Everyone is probably facing a period of tryptophan overload after consuming your Thanksgiving turkey and stuffing. The markets got a head start and dozed over the last three days.
After complaining about excess volatility for the last several weeks it appeared the market celebrated Thanksgiving early and fell asleep for the last three days. The major indexes hugged the flat line as if they were holding their favorite pillow for a post Thanksgiving dinner nap. The tryptophan in turkey meat plus the high volume of carbohydrates consumed at the Thanksgiving meal has a habit of putting people to sleep after the meal.
On Wednesday, the Dow gained +1 point and the S&P lost -0.27 of a point. The NYSE Composite gained +0.64 of a point. The Nasdaq and Russell were the exceptions with the Nasdaq breaking out of a three day stall at 5,103 and gaining +13 points to 5,116. The Russell rocketed higher with a +9 point gain to 1,198 and right below strong resistance at 1,200. The Nasdaq and Russell were the equivalent of the energetic kids at the Thanksgiving get together and rough housed their way to decent gains.
The lack of volume and lack of market movement sucked all the volatility out of the option premiums. I had a really tough time finding anything worth playing with the majority of spreads in the 15-20 cent range. A good dose of directional movement early next week will solve that problem.
I believe the preholiday stall was due to worries over potential terrorist attacks. With three million people lining the streets in New York for the Macy's parade, it was a target rich environment. Add in the various sporting events and heavy airline travel and there were plenty of places ISIS could have caused problems. Once all the major events were over the S&P futures jumped to +7.50 indicating relief that the day was completed safely. They have faded to +5.00 but still positive.
Without any material earnings, economics or headlines Friday is not likely to be big day. There will probably be relief rally at the open as everyone covers their speculative shorts they opened just in case the worst came to pass. This could cause some short covering from the longer-term holders but I am not expecting a big move in either direction. The market closes at 1:PM.
Next week we will get back to a regular market and hopefully it follows the seasonal trend higher.
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.
The extremely volatile market over the last five weeks combined to stop us out on the upside and the downside. The negative results in November offset the strongly positive results in October. When the market is jumping around with three 70+ point swings in opposite directions in the S&P over a five week period it is tough to sit on any option position whether long or short.
SWKS - Skyworks Solutions (Closed)
I recommended we close the short side of the SWKS position last week with the position going against us and about to hit our stop.
Closed Dec $85 short call, entry $1.30, exit $1.29, +.01 gain
Retain Dec $95 long call, entry .26, currently .05.
WDC - Western Digital (Stopped)
WDC gapped down on Tuesday to stop us out on the short side at $61.25. This was due to the S&P dropping -17 points at the open on the Russian plane downing in Turkey. There was no news on WDC. It was strictly a headline event impacting the market.
Closed Dec $60 short put, entry $1.02, exit $1.69, -.67 loss
Retain Dec $55 long put, entry .32, currently .30.
WTW - Weight Watchers (Put Spread)
WTW soared a couple weeks ago when the company announced Oprah Winfrey had taken a 10% stake in the company and would put her weight behind the product. Everyone knows the Oprah effect is legendary. Whatever she backs always explodes as millions of fans follow her lead. Shares are not showing any post headline decline and it appears the rally may stick.
Earnings Feb 4th.
Sell short Dec $22 put, currently .80, stop loss $23.05
Buy long Dec $19 put, currently .40, no stop
Net credit 40 cents.
BLUE - Bluebird Bio (Put Spread)
Bluebird is in the business of solving blood diseases. A new drug called BB305 in the testing stages cures a rare disease called beta-thalassemia in the majority of patients. Prior to this drug these patients had to receive routine blood transfusions, which are not only expensive but dangerous.
At the ASH conference in early November, they released results that showed most patients were successful but three patients had a doubly rare form of the same disease and the drug did not work for them. The stock crashed even though these patients with the extremely rare form of this disease are a very minor subset of the patient population. The vast majority of people with this disease will benefit significantly from the treatment. The FDA has labeled it a "breakthrough therapy." It also has an application in sickle cell disease.
Shares are recovering from the crash and should continue higher in a decent market.
Earnings are Feb 24th.
Sell short Dec $70 put, currently $2.55, stop loss $78.65
Buy long Dec $60 put, $1.10, no stop
Net credit $1.45
Existing Play Recommendations
Links to original play recommendation
XBI - Biotech ETF (Put Spread)
YUM - YUM Brands (Call Spread)
SWKS - Skyworks Solutions (Call Spread)
NFLX - Netflix (Put Spread)
WDC - Western Digital (Put Spread)
LRCX - Lam Research (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.
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.