.
And while these were only two trades, and I would like to see even more big-premium trades in order for me to turn more bullish, it’s a start.
October 23, 2023
Weekly Update
The historic move in the bond market continued to weigh on stocks last week as the S&P 500 lost 2.4%, the Dow fell 1.6% and the Nasdaq declined by 3.1%.
This week traders will start to dial in on earnings season which ramps up in a big way with many of the tech titans (MSFT, GOOG, META, AMZN, etc.) reporting quarterly results.
Stocks on Watch
Headed into this week and next, I don’t have any real candidates to add to the portfolio as most stocks have been bleeding for weeks, and option activity has been very quiet.
And while that isn’t an ideal situation, big picture, this week and next are the heart of earnings season which will almost surely trigger several new buys from earnings season winners … if the market can stabilize.
Essentially, because there are very few great set-ups, patience is critical.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 21.35, or higher by 10.5%.
The only glimmer of hope I saw on Friday as the S&P 500 approached its recent lows, and countless stocks were breaking down, was the VIX wasn’t racing higher. In fact, despite the market closing at new recent lows, the VIX finished down on the day. Though to be fair, the VIX was already above 20, so it came into the day somewhat elevated.
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Monday – 6
Tuesday – 5
Wednesday – 5
Thursday - 5
Friday – 4
Events for the Week to Come
This week traders will be focused on the moves in the bond market, and inflation data via the Personal Consumption Expenditures (PCE) report on Friday could help determine the bonds’ next move. And, of course, the situation in the Middle East is a great concern for traders as well.
If that wasn’t enough to worry about, this is a monster week of earnings including reports from Microsoft (MSFT) and Google (GOOG) on Tuesday, Meta (META) on Wednesday and Amazon (AMZN) and Intel (INTC) on Thursday.
What Traders are Saying
This is an absolute meat grinder of a trading and investing environment as many stocks continue to chop around aimlessly, momentum trading is nearly impossible, and countless stocks are breaking down. Here are some examples of what I mean …
@WalterDeemer (famed market technician):
Wednesday was an 83% downside day (bad market action), which offsets
Monday’s 86% upside day (good market action), which offsets
Last Thursday’s 82% downside day (bad), which offsets
Last Tuesday’s 83% upside day (good).
IWM was higher by 2.7% Monday and Tuesday
Down 4.7% Wednesday through Friday
Closed Friday at a new 2023 low.
Transports up 2% Monday and Tuesday
Down 3.8% Wednesday through Friday.
S&P 500 closed Friday below its 200-day moving average for the first time since March. Seems pretty terrible.
However, I think fellow Cabot analyst Mike Cintolo said it best in his Cabot Growth Investor:
“If something can actually go right in the world—if any Middle East war is averted or minor, if inflation starts to cave in, if the uptrend in interest rates crack—we think the market could surprise on the upside and there could be a good number of stocks that get going right quick, and many more in the weeks ahead as all the bears out there change their minds and put money to work, and as the market looks ahead to brighter times six to nine months from now.”
Open Positions
Cameco (CCJ) March 40 Calls – CCJ gained 5% last week and option activity was very bullish throughout, including these call buys:
Monday - Buyer of 8,000 Cameco (CCJ) November 39 Calls for $1.02 – Stock at 36
Tuesday - Buyer of 8,000 Cameco (CCJ) November 39 Calls for $1.42 – Stock at 37.2.
Cleveland-Cliffs (CLF) November 15 Covered Call – Ahead of earnings this afternoon we rolled our short CLF call to the November 15 strike for $0.70. As I noted in the trade alert, if the market was stronger, I would have likely sold the 16 strike, but that is not the case.
DraftKings (DKNG) January 25 Call – DKNG is emblematic of the market in the last month as the stock looks ready to break out, and then falls apart yet again, then … well, we will see if the stock will rebound yet again this week for the final third of a position. If not, we will sell.
Freshworks (FRSH) – On Friday the October 22.5 call that we sold for $1.37 expired worthless. Now we need to decide if we are going to sell a new call to further lower our cost basis or just throw in the towel on this trade. My lean, because the market is so weak, is to exit the trade entirely.
Intel (INTC) January 34 Call – INTC fell 3% last week, largely in-line with the market ahead of earnings this Thursday. This earnings report will likely be a make-or-break situation for our trade.
Li Auto (LI) June 40 Call – China-related stocks continue to be under immense pressure which is no good for our LI call position. Part of me wants to reduce our risk with this position, but the other part of me says there is so much time until June 2024 expiration.
Nasdaq ETF (QQQ) December 370 Puts – For better or worse our QQQ puts are doing a good job of protecting our bullish positions, and we will continue to hold this bearish trade.
Nutanix (NTNX) April 37.5 Calls – The sellers finally came after the best-looking stocks late last week, which included NTNX. Though big picture, the stock continues to look great.
TJX (TJX) April 92.5 Calls – TJX performed well last week as the stock gained 1%. Not much more to add.
UBER (UBER) December 40 Calls – On Thursday we closed the final piece of our UBER calls as the stock was breaking to new recent lows. Fortunately, we took only a tiny loss on this portion of the position, while having locked in nice gains on the first two-thirds.
Financials ETF (XLF) March 33 Put – The XLF looks dreadful, which is good for our bearish put position that is doing a fine job of balancing out our bullish positions.
Energy ETF (XLE) January 85 Calls – On Wednesday we stuck to the game plan and locked in a profit of 72% on another piece of our XLE calls. We will hold the balance of the trade looking for greater gains.
