The start for January is the worst since the market collapse in 2008. Daily eruptions of geopolitical events, falling oil prices or weak economics have accelerated normal January volatility.
I wrote in last week's newsletter "The next 10 days in the market are seasonally volatile. Shorts will be trying to front run January sellers on Thursday. Many investors holding profitable positions from 2015 are waiting for the calendar to roll over into 2016 so they can sell and avoid taxes on those profits for another year." That tax selling was hastened by the events in China, Saudi Arabia, North Korea and the weak U.S. economics.
Seasonally January is typically a strong month. However, the last two January's have seen big declines. The prior three January's were up strongly. This January is off to a very rocky start and the short-term outlook is not good.
The S&P dipped below critical support at 1,989 today to touch 1,979 before rebounding to close back over the prior level by 1 point. That is not encouraging. Unfortunately, the S&P futures are down another -12.50 points as I type these comments. Unless something changes dramatically, Thursday is going to be another bad day.
China's markets were halted again after the CSI-300 declined more than 5%.
For obvious reasons, there are no new plays this week.
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.
SWKS - Skyworks Solutions (Short stopped)
Everything going fine until Tuesday. The news out of Japan that iPhone production would probably be cut by 30% in Q1 because of a huge supply of unsold inventory crashed Apple and the Apple suppliers that included Skyworks. Shares of Skyworks fell $5 on Tuesday and another $4 today.
Our long put has tripled but we are running out of time. If Apple and Skyworks continue to fall at this rate we could be in the money by next week. There are 7 trading days until expiration. Hopefully the plunge is not over.
Stopped Jan $73 short put, entry .70, exit $1.70, -1.00 loss
Retain Jan $65 long put, entry .33, currently $1.00.
SPY - S&P-500 SPDR ETF (Short stopped)
Last week was not the right time to try and squeeze in another short put on the S&P. The 30 point gap lower on Monday stopped us out for a big loss because it was a gap down rather than a controlled fall.
Because these are January Week 2 options they expire on Friday. Plan on closing the long put on any big dip on Thursday. Futures are down -8 as I type this so anything is possible.
Stopped Jan Week 2 $199 short put, entry .41, exit 2.16, -1.75 loss
Retain Jan Week 2 $190 long put. Close on Thursday dip.
WYNN - Wynn Resorts (Stopped)
Wynn gapped down with the market on Monday to $67.03 and eventually stopped us out at $65.85. We did exit with a minor profit on the short side. I seriously doubt the Jan $45 long put will come into play with WYNN at $66.
Stopped Jan $55 short put, entry .94, exit .41, +.53 gain
Retain Jan $45 long put.
Original Play Recommendations (Alpha by Symbol)
CME - Chicago Mercantile Exchange (Put Spread)
Chicago Mercantile is the U.S. futures exchange and they are doing a thriving business with the directional moves in the commodity sector. With today's close at $98.25 they are within $2 of a new closing high.
Earnings Feb 4th.
Sell Jan $92.50 put, currently $1.45, stop loss $95.25
Buy long Jan $85 put, currently .55, no stop loss
Net credit 90 cents.
FIT - FitBit (Put Spread)
Fitbit has been almost impervious to the market weakness until today. The stock benefitted from two positive articles in Barrons last week and rallied to a four week high. Today's dip inflated the put premiums. I am recommending the Jan $26 short put and that would be a new historic low if the stock actually declined to that level. We saw good support just above that level in late November.
Earnings Jan 28th.
Sell short Jan $26 put, currently $1.10, stop loss $27.75
Buy long Jan $22 put, currently .60, no stop loss.
Net credit 50 cents.
IWM - Russell 2000 ETF (Put Spread)
The next two weeks are typically the best two weeks of the year for the small cap stocks. However, you could not tell it from the decline today. The Russell fell -8 points while the other major indexes posted gains. However, there is decent support at 1,100 and I do believe a late year rally will appear. It may not be as strong as normal but we should see some gains.
I am picking strikes 115 points below the current index level at 1,115. I can't conceive of another 115 point drop in the next two weeks but this is the stock market and anything is possible but still not probable.
Sell short Jan $100 put, currently .53, stop loss $105.75
Buy long Jan $95 put, currently .27, no stop loss
Net credit 26 cents
QQQ - Nasdaq 100 ETF (Put Spread)
The Nasdaq 100 has sold off less than the other major indexes relative to its Aug/Sep lows. Large cap tech stocks are likely to be favored as window dressing for the end of December portfolio markup. With the QQQ declining only -4 points over the last week I seriously doubt it will drop another 10 to our short strike over the next several weeks. If it did that would be a major market meltdown.
Sell short Jan $100 put, currently .47, stop loss $105.75
Buy long Jan $94 put, currently .21, no stop loss
Net credit 26 cents.
SMH - Semiconductor ETF (Put Spread)
Semiconductors are in an uptrend and tech stocks normally do well over the next three weeks. I am recommending a $52 put that is under the November lows. The low in December was $53.37.
Sell short Jan $52 put, currently .55, stop loss $53.35
Buy long Jan $46 put, currently .20, no stop.
Net credit 35 cents.
SPY - S&P-500 ETF (Put Spread)
The S&P has rallied +80 points since the 1993 low on Monday. With the next two weeks normally bullish or at least not bearish I am adding a well out of the money put spread on the SPY.
I am using the January week 2 strikes with expiration on Jan 8th. No need to risk a January meltdown.
Sell short Jan Week 2 $195 put, currently .68, stop loss $201.25
Buy long Jan $190 put, currently .38, no stop loss
Net credit 30 cents.
Update 12/30.15: We were stopped out of the short side on the SPY on the 18th. I am going to try and squeeze in another short put to offset the long we are holding. If you are not already holding the long put do NOT enter this position.
Sell short Jan Week 2 $199 put, currently .36, stop loss $203.35
Retain Jan Week 2 $190 long put.
SWKS - Skyworks Solutions (Put Spread)
Skyworks is in rally mode after another Apple supplier Avago (AVGO) reported full year earnings that spiked 83% last week. Investors were afraid that Apple was cutting orders for iPhone components and apparently Avago had not seen those cuts. Q3 revenue rose +16% and earnings +26%. This boosted all the Apple component suppliers including Skyworks.
Earnings are Jan 21st.
Sell short Jan $75 put, currently $1.35, stop loss $79.25
Buy long Jan $65 put, currently .40, no stop.
Net credit 95 cents.
Updare 12/30/15: We were stopped on the short side a couple weeks ago for a loss. The stock has been behaving fairly well and I am going to try and squeeze in another play to go with the long put we are holding. If you are NOT still holding the long put then don't enter this play.
Sell short Jan $73 put, currently .50, stop loss $75.95
Retain Jan $65 long put.
WYNN - Wynn Resorts (Put Spread)
Steven Wynn surprised everyone by purchasing over 1.0 million shares of WYNN stock over the last week according to an SEC filing. This gives him control of more than 11.07 million shares. Steve has always been a buyer on the dips. He knows what his franchise is worth and when the shares are cheap he steps in. When they are expensive he sells a few.
This purchase cost him about $62 million. That is a huge vote of confidence that suggests shares are not going lower. The bad news in Macau cannot get much worse and it is about time for some good news.
Earnings are Feb 3rd.
Sell short Jan $55 put, currently .95, stop loss $58.85
Buy long Jan $45 put, currently .45, no stop loss.
Net credit 50 cents.
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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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.