Procrastination is a sin in trading. If you snooze you lose. We have to be proactive and persistent when an opportunity presents itself.
When I finished my market commentary on Tuesday night I scanned the various portfolios and the long May $55 put on Greenbrier was $2.00 with the stock closing at $55.87. I considered sending out a special newsletter just to lower the stop loss on that position. Since the regular newsletter was due out today I decided I would lower the stop today since I had just sent a newsletter on Monday night. Wrong decision. Shares of GBX rallied +3.4% and the put was stopped out at the higher price. We still ended up with a gain on the entire position but I missed the chance to increase that significantly by not sending out that special email. If opportunity presents itself in the future I will be more diligent. Also, there is nothing stopping readers from exiting at any time or lowering their stop losses on their own.
The Fed announcement today caused the expected volatility at 2:PM but the market did not move much from the 2:PM levels. The Fed removed all the calendar references from the statement, which means they can raise rates at any time without warning. However, they also acknowledged the economy was weaker and said they wanted to make sure there was a rebound in Q2 GDP and payrolls before moving to normalize rates. That is code for "the June meeting is still a remote possibility for a hike" but the odds are much better for September. If they are waiting to see if the Q2 GDP rebounds the first GDP release for Q2 is on July 30th. It would be tough to raise in June giving their statement.
The Nonfarm Payroll report is next week and estimates are clustering around +200,000 but the consensus is declining. We added only 126,000 jobs in March. Analysts blamed the weather but they were probably grasping at straws.
The Dow ended down -75 points, Nasdaq -32, S&P -8 and most importantly the Russell 2000 declined -12 or more than -1% to close under critical support at 1,250. Friday is May 1st and the start of the sell in May cycle. I believe this is going to give the market a negative bias for the next couple weeks.
The dollar index crashed on the lack of a mention about June in the Fed statement. With September now the unofficial target for a hike the dollar crashed and the euro rallied. This caused oil to rally, along with a relatively bullish EIA inventory report, but the precious metals unexpectedly declined. I considered some energy positions but many of them report earnings this week and next.
I could not find any May trades with 16 days remaining until expiration. With the VIX at 13 there is very little premium remaining in May options without taking on excessive risk.
I am adding some June positions with six weeks until expiration. I tried to pick the stocks with the worst stories and the least chance of rebounding given the long time until expiration.
Send Jim an email
Current Position Changes
Stop Loss Updates
Check the graphic above for new stop losses in bright yellow. We need to always be prepared for an unexpected decline.
GBX - Greenbrier (Closed)
Greenbrier rebounded +3.4% today or +$1.90. We were stopped out of the long put at $58.45 to close the total position with a minor profit. I wish I could exit every busted play for a minor profit but I am frustrated I did not act sooner.
Short May $60 put, entry .73, exit $1.40, -.67 loss
Long May $55 put, entry .23, exit $.95, +.72 gain
Net gain .50 or $5 per contract.
JKS - JinkoSolar (Stopped)
JinkoSolar, along with most of the market dropped sharply at the open on Tuesday as a result of the Iranian headlines. The Dow dropped from +50 to -122 in about 20 minutes before rebounding. JKS rebounded to the highs of the day almost immediately but we were already stopped out. We still have the long put in case the market rolls over.
Short May $27 Put, entry .60, exit .75, -.15 loss.
Retain the long May $25 Put, entry .35, currently .10.
BBBY - Bed Bath & Beyond (Close)
When I wrote up the BBBY trade on Monday I described it as a May position but I listed the prices for the June options. The play does not work as a May position. The option premiums are too low and there is too much implied risk. I am recommending we close the short side of this play. I would retain the long side because there is nothing to be gained by closing it at 2 cents. Who knows, we might get lucky.
Buy to close May $75 call, entry .16, currently .12, +.04 gain.
Retain long May $80 call, entry .02, currently zero
FB - Facebook (Bear Call Spread)
Facebook beat earnings and revenue but immediately began to roll over. Everything they had to say was positive but for some reason Facebook is not feeling any investor love. The stock has been trending sideways with a very minor upward bias for the last year. The high last July was just under $77 and it closed today at $80.
Sell short June $85 call, currently $.99, initial stop loss $83.15
Buy long June $90.00 call, currently .25, no stop loss.
Net credit $.74.
X - US Steel (Bear Call Spread)
US Steel reported a loss of -7 cents per share compared to a 34 cent profit in the year ago quarter. Analysts were expecting 23 cents. Revenue also missed. The company said prices for steel declined -19% to $529 per ton for the benchmark product. The factory utilization rate declined from 83% to 60% as a result of a flood of imported steel that rose +20% in the quarter. The company cut guidance for the full year to a profit of $700 million compared to prior estimates for a range of $1.1-$1.4 billion. The sharp decline in active drilling rigs cut wells in half from 9,300 per quarter to roughly 4,500 and that slashed the demand for drill pipe.
Sell June $26 Call, currently .72, stop loss $25.15
Buy long June $28 Call, currently .38, no stop.
Net credit 34 cents.
WYNN - Wynn Resorts (Bear Call Spread)
Wynn reported really ugly earnings on Tuesday, guided lower for the rest of the year and cut their dividend by 2/3 from $1.50 to .50. The slowdown in betting in Macau is crushing the casinos with a -37% drop in revenue from Macau alone. This is not expected to improve in the near future. Wynn also has a new $4.1 billion casino that will open in Macau in Q1-2016. With the Macau fortunes dwindling as a result of the corruption crackdown by China this is not going to improve by June.
Sell short June $120 call, currently 1.65, initial stop loss $117.50
Buy long June $125 call, currently $.95, no stop.
Initial credit 70 cents.
Existing Play Recommendations
Links to original play recommendation
$OVX - Oil Volatility Index (Bear Call Spread)
RCL - Royal Caribbean (Bear Call Spread)
GDX - Gold Miner ETF (Bear Call Spread)
JKS - JinkoSolar (Bull Put Spread)
GBX - Greenbrier (Bull Put Spread)
BBBY - Bed Bath & Beyond (Bear Call Spread)
Prices Quoted in Newsletter
At Option Investor we have a long-standing policy prohibiting the editors and staff from actually trading the individual recommendations in order to conform to SEC rules concerning trades.
The prices quoted in the newsletter are the end of day prices in most cases.
When discussing fills or stops the prices quoted are the bid/ask at the time the entry trigger or exit stop is hit. This is NOT a price that someone on staff actually got using a live order.
For entry/exit points at the market open the prices quoted will be the opening print. The majority of the time the readers are able to get a better fill than the opening print because of market maker bias at the open.
For trades with an opening qualification the prices quoted will be the bid/ask at the time the qualification was met.
All of these rules normally produce worse prices than an active trader would normally get. Because they are standardized there may be some cases where a price quoted was better than an actual fill. If you received a price that was dramatically different than what was quoted please let us know.