Option Investor
Newsletter

Daily Newsletter, Thursday, 7/16/2015

Table of Contents

  1. Market Wrap
  2. New Option Plays
  3. In Play Updates and Reviews

Market Wrap

Back To The Fundamentals

by Thomas Hughes

Click here to email Thomas Hughes
The Greek's voted yes to austerity and the rally continues.

Introduction

The Greek's voted yes to the newly inked bailout deal and the rally continue. The Greek news was great, but I think it more the quality of earnings and economic data that moved the market. The Greek news simply removes a fear and has allowed the market to focus on fundamentals like economic trends and earnings outlook.

Regardless the reason equity indices around the world were up in today's session. Asian indices continued their bounce from recent lows but it was the European indices which got the most lift from Greece. European market were also impacted by an ECB meeting. The ECB held rates steady, says downside risks are contained and that it is increasing its support of Greek banks. The DAX and CAC 40 both gained in excess of 1.5%.

Market Statistics

The S&P 500 was indicated higher from the start of the early electronic session and only strengthened through the morning. Jobless claims, better than expected, and earnings, also better than expected, helped to lift the market. At the opening bell the indices moved strongly higher and then drifted upward from there. Early highs were hit by 10AM and then later around 12:30 and 3:45. Market strength continued into the closing bell, leaving the indices at or near their highs for the day.

Economic Calendar

The Economy

Initials claims fell by -15,000 to hit 281,000, last week's figure was revised lower by 1,000. The four week moving average of claims rose slightly to 282,500. This is the second week of declines since hitting a peak last month and brings claims back down near the long term low. On a not adjusted basis claims rose by 13% versus the projected gain of +19.7% and are down -7.2% from this time last year. The biggest gains in claims were in Michigan, New York and California with increases of 9,961, 6,488 and 5,714. New Jersey and Texas led with declines in claims of -3,276 and -2,405. Initial claims remain at low levels consistent with labor market health.


Continuing claims also fell, shedding 112,000 to hit 2.215. Last week's number was revised lower by 7,000 leaving continuing claims just off of its long term low. The total number of claims rose this week, reflecting the June spike in initial and continuing claims. Despite the rise in total claims over the past few weeks they remain near the long term low and at levels consistent with labor market improvement. Compared to last year total claims are down -11%.


The NAHB Housing Market Index and Philadelphia Fed survey were released at 10AM. The NAHB index came in at 60, the highest level in 10 years and flat from last month. Last month was revised up by 1 point from 59 to 60. Current conditions and future expectations both saw increases but traffic remains low. Hurdles faced by the builders include a lack of labor, something my builder friends are all echoing, and a shortage of lots.

The Philly Fed survey showed modest growth in the region but was weaker than expected. The index fell from last month's 15.2 to 5.7 for July. The reading is positive but shows a slow down in general activity, new orders and shipments. Employment remained steady. All but one future indicator rose this month, the future shipment index fell 10 points but was at a 10 month high in June. A recurring theme throughout the report is that manufacturers are seeing higher prices for input costs, not surprising given the strength in PPI and may indicate tomorrow's CPI could be a little hotter than expected.

Tomorrow's big release will be the CPI. Inflation is one of the key factors driving the FOMC. Along with that are Housing Starts, Building Permits and Michigan Sentiment. Housing Starts are expected to see a significant increase, permits are projected to remain flat.

The Oil Index

Oil prices remain volatile and near four month lows. A surprise build in natural gas inventories may have had something to do with it, along with aftershocks from the announced Iran deal. Fighting in Yemen is ongoing but government forces have recaptured the capital city. In other news an oil field outage in the North Sea had WTI and Brent tradingin opposite directions from each other, WTI falling nearly -1.0% in early action, Brent rising more than +1.0%.

The Oil Index gained in today's session, adding about a half percent. Today's action was very quiet, the index traded in a tight range just below the long term trend line. The index has now been trading below the trend line for 9 days and may continue to do so. Support is near 1250 and could be tested in the coming days. The indicators are consistent with support along this level and rolling into a bullish entry signal. This signal is in line with the underlying trend but requires a break above the trend line and moving average for confirmation.


The Gold Index

Gold prices continue to slip. Fed speak and testimony from Janet Yellen, along with economic data, are pointing to an interest rate hike at any meeting. This is strengthening the dollar and putting pressure on gold which is now trading at an 8 month low near $1144. The dollar index has broken out of a triangle pattern and today broke resistance at $97.50 with $100 in the sights. This upside movement is being driven by rate hike speculation and will likely pressure gold lower in the near term. The caveat is that the indicators, while bullish, are incredibly weak leaving my target for the dollar index questionable in the least. Tomorrow's CPI may provide catalyst to push the dollar higher and gold lower if it is one side or the other of the Goldilocks range, not too hot, not too cold.


The gold miners continue their slide as well, the miners ETF GDX fell close to a full percent in today's session. It looks more and more likely that the ETF will reach the $15.72 level and a full retracement of the 2008-2011 bull market, driven by falling gold prices. The indicators remain bearish and pointing to a test of long term support at the long term low. I remain bullish on gold for the long term and view any such test as potential entry point for longer term positions.


In The News, Story Stocks and Earnings

Earnings are rolling in better than expected, which was somewhat expected. Today's list of reports was dominated by the big banks but other important names reported as well. Goldman Sachs, Citigroup and BB&T are three names among the bankers to report. Goldman was able to beat on earnings but charges during the quarter cut earnings sharply and well below expectations. Citigroup on the other hand was able to post top and bottom line beats similar to those seen by the other big banks earlier this week. BB&T was also able to post a small beat on earnings. The news helped to propel the financial sector, one of today's market leaders, to a new high. The XLF Financial Spyder extended its break above resistance and set a new high, gaining close to a full percent in today's action. The indicators are bullish and rising in confirmation of this move with additional upside likely, however, today's candle was rather small and created a gap so a pull-back or test of support at the previous high is also possible.


Dominos Pizza reported an impressive improvement over last year at this time, along with beating this quarter's earnings expectations, but did not inspire buyers. EPS of $0.81 is 21% higher than last year and 4% above expectations. The results were driven by 12% increase in domestic comp sales, a 6% rise in international comp store sales and the addition of 186 new stores. Shares of the stock responded by falling nearly -3% from the recently set all time high.


After hours action was active as well with earnings reports from Ebay and Google and others. Google posted a nice beat on earnings although revenue was a hair light. EPS of $6.99 was $0.20 better than projections. The beat came on increased revenues from click and Youtube ads. Shares of the stock jumped more than 5% on the news after trading higher all day. Class A shares are now trading at an all time high.


The Indices

The indices are bouncing and approaching new highs, in most cases. Today's action was a combination of relief over Greece, positive economic data and earnings. The exception is the Dow Jones Transportation Index which gained less than a quarter point and remains near recent lows. The index is bouncing, but off of corrective levels and is still well below long term resistance levels. Today's action tested one resistance level, near 8,250, coincident with the short term moving average, and were not able to break it. The indicators are moving higher but reflect the near term resistance. If resistance is broken the index could move up by 250 points to next resistance near 8,500 and the bottom of the Nov/May trading range.


The Dow Jones Industrial Average was another laggard in today's session. The blue chips gained only 0.38% compared to the +1% gain posted by the NASDAQ Composite. Today's candle is relatively small but closed near the high of the day, set a new near term high and has only the current all-time high as resistance. The indicators are bullish and on the rise so a test of that resistance is looking likely. A break to a new all-time high would be bullish. Current support targets on a pull-back are the 18,000 and then the short term moving average just below that.


The S&P 500 made a more substantial gain, 0.80%, and is closing in on its all time high. The broad market broke the 2120 level and is now within 6 points of an all-time closing high. The indicators are bullish and on the rise, in confirmation of the trend following move, suggesting that the high will be tested in the least. A break above the current high would be significant and could lead to further upside with targets near 2200.


The NASDAQ Composite was today's shining star. The tech heavy index gained a little more than 1.25% and set a new all time high. Today's candle was not overly large but the long lower shadow is indicative of underlying support in the market. The indicators are bullish and on the rise, in support of this move, and suggest higher prices are on the way. The current signal is up, in line with the underlying trend, with upside targets near 5300.


The Greek storm has blown over and the markets are bouncing. I have no doubt that Greece will reemerge as a center of attention, probably sooner rather than later, but until it does fundamentals should take over direction of the market. So long as fundamentals remain positive the long term trend in the market should remain the same, which is up.

Risks for the market now are the same things giving the market its lift, economics and earnings. If the data cools off, or comes in too hot, and changes expectations for growth and/or the FOMC rate hike time-line it could spark another correction. Earnings could do the same if the season deteriorates or outlook diminishes. At this time I am expecting neither and remain bullish into the long term.

Until then, remember the trend!

Thomas Hughes


New Option Plays

The Biggest Show On TV

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

AMC Networks Inc. - AMCX - close: 86.27 change: +0.66

Stop Loss: 83.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 573 thousand
Entry on July -- at $---.--
Listed on July 16, 2015
Time Frame: Exit PRIOR to earnings on August 6th
New Positions: Yes, see below

Company Description

Trade Description:
AMC Networks is probably best known for hit TV shows like "Breaking Bad", "The Walking Dead", and "Mad Men". Their "Breaking Bad" and "Mad Men" series are over but AMCX is still knocking it out of the park with its content. Lately Wall Street lows content makers. Earlier this year Piper Jaffray describes AMCX as "one of the best content plays in the media space". AMCX solidified its position as one of the best studios by winning 28 Emmy award nominations for the 67th Annual Primetime Emmy Awards.

AMCX is in the services sector. According to the company "Dedicated to producing quality programming and content for more than 30 years, AMC Networks Inc. owns and operates several of the most popular and award-winning brands in cable television. AMC, IFC, SundanceTV, WE tv, and IFC Films produce and deliver distinctive, compelling and culturally relevant content that engages audiences across multiple platforms. The company also operates BBC America through a joint venture with BBC Worldwide. In addition, the company operates AMC Networks International, its global division."

Earnings have improved in the last few quarters. Looking at the last three quarters AMCX has beaten Wall Street estimates on both the top and bottom line. The last two quarters have beaten estimates by more than 10%. On November 6th, 2014 AMCX said their Q3 revenues were up +31%. On February 26th they announced their Q4 results with revenues up +40%.

AMCX reported their Q1 results on May 4th. Analysts were expecting a profit of $1.44 per share on revenues of $654 million. The company delivered earnings of $1.66 per share, which is a +69% improvement from a year ago. Revenues were up +27.5% to $668.6 million, another beat.

After seven years AMCX aired their final "Mad Men" episode in May. While Mad Men got a lot of press their Walking Dead franchise is significantly larger. The Walking Dead is actually the most watched show on television. It's bigger than Sunday Night Football. Now the company is about to launch a Walking Dead spin-off called "Fear the Walking Dead". Plus they have seen early success with "Better Call Saul", which is a spin-off from its "Breaking Bad" series.

Technically shares have been building a bullish pattern of higher lows and higher highs. Shares spent a couple of weeks consolidating sideways in the $81-84 zone but broke out higher on July 13th. The point & figure chart is bullish and forecasting at $100.00 target. We want to hop on board if this rally continues. Tonight we're suggesting a trigger to buy calls at $86.55.

Trigger @ $86.55

- Suggested Positions -

Buy the AUG $90 CALL (AMCX150821C90) current ask $1.50
option price is a current quote and not a suggested entry price.

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

Option Format: symbol-year-month-day-call-strike

Daily Chart:



In Play Updates and Reviews

Earnings Help Drive Market Gains

by James Brown

Click here to email James Brown

Editor's Note:

With Greece and China temporarily on the backburner, the stock market rallied on better than expected Q2 earnings results from some high-profile names today.

We have updated a handful of stop losses tonight.

UA hit our stop loss.


Current Portfolio:


CALL Play Updates

Adobe Systems Inc. - ADBE - close: 82.52 change: +0.40

Stop Loss: 78.85
Target(s): To Be Determined
Current Option Gain/Loss: -2.9%
Average Daily Volume = 2.64 million
Entry on July 16 at $82.65
Listed on July 14, 2015
Time Frame: Exit PRIOR to earnings in September
New Positions: see below

Comments:
07/16/15: The stock market continues to see widespread gains. ADBE rallied again although shares underperformed the NASDAQ composite. Our plan was to buy calls at $82.50 but this play was triggered at the opening bell with ADBE's gap higher at $82.65. I would still consider new positions at this time.

Trade Description: July 14, 2015:
ADBE appears to have successfully completed its transition from a traditional pay up front software sales model to a subscription based pay-as-you-go model for its industry leading creative software.

ADBE is in the technology sector. They are part of the software industry. According to the company, "Adobe is changing the world through digital experiences. Content built and optimized with Adobe products is everywhere you look — from websites, video games, and smartphones to televisions, tablets, and beyond. Adobe Creative Cloud software offers the most innovative tools for creating digital media, while Adobe Marketing Cloud delivers groundbreaking solutions for data-driven marketing. Our leadership in these two emerging categories, Digital Media and Digital Marketing, provides our customers with a real competitive advantage, positioning Adobe for continued growth well into the future. As one of the largest software companies in the world, Adobe achieved revenue of more than US$4 billion in 2013."

Looking at the last couple of earnings reports ADBE has beaten Wall Street's bottom line estimate. They reported their Q1 report on March 17th. Earnings were up +46% from a year ago to $0.44 per share. It was their best quarterly earnings growth in four years and above analysts' estimates. Revenues were up almost +11% to $1.11 billion.

During the first quarter they added 517,000 customers to their subscription service. While that was up +28% from a year ago it missed expectations. Jumping to the second quarter ADBE said they added +639,000 new subscribers, which was well above estimates for +575K.

The company announced their Q2 earnings on June 16th. Earnings were up +30% to $0.48 per share, which beat estimates. Revenues hit a record of $1.16 billion, which was in-line with expectations.

Shantanu Narayen, Adobe's president and CEO, commented on the quarter, "Strong execution against our Creative Cloud, Document Cloud and Marketing Cloud businesses drove record revenue. We are accelerating the pace of innovation in our Cloud offerings and are thrilled to be launching our best Creative Cloud release to date, which includes Adobe Stock - our new stock content service." ADBE's executive vice president and CFO, Mark Garrett, said, "With our business model transition largely behind us, the positive financial benefits are now reflected in our P&L. We are driving more profit, earnings per share, cash flow and deferred revenue and unbilled backlog."

Management did lower their Q3 and 2015 forecast on both the top and bottom line. Yet investors seemed to ignore this earnings warning because it was all due to foreign currency exchange headwinds. ADBE is expecting their Adobe Marketing Cloud sales to grow more than +20% year over year.

Mr. Narayen, CEO, mentioned their new Adobe Stock service. This is a multimedia marketplace where users can buy and sell images. Analysts think this could add a significant revenue boost by 2017 (up to $1 billion a year).

Multiple analysts have upgraded their price target on ADBE since its earnings report. The most recent was on July 6th where ADBE garnered a new price target at $103.00. Currently the point & figure chart is only forecasting at $92.00 target.

Shares of ADBE broke out past major resistance near $80.00 in mid June. Then the market reversed lower in the last several days of June and shares of ADBE sank back toward prior resistance and now new support in the $80.00 region. The intraday low was $78.94 on July 7th where ADBE bounced off technical support at its rising 50-dma.

Investors have started buying the dip again and this bounce from support near $80.00 is a bullish entry point. We are suggesting a trigger to buy calls at $82.50.

- Suggested Positions -

Long OCT $85 CALL (ADBE151016C85) entry $2.80

07/16/15 triggered @ $82.65 (gap open)
Option Format: symbol-year-month-day-call-strike


The Walt Disney Co. - DIS - close: 119.07 change: +0.77

Stop Loss: 115.85
Target(s): To Be Determined
Current Option Gain/Loss: +119.6%
Average Daily Volume = 5.7 million
Entry on June 18 at $112.25
Listed on June 17, 2015
Time Frame: Exit PRIOR to earnings in August
New Positions: see below

Comments:
07/16/15: DIS drifted higher but lagged behind the rally in the S&P 500. Still this is another record high for the stock. The $120.00 level is potential round-number, psychological resistance. Our option has more than doubled in value. Investors may want to take some money off the table now.

No new positions at this time.

Trade Description: June 17, 2015:
Disney is an American icon. The company is over 90 years old. They have grown into a massive content generating giant. Today DIS runs five business segments. Their media networks include broadcast, cable, radio, publishing, and digital businesses headlined by their Disney/ABC television group and ESPN Inc. DIS' parks and resort business includes Disneyland, Disneyworld, plus theme parks in Tokyo, Paris, Hong Kong, Shanghai, and a cruise line.

The company's products division licenses the company's horde of names, characters, and intellectual property to a wide range of products. They've also jumped into the online world with their Disney Interactive division. Last but not least is the Walt Disney Studios segment. Disney started making movies 90 years ago. Today their studio business includes Disney animation, Pixar Animation, Disneynature, Disney Studios Motion Pictures, Disney music group, Touchstone Pictures, and Marvel Studios.

Their movie business has been a money maker over the years with huge hits like the Pirates of the Caribbean franchise, Tangled, Wreck-it Ralph. In 2013 they released the animated film "Frozen", which has turned into the largest grossing animated movie of all time. Pixar has a stable of successful movies that have grossed almost $9 billion. DIS is also mining gold in Marvel Entertainment's library of over 8,000 characters of comic book history. Marvel had two big hits in 2014 Captain America: Winter Soldier and Guardians of the Galaxy. Their 2015 Avengers: Age of Ultron was also a big winner at the box office grossing more than $1.3 billion worldwide. Of course not every Disney movie crushes it. Their recent Tomorrowland was a big disappointment and they could lose more than $100 million on the film.

Back in 2012 Disney purchased Lucasfilm and all the Star Wars properties from George Lucas for $4 billion. The company is busy filming the next three episodes of the Star Wars franchise. The next Star Wars film it titled "The Force Awakens." It will be episode seven in the franchise. The movie doesn't hit theaters until December 2015 but analysts are already predicting that "The Force Awakens" will generate $1.2 billion at the global box office.

DIS management loves movie franchises because they can fuel years of sequels, park rides, and merchandise. The approach seems to be working. Revenues and net income have hit all-time highs for five consecutive quarters. Their 2015 Q1 results saw earnings per share up +23% to $1.27. Their Q2 results saw earnings grow +14% to $1.23 per share. Their domestic theme parks showed a strong surge in both attendance and in customer spending. Analysts are forecasting DIS earnings to grow +17% this year.

The stock surged to new all-time highs back in early May after its Q2 earnings report. Shares have since spent the last six weeks digesting gains in a sideways consolidation that has ignored much of the broader market's volatility. More recently DIS has started to rebound and is now at the top of its trading range. A breakout here could signal the next leg higher.

The point & figure chart is bullish and forecasting at long-term target of $154.00. I personally suspect that DIS could rally toward $120-125 before its next earnings report in August. Credit Suisse recently upped their price target to $130. Tonight we are suggesting a trigger at $112.25 to buy calls.

- Suggested Positions -

Long AUG $115 CALL (DIS150821C115) entry $2.30

07/16/15 Our call option has more than doubled in value. Traders may want to take some money off the table here.
07/14/15 new stop @ 115.85
06/27/15 new stop @ 112.25
06/18/15 triggered @ $112.25
Option Format: symbol-year-month-day-call-strike


Facebook, Inc. - FB - close: 90.85 change: +1.09

Stop Loss: 89.35
Target(s): To Be Determined
Current Option Gain/Loss: +37.3%
Average Daily Volume = 24.5 million
Entry on July 06 at $88.15
Listed on July 04, 2015
Time Frame: Exit PRIOR to earnings on July 29th
New Positions: see below

Comments:
07/16/15: FB's early morning pop faded but traders quickly bought the dip. Shares managed to outperform the S&P 500 with a +1.2% gain. This is a new record closing high for the stock.

Don't forget that earnings are coming up on July 29th and we plan to exit prior to the announcement. With that in mind we are raising the stop loss to $89.35.

Trade Description: July 4, 2015:
Facebook probably needs no introduction. It's the largest social media platform on the planet. As of March 31st, 2015 the company reported 1.44 billion monthly active users and 936 million daily active users. If FB were a country that makes them the most populous country on the planet. China has 1.35 billion while India has 1.25 billion people.

Earlier this year (March) the company announced a new mobile payment service through FB's messenger app. The new service will compete with similar programs through PayPal, Apple Pay, and Google Wallet.

Meanwhile business at FB is great. According to IBD, FB's Q4 earnings were up +69% from a year ago. Revenues were up +49%. Q1 results were out on April 22nd. Earnings were up +20% to $0.42 per share, which beat estimates. Revenues were up +41.6% to $3.54 billion in the first quarter. Wall Street is expecting FB's profit to rise +12% in 2015 and +32% in 2016.

FB continues to see growth among its niche properties. The company bought Instragram for $1 billion in 2012. Last late year Instragram surpassed Twitter with more than 300 million active users. FB is also a dominate player in the messenger industry with more than 600 million users on WhatsApp and 145 million users on Facebook Messenger. FB has not yet started to truly monetize its WhatsApp and Messenger properties. It's just now starting to include ads in Instagram. Eventually, with audiences this big, FB will be able to generate a lot of cash through additional advertising.

Speaking of advertising, FB has jumped into the video ad game with both feet and it's off to a strong start. FB claims that it's already up to four billion video views a day. They had 315 billion video views in Q1 2015. That's pretty significant. YouTube had 756 billion video views in Q1 but YouTube has been around for ten years (FYI: YouTube is owned by Google). FB has only recently focused on video.

Wall Street is growing more optimistic as FB develops its blooming video ad business and its Instagram and messaging properties. In the last few weeks the stock has seen a number of price target upgrades. Bank of America upped their FB price target from $95 to $105. Cantor Fitzergerald upped theirs to $100. Brean Capital raised theirs to $108. Piper Jaffray upgraded their FB target to $120. Currently the point & figure chart is bullish with a $113.00 target.

Technically FB was stuck in a trading range for months while still working on a long-term, slow moving up trend of higher lows. That changed a couple of weeks ago with a bullish breakout to new highs. The recent pullback is an opportunity. If traders continue to buy this dip we want to jump on board. Tonight we are listing an entry point to buy calls at $88.15.

- Suggested Positions -

Long AUG $90 CALL (FB150821C90) entry $2.84

07/16/15 new stop @ 89.35
07/06/15 triggered @ $88.15
Option Format: symbol-year-month-day-call-strike


Fiserv, Inc. - FISV - close: 88.23 change: +1.04

Stop Loss: 85.85
Target(s): To Be Determined
Current Option Gain/Loss: +25.0%
Average Daily Volume = 1.0 million
Entry on July 10 at $85.41
Listed on July 07, 2015
Time Frame: Exit PRIOR to earnings on July 29th
New Positions: see below

Comments:
07/16/15: FISV spent the session slowly marching higher and ended the day at another record high. I would not chase it here. No new positions at this time.

Trade Description: July 7, 2015:
Apple isn't the only one with a mobile payments platform. Last year AAPL launched its Apple Pay service, which allows people to use their smart phones (and now smart watches) to pay for stuff at the register. FISV also jumped into the mobile pay industry late last year. That's on top of a growing business of its traditional payment systems.

FISV is part of the services sector. According to the company, "Fiserv, Inc. (FISV) enables clients to achieve best-in-class results by driving quality and innovation in payments, processing services, risk and compliance, customer and channel management, and business insights and optimization."

Earnings have been relatively on track the last couple of quarters. FISV most recent report was announced on May 5th. They reported earnings of $0.89 per share. That was up +8.5% from a year ago and above Wall Street estimates. Revenues were up +3.4% and slightly behind expectations. The company spent $290 million buying back 3.8 million shares last quarter.

Shares of FISV had been slowly drifting higher in the $75-80 zone from February to June. Suddenly things changed. The market's big rally on June 18th helped FISV breakout from its trading range. The next day the stock was upgraded to an "outperform" and given at $95 target. This launched FISV's stock toward $85.00.

Shares have been trading technically and slowly faded back toward its mid-June breakout high. Once FISV had filled the gap it began to rally again. The stock held up well this morning during the market sell-off. When the major indices reversed higher FISV outperformed them with a +0.77% gain. We want to hop on board if FISV can rally past $85.00. Tonight we're suggesting a trigger to buy calls at $85.15. Plan on exiting this trade prior to their earnings report on July 29th.

- Suggested Positions -

Long AUG $85 CALL (FISV150821C85) entry $3.20

07/14/15 new stop @ 85.85
07/10/15 triggered on gap open at $85.41, trigger was $85.15
Option Format: symbol-year-month-day-call-strike


INSYS Therapeutics - INSY - close: 41.03 change: +1.14

Stop Loss: 38.85
Target(s): To Be Determined
Current Option Gain/Loss: +0.0%
Average Daily Volume = 607 thousand
Entry on July 01 at $36.30
Listed on June 30, 2015
Time Frame: Exit PRIOR to earnings in August
New Positions: see below

Comments:
07/16/15: The rally in INSY continues with another +2.85% gain. The stock is now up six days in a row. I'm worried shares are short-term overbought here. We are moving our stop loss up to $38.85.

No new positions at this time.

Trade Description: June 30, 2015:
INSY is probably best known for its synthetic cannabinoid drugs that use THC, the same ingredient in marijuana. Yet it is the company's Subsys treatment, a painkiller several times stronger than morphine, that generates the most revenues for INSY. The marketing practices behind Subsys have generated some scandal-worthy headlines but nothing seems to be slowing down the stock's long-term rally.

INSY is in the healthcare sector, more specifically the biotech industry. According to the company, "Insys Therapeutics is a specialty pharmaceutical company that develops and commercializes innovative drugs and novel drug delivery systems of therapeutic molecules that improve the quality of life of patients. Using our proprietary sublingual spray technology and our capability to develop pharmaceutical cannabinoids, Insys addresses the clinical shortcomings of existing commercial products. Insys currently markets two products: Subsys, which is sublingual Fentanyl spray for breakthrough cancer pain, and a generic version of Dronabinol (THC) capsules. The Company's lead product candidate is Dronabinol Oral Solution, a proprietary, orally administered liquid formulation of dronabinol that Insys believes has distinct advantages over the current formulation of dronabinol in soft gel capsule. Insys is developing a pipeline of sublingual sprays, as well as pharmaceutical cannabidiol."

The company's earnings growth has been impressive. They have consistently beaten Wall Street's bottom line earnings estimates the last six quarters in a row. They normally beat the revenue estimate as well. Looking at the last three quarters INSY has seen its revenues jump +99.7%, +65.4%, and +70.2%. Most of that has been on strong Subsys sales, which were up +69% in the fourth quarter and up +74% in the first quarter.

INSY management is very optimistic and expects to complete four Phase III clinical trials in 2015. If successful it will significantly broaden their product line. The company just recently announced a New Drug Application (NDA) for its "proprietary Dronabinol Oral Solution for anorexia associated with weight loss in patients with AIDS; and nausea and vomiting associated with cancer chemotherapy in patients who have failed to respond adequately to conventional antiemetic treatments. Dronabinol Oral Solution is an orally administered liquid formulation of the pharmaceutical cannabinoid dronabinol, a synthetic version of tetrahydrocannabinol (THC)."

INSY's stock has been a strong performer since the company's IPO in 2013. Shares saw a 3-for-2 split in 2014. They just completed a 2-for-1 split on June 5th.

Before I continue I want to remind traders that biotech stocks can be tough to trade. Normally stocks in this group can be volatile with lots of headline risk. The right headline about a successful test or clinical trial or FDA approval can send shares soaring. The wrong headline could see a biotech stock crash or even gap down several points.

It is important to note that not all the news is good for INSY. In late 2014 the Wall Street Journal (WSJ) ran a story about some shady marketing practices for INSY's Subsys painkiller. This is an under-the-tongue spray version of the painkiller fentanyl. Subsys has a very high risk of dependency and is currently only approved for cancer patients. Yet strangely enough only 1% of prescriptions last year were written by oncologists. Several doctors with the biggest number of Subsys prescriptions have also been under review or disciplined. The WSJ noted that the Office of the Inspector General of the U.S. Department of Health and Human Services and the U.S. Attorneys in the Central District of California and Massachusetts are all looking into the matter. This is significant because Subsys accounts for the vast majority of INSY's revenues.

Thus far the stock market has managed to ignore the shadow cast by Subsys and how the drug is prescribed and INSY's financial relationship with the doctors who prescribe it.

Last week saw biotech stocks retreat. The IBB biotech ETF had broken out in mid June and rallied to new record highs. The group reversed lower last week with a sharp correction. INSY followed its peers lower with a painful drop from $42 to $34 in about three days. Currently the $34.00 level is holding up as support. If INSY can bounce from current levels the move could be big.

A rally from here could spark a short squeeze. The most recent data listed short interest at 68% of the small 23.6 million share float. Tonight we are suggesting a trigger to buy calls at $36.30.

*Small positions to limit risk* - Suggested Positions -

Long AUG $40 CALL (INSY150821C40) entry $3.40

07/16/15 new stop @ 38.85
07/14/15 new stop @ 36.35
07/01/15 triggered @ $36.30
Option Format: symbol-year-month-day-call-strike


Jack In The Box Inc. - JACK - close: 92.90 change: +0.69

Stop Loss: 90.85
Target(s): To Be Determined
Current Option Gain/Loss: +43.8%
Average Daily Volume = 600 thousand
Entry on July 13 at $90.25
Listed on July 11, 2015
Time Frame: Exit PRIOR to earnings
New Positions: see below

Comments:
07/16/15: Traders bought the dip in JACK this morning near its 100-dma (and 5-dma). The stock bounced to a +0.74% gain and essentially erased yesterday's dip. I would be tempted to use a rally past Tuesday's high of $93.35 as a new entry point. We are raising the stop loss to $90.85.

Trade Description: July 11, 2015:
It's a burger-eat-burger world out there in the fast-food business. Jack in the Box is small fries compared to its larger rivals like McDonalds (36,258 locations) and Wendy's (6,515 locations). Let's not forget heavy weights like Taco Bell, Burger King, Subway, Dairy Queen, and a handful of pizza chains. JACK only has about 2,200 restaurants but it also has a secret weapon and that is the Qdoba Mexican Grill, a fast-casual restaurant with about 600 locations. Fast-casual restaurant rival Chipotle Mexican Grill has almost 1,800 locations.

Some of that intense competition being felt by McDonalds and Chipotle Mexican Grill is coming from Jack in the Box and its Qdoba brand, which is growing sharply. A majority of their Qdoba franchisees own multiple stores with 10, 20 even 40 stores common. Enterprising business owners don't open additional stores if the original stores are not working. To have so many owners with high numbers of stores suggests the franchise is consistently profitable.

To be profitable they need solid customer traffic, good food and decent margins. Shares of JACK have been one of the best performers on the S&P over the last couple of years because the company has been posting solid earnings and growth.

With analysts cutting earnings estimates for McDonalds and Chipotle, earlier this year, because of competition in the sector it makes sense to look at what has happened at JACK. Over the last quarter and the last year not a single analyst has lowered their earnings estimates for JACK. According to Zacks, analysts are expecting JACK to grow earnings +11.7% in the current quarter and +22% for 2015.

Customers are trending towards healthier foods and away from the mass produced burgers and fries at McDonalds. Did you know there are 19 ingredients in McDonalds fries? Surely you didn't think they were just potatoes and grease? This trend may not help the Jack in the box brand but it's good news for Qdoba. Restaurants like Qdoba and Chipotle are capitalizing on the healthy food craze.

The company plans to open 15 new Jack in the Box stores in 2015. They're also cashing in on Qdoba's success and planning to open 50 to 60 new Qdoba locations. That compares to just 12 new Jacks and 38 new Qdobas in 2014.

Management is trying to be shareholder friendly. They have an active share buyback program and they reduced the share count by 10% over the last few quarters. In their most recent earnings report (May 13th) the company raised their quarterly dividend by +50%.

JACK reported its Q1 2015 earnings on February 17th. Analysts were expecting a profit of $0.87 a share on revenues of $461.2 million. JACK delivered earnings of $0.93 a share. That's a +24% improvement from a year ago. Revenues were up +4.1% to $468.6 million, above estimates. Their operating margins improved 1% to 19.3%. Management raised their 2015 guidance.

The company did it again in May with their Q2 report. Estimates were for $0.66 per share on revenues of $356 million. JACK reported $0.69 per share with revenues up +5.0% to $358 million. That is a +35.2% earnings improvement from a year ago. Their consolidated restaurant operating margins improved 210 basis points to 20.6%. Plus, management raised their 2015 guidance again.

The stock has ignored a lot of the market's recent volatility. Shares of JACK seem to be marching to the beat of their own drummer. You can see the market reaction to its Q1 earnings report in February with the big surge higher. The rally reversed in late March and shares found support near $86.00. The stock has been bouncing along the 486.00 level for more than two months. Its consolidation has narrow over the last few weeks. It used to be the $86-90 range. The last few days the consolidation has been in the $88-90 zone. JACK looks like it could breakout past $90.00 soon.

We want to be ready if JACK does breakout. Tonight we're suggesting a trigger to buy calls at $90.25. Plan on exiting prior to earnings in early August.

- Suggested Positions -

Long AUG $95 CALL (JACK150821C95) entry $1.60

07/16/15 new stop @ 90.85
07/14/15 new stop @ 89.75
07/13/15 triggered @ $90.25
Option Format: symbol-year-month-day-call-strike


Molina Healthcare - MOH - close: 73.13 change: +1.22

Stop Loss: 69.95
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 890 thousand
Entry on July -- at $---.--
Listed on July 15, 2015
Time Frame: Exit PRIOR to earnings on July 30th
New Positions: Yes, see below

Comments:
07/16/15: MOH encountered some profit taking this morning with a dip to $71.41. Shares managed to pare their loss by the close. I don't see any changes from last night's new play description.

Trade Description: July 15, 2015:
One of the biggest impacts that the Affordable Care Act (ACA) has had on the healthcare insurance business is boost the Medicaid and Medicare programs. That's a shift that plays to MOH's strengths.

MOH is in the healthcare sector. According to the company, "Molina Healthcare, Inc., a FORTUNE 500 company, provides managed health care services under the Medicaid and Medicare programs and through the state insurance marketplaces. Molina serves more than 3 million members through locally operated health plans in 11 states across the nation and in the Commonwealth of Puerto Rico. Doctor C. David Molina founded the company in 1980 as a provider organization serving low-income families in Southern California. Today, the company continues his mission of providing high-quality and cost-effective health care to those who need it most."

The company's earnings have soared. The big rally in MOH's stock this February was a reaction to its Q4 earnings results. Q4 EPS was $0.69 per share, which beat estimates by 8 cents. Revenues were up +64% to $2.8 billion. A couple of days later MOH management raised their 2015 earnings and revenue guidance significantly above Wall Street estimates.

The Q1 earnings report sparked the big rally in May. Analysts were expecting a profit of $0.49 per share. MOH delivered $0.71, which is a +163% improvement from a year ago. Revenues were up +53% to $3.17 billion, above expectations.

J. Mario Molina, M.D., chief executive officer of Molina Healthcare, Inc., commented on his company's quarter, "We are very pleased with our first quarter results, which represent a down payment on the improved profitability we committed to at our investor day this past February. We are off to a very good start in 2015, and remain confident that we can deliver both top-line and bottom-line growth in 2015."

On June 17th UBS initiated coverage on MOH with a "buy" and an $80 price target. The point & figure chart is bullish and forecasting a $103 target. Currently MOH has rallied toward its May highs near $74.00. A breakout past $74.00 could spark some short covering. The most recent data listed short interest at 20% of the small 33.3 million share float.

We are suggesting a trigger to buy calls at $74.05. Keep in mind that this is a short-term trade. We plan on exiting prior to the company's earnings report on July 30th. However, after seeing the reaction to the last couple of earnings announcements, I'm tempted to hold over the report.

Trigger @ $74.05

- Suggested Positions -

Buy the AUG $75 CALL (MOH150821C75)

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

Option Format: symbol-year-month-day-call-strike




PUT Play Updates

Barracuda Networks, Inc. - CUDA - close: 30.23 change: +0.02

Stop Loss: 32.15
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 512 thousand
Entry on July -- at $---.--
Listed on July 13, 2015
Time Frame: 2 or 3 weeks
New Positions: Yes, see below

Comments:
07/16/15: CUDA continues to hover near round-number support at $30.00. It's worth noting that shares continue to underperform the broader market, which is in rally mode. Our suggested entry point is $29.75.

Trade Description: July 13, 2015:
Cyber-security is a hot industry right now. We constantly hear about hackers stealing information from major corporations. There has also been a high-profile attack on U.S. government employee data. This has driven gains for a number of cyber security stocks. Yet one security firm is underperforming its peers. That is CUDA.

CUDA is in the technology sector. According to the company, "Barracuda (CUDA) provides cloud-connected security and storage solutions that simplify IT. These powerful, easy-to-use and affordable solutions are trusted by more than 150,000 organizations worldwide and are delivered in appliance, virtual appliance, cloud and hybrid deployments. Barracuda's customer-centric business model focuses on delivering high-value, subscription-based IT solutions that provide end-to-end network and data security."

They reported their 2016 Q1 earnings on July 9th. Earnings rose +39% from a year ago to $0.09 per share. That beat estimates of $0.08. Revenues were up +17.8% to $78 million, also above expectations. Their subscribers grew +18% to 252,000 and their subscription revenue was up +19.6%.

It looks like a pretty good report. So why did the stock plunge -19% on Friday? That's because Wall Street was not happy with CUDA's gross billing number or its soft Q2 guidance.

CUDA reported their Q1 gross billings were up +7.6% to $94.3 million. Yet that was below expectations in the $103 million region. Management also guided Q2 revenue estimates into the $78-79 million range. That's below estimates of $80.4 million.

Shares were crushed on Friday and there was no oversold bounce today. CUDA continued to underperform with a -3.8% drop in spite of the market's widespread rally today. The point & figure chart is now bearish and forecasting a $26.00 target. We think CUDA could drop toward $25.00. However, I will warn you that CUDA does have potential support in the $29.50-30.00 range.

Tonight we are suggesting small bearish positions to buy puts at $29.75. More conservative traders may want to sit this one out or wait for a drop below $29.00 as an alternative entry point. I consider this a higher-risk, more aggressive trade.

Trigger @ $29.75 *small positions to limit risk*

- Suggested Positions -

Buy the AUG $30 PUT (CUDA150821P30)

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

Option Format: symbol-year-month-day-call-strike


Concho Resources - CXO - close: 107.51 change: -0.59

Stop Loss: 112.50
Target(s): To Be Determined
Current Option Gain/Loss: -32.6%
Average Daily Volume = 1.4 million
Entry on July 07 at $106.90
Listed on July 06, 2015
Time Frame: Exit PRIOR to earnings on July 29th
New Positions: see below

Comments:
07/16/15: CXO slowly faded lower to a -0.5% decline. Shares look poised to continue lower but the widespread market rally might be artificially holding it up.

Trade Description: July 6, 2015:
It has been a bumpy ride for energy stock traders over the last year. That's especially true for CXO investors. The stock fell from $148 to $80 in less than five months last year. CXO bottomed in December 2014. The stock managed a big bounce from $80 to $130 in the next five months but that rally is over with a big reversal on the company's Q1 earnings report in early May.

CXO is in the basic materials sector. According to the company, "Concho Resources Inc. is an independent oil and natural gas company engaged in the acquisition, development and exploration of oil and natural gas properties. The Company's operations are primarily focused in the Permian Basin of southeast New Mexico and west Texas."

The last couple of quarters have seen CXO's revenues decline. They reported their 2014 Q4 results on February 25th. Earnings were 88 cents a share, which was four cents above estimates. Yet revenues fell -6.0% to $594 million, way below estimates. Their 2015 Q1 results were announced on May 4th. Earnings per shares was $0.06. That was 17 cents worse than expected. CXO's revenues plunged -37.4% to $413.5 million, another big miss. The stock reacted to this news with a spike higher that quickly reversed.

Today the oil stocks are suffering as the commodity sinks due to oversupply concerns. The weekly Baker Hughes active rig count just turned positive two weeks in a row after a 28-week decline. This would suggest the pullback in the industry is over and the market has found a temporary equilibrium that will allow domestic companies to start launching new oil and gas rigs again. This will continue to boost supply and pressure prices lower.

A bigger problem could be the Iran nuclear negotiations. If Iran does sign a deal with the West then sanctions could be lifted that would allow Iran to sell up to one million barrels of oil per day on the global market. Sources suggest Iran already has dozens of crude oil tankers filled up and ready to go if the sanctions are lifted. This is one reason crude oil has been plunging the last few days. The current deadline (and there have been many) is tomorrow, July 7th. If Iran signs a deal then oil will likely drop again. If they don't then oil could bounce. If talks are postponed again then I suspect the prevailing trend, which is down, will remain in effect for oil and the oil stocks.

CXO has technically broken down below support near $110 and its 200-dma. The point & figure chart looks very bearish and is currently forecasting an $89 target. Tonight we're suggesting a trigger to buy puts at $106.90.

- Suggested Positions -

Long AUG $105 PUT (CXO150821P105) entry $4.60

07/07/15 triggered @ $106.90
Option Format: symbol-year-month-day-call-strike


SM Energy Company - SM - close: 38.00 change: -2.38

Stop Loss: 41.55
Target(s): To Be Determined
Current Option Gain/Loss: +112.1%
Average Daily Volume = 1.6 million
Entry on June 19 at $44.49
Listed on June 13, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
07/16/15: SM is down big two days in a row. Shares broke down below the $40.00 mark today with a -5.89% plunge. Our put option has more than doubled in value. Tonight we are moving the stop loss down to $41.55.

No new positions at this time.

Trade Description: June 13, 2015:
SM has been around a long time. They were founded back in 1908. The company was formerly known as St. Mary Land & Exploration Company but they changed their name to SM Energy Company about five years ago.

SM is in the basic materials sector. According to the company, "SM Energy Company is an independent energy company engaged in the acquisition, exploration, development, and production of crude oil, natural gas, and natural gas liquids in onshore North America."

SM operates in the Rocky Mountain region including the Bakken and Three Forks formations. Further south, they drill in the Haynesville and Woodford shales of Texas and Oklahoma. SM also operates in the Permian region of Texas and New Mexico. Even further south SM drills in the South Texas area with the Eagle Ford shale formation.

Crude oil's plunge in late 2014 crushed the oil sector and shares of SM followed it lower. Yet SM appeared to be having trouble before the big drop in oil prices. The company has missed Wall Street's earnings estimates the last four quarters in a row.

The huge drop in oil sparked significant cutbacks across the oil and gas industry with most major exploration companies reducing their capital spending plans. When SM reported their Q4 earnings in February 2015 they missed the EPS number by five cents and revenues were down -6.4% from a year ago. Management also slashed their 2015 investment plans by -44% from $1.9 billion to $1.0 billion.

SM reported its 2015 Q1 numbers on May 5th. Analysts were expecting a profit of $0.29 per share on revenues of $543.1 million. SM delivered a profit of $0.21 as revenues plunged -42% to $365.9 million.

Citigroup issued a research report last month that suggested U.S. oil producers will still be able to profit with oil at depressed prices. Here's a quote from a Bloomberg article, "belt-tightening across the industry and more strategic drilling in prolific areas would deliver ample profits even at $50 crude. The improvement is driven by costs that are expected to fall by 20 to 30 percent and techniques that allow rigs to wring 30 percent more oil or natural gas from each well compared with a year ago." That definitely seems like ammunition for the bulls to be buying some of the oil producers. Yet the group continues to lag. They are facing some stiff headwinds.

Crude oil has produced a +25% bounce off its March 2015 lows. Yet the rally in oil has stalled the last few weeks with the commodity churning sideways. The recent OPEC meeting showed that the Middle East shows no signs of slowing down their production. The world is temporarily facing a small oil glut.

Meanwhile currencies could play an issue here. It is widely accepted that the long-term trend for the U.S. dollar is now higher. The Federal Reserve will eventually raise rates, either later this year or early next year. When they start raising rates it should boost the dollar. At the same time central banks around the world (like Japan and Europe) are in the middle of huge QE programs that will drive their currencies lower. Naturally this will lift the dollar even higher. A rising dollar pushes commodities lower.

Technically shares of SM have been very weak. The broke down from a bullish channel a couple of weeks ago. The stock has also sliced through some psychological support levels. The point & figure chart is currently forecasting at $40.00 target. You could argue that SM is already oversold. However, the path of least resistance is lower. Tonight we are suggesting a trigger to buy puts at $44.90 with a wide stop loss at $50.25 just in case SM does see a little oversold bounce.

- Suggested Positions -

Long AUG $40 PUT (SM150821P40) entry $1.65

07/16/15 new stop @ 41.55
07/06/15 new stop @ 45.25
06/23/15 new stop @ 48.75
06/19/15 triggered on gap down at $44.49, suggested entry was $44.90
Option Format: symbol-year-month-day-call-strike



CLOSED BULLISH PLAYS

Under Armour, Inc. - UA - close: 85.35 change: -2.93

Stop Loss: 86.85
Target(s): To Be Determined
Current Option Gain/Loss: -13.0%
Average Daily Volume = 2.0 million
Entry on June 26 at $86.05
Listed on June 23, 2015
Time Frame: Exit prior to August expiration
New Positions: see below

Comments:
07/16/15: Shares of UA were downgraded before the open and the stock crashed on the news. UA fell -4.4% at its lows and pierced multiple levels of short-term support. Our stop was hit in the first minute of trading at $86.85.

- Suggested Positions -

Long AUG $90 CALL (UA150821C90) entry $2.30 exit $2.00 (-13.0%)

07/16/15 stopped out
07/14/15 new stop @ 86.85
07/11/15 new stop @ 83.75
06/26/15 triggered @ $86.05
Option Format: symbol-year-month-day-call-strike

chart: