The major indexes are slowly moving higher with the Dow moving over resistance and the S&P and Nasdaq closing right on resistance. Is the normal Q4 rally beginning?
I think it is too early to answer that question but at least we can remain hopeful. The Dow is well over prior resistance and could be ready to accelerate. However, the S&P stopped right in the current resistance band and the next several days will be the real test of investor sentiment. If the S&P can move over 2,005 we should see a lot of price chasing by fund managers. They only have a few weeks to try and recover losses from the August correction.
Fund managers risk not only losing customers but also their jobs if their funds do not compare favorably to other funds. This is a cutthroat business and only the consistent winners survive. This is gut check time. They have to bite the bullet and buy something if the S&P breaks over resistance.
Fortunately, for us a breakout would give us a new trend to play. The bear call spread opportunities have disappeared with all the short covering over the last week. Unfortunately, the move higher is happening right at the start of the Q3 earnings cycle and 85% of all companies report earnings over the next five weeks. That means 85% of stocks are not available for our strategy.
We have a pretty good month in progress and I really hope this market trend continues. China's markets reopen after a three-day holiday on Thursday. How their markets behave tonight will have a big impact on the U.S. markets tomorrow. S&P futures are only slightly negative at 9:PM so no real indication of direction yet.
Send Jim an email
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.
CAT - Caterpillar (Closed)
I recommended last Wednesday that we close the remaining short put on caterpillar. It was a good thing we closed it because CAT spiked $8 on no news. Retain the long call just in case.
Closed Oct $77.50 short call, entry .91, exit .02, +.89 gain.
Retain Oct $82.50 long call, entry .26, currently zero.
Previously closed Oct $77.50 short call, entry .92, exit 1.25, -.33 loss.
XOP - Oil Exploration ETF (Closed)
We got lucky once again on the long side of the play. We were stopped out of the short side when oil prices spiked on the big drop in active rigs and Russia moving into Syria. We lost 18 cents on the short side but we are up $1.64 on the long side. I am recommending we close it and capture that profit.
Closed Oct $35 short call, entry .61, exit .79, -.18 loss
Close Oct $38 long call, entry .13, currently $1.77, +1.64 gain.
WYNN - Wynn Resorts (Stopped/Close)
WYNN shares rebounded nearly $20 on caused by news the Chinese government was going to revitalize gambling in Macau after 16 consecutive months of declines. They did not say when or what they were going to do, only that they planned to support Macau.
We were stopped out of the short call for a nice gain and I am recommending we close the long call while it still has value. It is $14 out of the money so I doubt it will continue to appreciate.
Stopped Oct $80 short call, entry $1.25, exit .09, +1.16 gain.
Close Oct $85 long call, entry .51, currently .21, -.30 loss
RRC - Range Resources (Stopped)
RRC rallied with the energy sector as shorts raced to cover. We were stopped on the short call. I am recommending we retain the long call but I doubt it will appreciate unless somebody makes an offer for RRC.
Closed Oct $40 short call, entry $1.32, exit .35, +.97 gain
Retain Oct $45 long call, entry .63, currently zero
Previously closed Oct $40 short call, entry $1.35, exit $1.81, -.46 loss.
OUTR - Outerwall (Stopped)
Outerwall rebounded with the market last week and stopped us out of the short position. Their business outlook has not changed. I still expect lower lows ahead. Retain the long call just in case the market explodes higher.
Closed Oct $60 short call, entry .62, exit $1.05, -.43 loss
Retain Oct $65 long call, entry .22, currently zero
Net loss 65 cents as of today.
AMBA - Ambarella Inc (Put Spread)
Ambarella makes HD video chips for all types of cameras. Their biggest customer is GoPro. They were crushed in the GoPro selloff and shares appear to have found a bottom at $55.
Earnings Dec 3rd.
Sell short Nov $50 put, currently $1.75, stop loss $55.45
Buy long Nov $42.50 put, currently $.75, no stop.
Net credit $1.00.
LEN - Lennar Corp (Put Spread)
Home builders are rebounding again and Lennar recently posted decent earnings. New home sales in August rose +5.7%. Earnings are not until early January so we have plenty of time for premiums to bleed. Shares rebounded from support at $46.50 last week.
Earnings Jan 14th.
Sell short Nov $47 put, currently .95, stop loss $47.85
Buy long Nov $42 put, currently .37, no stop.
Net credit 58 cents.
ADI - Analog Devices (Put Spread)
Citigroup raised ADI to a buy with a price target of $66 last week. The analyst said ADI had a solid business model, increasing margins and upside from the recent design win from Apple. The company will provide Apple with components for the next generation iPhone and iPad. The design win could add $450 million (13%) to revenue in 2016 at a 30-33% margin. Full year earnings could rise from $3.00 to $4.50 in 2016. Apparently investors listened and shares are moving higher.
Earnings Nov 24th.
Sell short Nov $52.50 put, currently .80, stop loss $55.35
Buy long Nov $45 put, currently .20, no stop.
Net credit 60 cents.
Existing Play Recommendations
Links to original play recommendation
CAT - Caterpillar (Bear Call Spread)
RRC - Range Resources (Bear Call Spread)
WYNN - Wynn Resorts (Bear Call Spread)
RRC - Range Resources (Reentry Bear Call Spread)
CAT - Caterpillar (Reentry Bear Call Spread)
XOP - Oil Exploration ETF (Bear Call Spread)
OUTR - Outerwall (Bear Call Spread)
Prices Quoted in Newsletter
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