The Dow declined -697 points in five days from the highs at 18,137 to the low on Monday at 17,444. The +311 point two day rebound from Monday's low has recovered nearly half of last week's loss.
Maintaining profitable positions in that much volatility is nearly impossible. Put spreads were stopped out and call spreads were stopped out. Sectors that had not seen a bid in weeks were suddenly powered higher by short covering. Previously bullish stocks were sold hard as traders raised money to make margin calls.
Hopefully that volatility is over. Most of the big name, market moving, earnings are behind us. The Fed made no material changes to their post meeting statement and the odds of a September rate hike are dwindling with commodities imploding, China slowing, emerging market currencies crashing and the dollar rising. The Fed repeated its "data dependent" stance for determining its rate hike policy. Some feel that is a continued bluff in the face of all the negative factors.
The markets rallied on the news with the Dow closing right on resistance at 17,750 while the S&P did manage to move over initial resistance at 2100 but stall just under secondary resistance at 2110. The early morning rally was helped by a +3.4% gain in the Shanghai Composite. It remains to be seen if that Chinese rebound will hold.
S&P futures are down 3.50 points tonight but that could be erased in an instant if the Shanghai market continues to rebound. Facebook (FB) dropped sharply after beating on earnings and revenue. Analysts believe shares had gained too much since mid June and on the heels of the Google/Amazon blowouts. Those earnings gains had built too much expectation into the Facebook report. Shares declined to $94 after the report.
On the positive side I was able to find a couple more plays with August strikes.
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Items shaded in blue were previously closed.
Current Position Changes
Stop Loss Updates
Check the graphic above for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline.
YUM - Yum Brands (Closed)
The Yum Brands position was closed on Thursday as recommended. In retrospect, the concern was not needed as YUM declined with the market starting on Thursday. We did exit with a gain.
Closed Aug $95 Short Call, entry .98, exit .52, +.46 gain
Closed Aug $105 Long Call, entry .12, exit .04, -.08 loss
Net gain 36 cents.
LULU - LuluLemon (Stopped)
The LULU call spread was stopped out on the 23rd when the stock spiked on positive earnings by UnderArmour. Apparently, investors thought good results from one company in the sector would mean good results from LULU as well. Shares immediately declined nearly $5 after the stop but have rebounded with the market. We still have a long $80 call but I don't expect it to gain in value with LULU at $64.
Stopped Aug $70 Short Call, entry .91, exit .39, +.52 gain
Retain long Aug $80 call, entry .16, currently zero.
NFLX - NetFlix (Stopped)
Netflix declined with the market when all the big caps that led the Nasdaq higher were selling off last week. We were stopped at $108.95 on Monday when the Dow was at a six-month low. Retain the August $95 put just in case this market rebound fails. I don't want the premium to evaporate so I put a stop loss on the long put, which is currently worth more than our entry price.
Closed Aug $105 Short Put, entry $1.45, exit $2.09, -.64 loss.
Retain Aug $95 Long Put, entry .28, currently .42, +.14 gain
ZOES - Zoes Kitchen (Stopped)
Zoes declined with the market after making a new high. Shares are rebounding after returning to support at $40. I am recommending we reshort the August $40 put and see if we can recover our lost premium. We still have the long August $35 put as the other side of the spread.
Sell short Aug $40 Put, currently $1.30, stop $41.35
Retain Aug $35 Long Put, entry .34, currently .40
Stopped Aug $40 put, entry $1.02, exit $1.85, -.83 loss.
GLD - Gold ETF (Bear Call Spread)
Gold prices firmed ahead of the Fed meeting at $1,090 as the dollar waffled on indecision. The entire commodity sector is in decline and Goldman said today they expect gold to decline possibly as low as $1,000. After the Fed meeting the dollar spiked on what would seem to be counter intuitive but don't look for logic in the markets. The dollar is continuing to rally overnight. The strike in the GLD I am selling would require a $35 bounce in gold prices to be hit. We will stop out well before that.
Sell short Aug $108 call, currently .52, stop loss $106.75
Buy long Aug $111 call, currently .14, no stop
Net credit 38 cents.
ESRX - Express Scripts (Bear Call Spread)
On Tuesday, Express beat on earnings with $1.44 to estimates of $1.40 but missed big on revenue with $25.45 billion compared to estimates for $26.02 billion. They guided only in line for Q3 with a forecast range of $1.41-$1.45 and analysts were expecting $1.43. On Wednesday, Express warned that super high prices cholesterol drugs could "wreak havoc" in the pharmacy benefit business.
On Friday, the FDA approved the first of several potent new drugs to fight high cholesterol. The drug Praluent from Regeneron costs $1,120 for a 28 day dosage or roughly $15,000 per year. Lipitor only costs about $50 a month. With cholesterol such a big problem for the medical community Express is worried that doctors will immediately prescribe these high priced drugs and pharmacy benefit profits will crater. A rival treatment from Amgen called Repatha is expected to be approved in August.
These drugs are for those with high cholesterol that do not respond to conventional treatments or to patients allergic to statins. With mediocre earnings, a revenue miss and a warning about falling profits from new drugs, shares declined today. With the earnings expectations over I am expecting ESRX to dip below $91 and head back to the support of the 50-day average at $89. Shares closed $3 off their highs today.
Sell short Aug $95 call, currently .76, stop loss $93.25
Buy long Aug $100 call, currently .20, no stop.
Net credit 56 cents.
Existing Play Recommendations
Links to original play recommendation
TIF - Tiffany (Bear Call Spread)
LULU - LuluLemon Athletica (Bear Call Spread)
XOP - Oil Exploration ETF (Bear Call Spread)
YUM - YUM Brands (Bear Call Spread)
NFLX - Netflix (Bull Put Spread)
ZOES - Zoes Kitchen (Bull Put 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.
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