Option Investor
Newsletter

Daily Newsletter, Thursday, 8/27/2015

Table of Contents

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

Market Wrap

Who's Slowing?

by Thomas Hughes

Click here to email Thomas Hughes
Fear of global woe helped send the market into correction, but newly released data does not support a US economic slow down.

Introduction

Global growth is weak, China is slowing, emerging market are iffy, the EU and Japan both sluggish, a combination that has helped to send international indices into corrective mode. The only thing is, our economy is still expanding, still building momentum and the newly released GDP revision supports it. Now that the market is bouncing the question is, is this a dead cat bounce or the beginning of another rally.

Futures had been positive all morning but gained strength after the release of today's data. The rebound which began in our market yesterday carried into Asia, where indices gained an average of 3%, and swept the globe. European indices were also carried higher, gaining 3% across the board.

Market Statistics

Our indices were indicated to open about a half percent higher before today's data was released and extended that to near a full percent afterward. Strength persisted into the opening bell and saw the indices gain that full percent within the first few minutes of trading. The next hour saw them move more or less sideways, until about 10:30, when the bulls took charge and drove them higher. By 11:15 all the majors indices were flirting with 2% gains.

Mid afternoon was a bit of a roller coaster ride. After reaching early highs, the market began to rollover and reduced today's gain from 2% down to 1%. At one point it looked as if all of today's gains would be erased but the bulls were able to regain control. Later afternoon action saw the indices march back up to the early high where they held, leaving our indices with gains in the range of 2%-2.5%.

Economic Calendar

The Economy

The 2nd estimate for 2nd quarter GDP was released at 8:30AM. The estimate was revised higher from 2.3% to 3.7%, after rising 0.6% in first quarter. The estimate was raised due to increased amounts of fixed investments and business inventories along with strength in PCE, exports and local government spending.


Initial claims for unemployment fell by -6,000 from last week's unrevised figure. This is contrary to an expectation for a slight gain and remains near the long term low. The four week moving average gained 1,000, also from an unrevised figure, to hit 272,000. On a a not adjusted basis claims fell by -1% versus a rise of +1.2% as predicted by the seasonal factors. Michigan and Kansas led with increases of 1297 and 1244, Illinois and Pennsylvania led with declines of -1486 and -1166.


Continuing claims gained 13,000 from an upward revision of +2,000 to last week's number. This week continuing claims is 2.269 million and still trending near the long term lows. The four week moving average fell, shedding -250. Continuing claims remain near long term lows and consistent with a healthy labor market.

The total number of Americans receiving is 2.207 million. A little odd since this is less than the number of continuing claims, but makes sense when you remember that continuing claims are "seasonally adjusted" while total claims are not. The non adjusted of continuing claims is only 2.1 million. In any event, this is the fifth week of decline in total claims which is trending near the long term low and consistent with ongoing recovery. All in all, the jobless claims data supports ongoing health in the labor market and expectations of decent numbers in next week's NFP and Unemployment reports.


Pending Home Sales was released at 10AM and helped rally the bulls to new intra-day highs. Pending sales rose by 0.5%, a little weaker than expected, but still a solid number. This is the 6th month of gain out of 7, June saw a slight decline, and leads existing home sales by a month or two. This brings the year over year gain to +7.4% over last year. However, on a not adjusted basis pending sales fell by -11.5% from last month. Despite this drop the not adjusted year over year total is still +7.2% over last year. Based on this number we can expect to see existing home sales continue to rise into the next month or two.

The Oil Index

Oil prices surged today, gaining more than 10% on an intra-day basis, to trade above $42 (WTI). This move is likely short covering and near term profit taking and not a reversal in prices. Crude prices have gotten a little support from hurricane season, Chinese stimulus hopes and positive US economic data but underlying supply/demand fundamentals are unchanged. There was a draw of US stockpiles, as reported yesterday, but this does little to alter the fact that supply and production remain high, actual demand and demand expectations are low and unchanged.

The energy sector got a lift from today's snap back in oil prices. The Oil Index itself gained over 5% on the news and closed near the high of the day. Prices have begun to snap back from the low set at the end of last week but hit resistance today. Resistance is the 61.8% retracement line and will likely get tested again in the least. The indicators are bearish at this time but mixed in their message. MACD momentum is convergent with the recently set low suggesting that it will be hit again, if not surpassed, while stochastic is divergent from that same low suggestive of support and an overextended market. Oil prices are leading, if they remain up the index could test or break resistance near 1120, if they fall back to their low the index will likely retest its low as well. I remain bullish on this index into the long term as expectations for oil prices in 2016 are near $50 average, and earnings growth is expected to return to the sector as early as the 1st quarter of 2016.


The Gold Index

Gold prices held steady around $1120 in today's session, shedding about $2 from yesterday's settlement price. The metal has retreated from its recent high and is now sitting on potential support, just above a small consolidation zone set earlier this month. Prices are stuck in a tug-of-war between sooner-rate-hike versus later-rate-hike speculation, all driven by economic data and dollar values. Inflation remains absent from the picture so I expect gold will remain tied to FOMC outlook for now. Until inflation shows up rate hikes and strengthening dollar value will continue to provide resistance.

The gold miners were able to trade higher despite the small drop in gold prices. The miners ETF GDX rose more than 5% on an intra-day basis and closed near the top of the daily range. This move highlights support at the $13 if not confirming it. However, the indicators have rolled over into a bearish signal, in line with the prevailing trend, so caution is due... if this is the bottom there will be other entry points. A break below support would be a new all time low for this ETF and could add downward pressure to the sector.


In The News, Story Stocks and Earnings

Dollar General reported before the bell. The discount savings store reported $0.95 per share, beating estimates by a penny and improving profits over last year's comparable quarter by more than 10%. Operating profits are up, margins are up, sales are up nearly 8% and comps are up. What is not up is guidance which was reaffirmed in a range just below consensus. Shares of the stock responded by shedding more than 5% and closing with a loss greater than -3%. Today's session was choppy and volatile, leaving long shadows on both ends of today's candle. The indicators are weakening and convergent with lower prices.


Tiffany's reported a bust. The high end jewelry retailer reported $0.81 per share versus expectations of $0.90. Along with this comes a down beat outlook that helped to send shares down by nearly -3% in pre-market action. The stock gapped down at the open, setting a new low, but buyers stepped in to provide support. Shares had moved into the green at one point during the day but were not able to hold it into the close.


Smucker's reported before the bell too. The maker of delicious jams and jellies beat earnings expectations and reaffirmed guidance at the high end of its previous range. The beat is due in part to an acquisition made earlier in the year and also in part to the launch of Dunkin brands K-cups for Keurig coffee makers. Shares of the stock gained more than 6.5% on the news and are approaching resistance at the long term high.


Zoe's Kitchen, an often not talked about fast casual restaurant, reported before the bell and beat expectations by a penny. The company reported $0.05 per share driven by the opening of 7 new stores and a 5.6% increase in comp store sales. Company execs were also able to raise guidance due to strength in the quarter. Shares of the stock gained nearly 4% in a move that looks set to move up to resistance near $40.


The Indices

The indices moved higher in another day of wild trading. The size of the gains is significant, as is the mid day swoon and late day recovery. Today's action was led by the NASDAQ Composite which gained 2.45% and created another long white candle. The tech heavy index also broke above a potential resistance line near 4,800 with targets set on 5,000. The indicators are rolling over in line with the current bounce with stochastic making a bullish crossover and pointing to higher prices. Next target, near 5,000, is coincident with the underside of the long term trend line and could provide significant resistance.


Next in line is the S&P 500 with a gain of 2.43%. The broad market index created a long white candle, not quite as long as yesterday and closed near the high of the day, above potential resistance. The indicators are not yet rolling over so this bounce is a little questionable however strong it looks now. Next target is near 2,020 and then 2,050 upon a break. This bounce is in line with the underlying trend and forward expectations so could easily move up to test the current all time high.


The Dow Jones Transportation Average made the third largest gain in today's session, 2.40%. The index created a long white candle with no upper shadow, closing at the high of the day. Today's action carried it above recently broken support at 7,750 with indicators consistent with a bounce from support. MACD is still bearish so another test of support is very possible. Stochastic is also still moving lower, although %K is on the verge of making a crossover, supporting the idea of retesting support.


The Dow Jones Industrial Average made the smallest gain in today's session, only 2.27%. Despite coming in last the blue chips made a long white candle and extended the support bounce begun yesterday. The indicators are mixed with strong bearish momentum, declining, and stochastic creating a bullish crossover so it looks like a move up to next resistance is very possible. This target is near 17,200 and could be reached in only 2-3 days of trading if action continues as it has so far this week.


It looks like the bounce is on but the question remains, is it a recovery or a dead cat bounce? The indicators have yet to confirm the move and there is still significant resistance levels to overcome so the risk of dead cat bounce is very present. On the flip side, this move is quite strong, supported by trends in the economy and led by earnings expectations so could easily reach resistance, break through and move on to test current all time highs. In either event it looks likely the market will continue to move higher into the near term, provided a negative headline does not jump out and knock the bulls off of their feet.

There is not much in the way of data or earnings on the schedule for tomorrow to get in the way. On the data front look out for Personal Income And Spending as well as Michigan Sentiment. Income and Spending are both expected to rise by 0.4%, Michigan Sentiment to gain a tenth and rise to 93. The real risks at this time are global news, oil prices and FOMC talk. Next week will be another big one, I think. There is lots of data, and the Jackson Hole conference starts this weekend.

Finally, we've got about four weeks until the FOMC meeting and a possible rate hike. This alone could keep stocks range bound and below resistance targets.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Outpacing The Competition

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Skechers USA Inc. - SKX - close: 142.73 change: +5.44

Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.3 million
Entry on August -- at $---.--
Listed on August 27, 2015
Time Frame: Exit PRIOR to the 3-for-1 stock split in mid October
New Positions: Yes, see below

Company Description

Trade Description:
SKX seems to be doing everything right and investors have noticed. Shares are one of the best performing stocks this year. At its early August high near $160.00 a share SKX was up +190% for the year. Today SKX is only up +158% year to date. The company is growing faster than rivals Nike (NKE), Under Armour (UA), and Adidas.

SKX is in the consumer goods sector. According to the company, "SKECHERS USA, Inc., based in Manhattan Beach, California, designs, develops and markets a diverse range of lifestyle footwear for men, women and children, as well as performance footwear for men and women. SKECHERS footwear is available in the United States and over 120 countries and territories worldwide via department and specialty stores, more than 1,100 SKECHERS retail stores, and the Company's e-commerce website. The Company manages its international business through a network of global distributors, joint venture partners in Asia, and 12 wholly-owned subsidiaries in Brazil, Canada, Chile, Japan and throughout Europe."

Earnings have been great. SKX reported their Q1 results on April 22nd. Results of $1.10 per share beat estimates by nine cents. Revenues soared +40% to $768 million, above expectations. Their Q1 earnings were +80% higher from a year ago. These results were in spite of the West Coast port slowdown.

The winning results continued in the second quarter. SKX reported their Q2 results on July 29th and they were record-breaking for the company. Wall Street was expecting a profit of $1.01 per share on revenues of $740 million. SKX blew those numbers away with a profit of $1.55 per share. That's a +128% improvement from a year ago. Revenues were up +36.4% to $800 million.

Under Armour's revenues were up only +28% and Nike's were only up +5%. It probably helped that SKX was able to pass along a +9% increase in their average selling price.

Naturally management was bullish. David Weinberg, chief operating officer and chief financial officer, commented on his company's quarterly results, saying,

"Our record first half of 2015 follows a record 2014, and is a result of the universal demand for our wide assortment of diverse footwear collections for men, women and kids. At no other time in the history of our company have so many product lines resonated with consumers, giving us a broad base to continue to build upon and grow. With increased year-over-year backlogs at the end of June, strong incoming order rates and July sales, as well as the positive sell-through reports from wholesale and an additional 125 to 135 Company-owned and third-party-owned Skechers retail stores planned to open later this year, we believe that we will continue to achieve new sales and profit records through 2015. With $513.9 million in cash, inventories in line with sales, and improved efficiencies and capacity in both our North American and European distribution centers, we believe we are well prepared for our planned growth. We remain comfortable with the analysts' current consensus estimates for the back half of 2015."
Shares of SKX soared to new highs following their Q2 results. A month later, August 21st, SKX announced a 3-for-1 stock split. Here's a bit from their press release, the "Board of Directors has approved a three-for-one split of the Company's Class A and Class B common stock that will be distributed in the form of a stock dividend." The stock split is subject to shareholder approval. They're holding a shareholder meeting on September 24th, 2015. If approved the stock split should take place on October 16th.

Odds are pretty good that SKX could see a run up into its stock split. During the market's recent turmoil SKX managed to maintain its long-term up trend. Shares filled the gap from late July and bounced off support near $120.00. Today's high was $144.86. We are suggesting a trigger to buy calls if SKX trades at $145.15.

We will plan on exiting prior to the 3-for-1 split.

Trigger @ $145.15

- Suggested Positions -

Buy the OCT $150 CALL (SKX151016C150) current ask $7.00
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

Another Volatile Session But Stocks Close Higher

by James Brown

Click here to email James Brown

Editor's Note:

It was another volatile session on Wall Street. The major indices closed higher after a late day surge. This time there was definitely some short covering as beaten down names bounced hard.

Our bullish trades on DIS and NFLX are now open.

Bearish trades on BBBY, TUP, and WCC have been closed.


Current Portfolio:


CALL Play Updates

The Walt Disney Co. - DIS - close: 102.17 change: +2.94

Stop Loss: None. No stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: +12.7%
Average Daily Volume = 8.5 million
Entry on August 27 at $101.35
Listed on August 24, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

Comments:
08/27/15: Our DIS trade is open. The plan was to buy calls if DIS traded at $101.00. The gap open higher at $101.35 immediately triggered us this morning. Shares dipped back to retest $100.00 (actually 99.78) as short-term support this afternoon before bouncing back. The stock ended the session with a +2.9% gain.

On a short-term basis the $104-105 area is potential resistance.

Trade Description: August 24, 2015:
We are bringing DIS back. The sell-off from its August high has been extreme. At its low today near $90.00 DIS was down -26% from its high. The retreat offers a lot of opportunity. Jump to the bottom of this play update for our entry point strategy.

Disney reported earnings on August 4th and beat the street with earnings of $1.45 compared to estimates for $1.42. The very next day shares fell -$11.00 to $110. The sell-off in DIS stock has continued thanks to a global market meltdown.

We think this pullback in the stock is way overdone. Disney posted $13.1 billion in revenue compared to estimates for $13.2 billion. That minor miss was not the reason for the huge decline in the stock. Disney said revenues in its cable products rose +5% BUT they had seen some pressure from online streaming. Subscription growth to the ESPN cable bundle had slowed, not declined, just slowed.

There are multiple reasons. There are no major sporting events this summer like the World Cup, Olympics, etc. Some consumers are cutting the cord to cable because they are now getting their TV programming from Netflix, Hulu, etc. Cable is expensive compared to the streaming options. The drop off in ESPN growth is not related specifically to Disney. CEO Bob Iger said subscriptions would pick back up in 2016 and expand sharply in 2017 thanks to a flood of sporting events due to come online next year.

Disney has already purchased the rights to nearly every sporting event available in the next five years but the old contracts with the prior rights holders have yet to expire. As those contracts expire and the new Disney contracts begin the content on ESPN will surge.

This slowdown in ESPN growth should be ignored. This is just a small part of the Disney empire and everything else is growing like crazy. Parks and resorts revenue rose +4%. Consumer products revenue rose +6% thanks to Frozen, Avengers and Star Wars merchandise. The only weak spot was interactive gaming, which declined -$58 million to $208 million. Disney expects that to rebound in Q4 as new games are released and holiday shopping begins.

The real key here is the theme parks, cruises and most of all the movie franchises. They have five Star Wars movies in the pipeline and the one opening this December is expected to gross $2.2 billion and provide Disney with more than $1 billion in profits. This is just one of the blockbusters they have scheduled.

Analysts are claiming Disney shares could add 25% before the end of December because of their strong movie schedule and coming attractions. The Avengers movie in April was a hit and added greatly to their Q2 earnings. However, that will just be a drop in the bucket compared to the money they are going to make on the Star Wars reboot in December. That is the first of five Star Wars movies on the calendar. Remember, Disney now has Marvel, Pixar and Star Wars (Lucasfilm) all under the same roof.

Disney Movie Schedule (partial)

Dec. 18, 2015 - "Star Wars: Episode VII - The Force Awakens"
2016 - "The Incredibles 2"
2016 - "Frozen" sequel
April 29, 2016 - "Captain America: Civil War"
June 17, 2016 - "Finding Dory"
Dec. 16, 2016 - "Star Wars Anthology: Rogue One"
May 26, 2017 - "Star Wars: Episode VIII"
June 16, 2017 - "Toy Story 4"
Late 2017 - "Thor: Ragnarok"
May 4, 2018 - "Avengers: Infinity War - Part I"
2018 - "Untitled Star Wars Anthology Project"
May 3, 2019 - "Avengers: Infinity War - Part II"
2019 - "Star Wars: Episode IX"

The four-week drop in DIS' stock has sent shares back to their 2015 lows. During the panic this morning investors bought the dip at round-number support near $90.00 (FYI: the February 2015 low was $90.06). When the market bounced DIS rallied more than +10% only to stall at round-number resistance at $100.00. DIS closed right in the middle of this $90-100 trading range today.

We want to be ready no matter what direction DIS moves. That's why we are listing two different entry point strategies.

Our first plan is to buy calls on a dip at $91.00 should DIS dip toward today's low. The second entry trigger is to buy calls on a breakout at $101.00 since the $100 level was resistance.

We are not listing a stop loss tonight. The market volatility has been extreme. The intraday moves in the market are a little ridiculous and nearly impossible to trade around if you're not glued to your screen and day trading. You can manage your risk by limiting your position size. We'll add a stop loss once the dust settles, likely in a couple of days.

- Suggested Positions -

Long OCT $105 CALL (DIS151016C105) entry $2.52

08/27/15 triggered on gap open at $101.35, suggested entry was $101.00
Option Format: symbol-year-month-day-call-strike


Facebook, Inc. - FB - close: 89.73 change: +2.54

Stop Loss: No stop at the moment (See August 24th update)
Target(s): To Be Determined
Current Option Gain/Loss: +361.9%
Average Daily Volume = 27.3 million
Entry on August 24 at $77.03
Listed on August 20, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

Comments:
08/27/15: FB was making headlines today when founder Mark Zuckerberg posted on his Facebook account that for the first time ever "one billion people used Facebook in a single day." That means 1 in 7 people used FB to connect to friends and family in a single day (it was Monday).

The stock continued to rally with a +2.9% gain. Shares were struggling with round-number resistance at $90.00 most of the session.

Monday's low was $72.00 so FB has come a long way in a very short time frame.

No new positions at this time.

Trade Description:
Facebook needs no introduction. It is the largest social media platform on the planet. As of June 30th, 2015 the company reported 1.49 billion monthly active users and 968 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, announced in January, were up +69% from a year ago. Revenues were up +49%. The company released their Q1 results 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.

FB's Q2 results, announced July 29th, were also better than expected. Earnings were $0.50 per share, which was three cents above estimates. Revenues surged +39% to $4.04 billion, above expectations. Daily active users were up +17%. Mobile daily active users were up +29%. Monthly actives were up +13%. Wall Street expects income to surge next year with +12% profit growth in 2015 but +32% profit growth in 2016.

FB continues to see growth among its niche properties. The company bought Instagram for $1 billion in 2012. Last late year Instagram surpassed Twitter with more than 300 million active users. FB is also a dominant 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. On the subject of Instagram advertising, FB just released the advertising API for the photo-sharing service in August 2015. The API or application programming interface will allow third-party marketers to plug into the system to buy advertising. Instagram could soon rival Google and Twitter for the online ad market. According to EMarketer, Instagram will surpass Google and Twitter for U.S. mobile display ad revenue by 2017.

Since we are talking about advertising, this year has seen FB jump into the video ad market 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, its Instagram business, and messaging properties. In the last several 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.

After surging to new highs in mid July shares of FB had been consolidating sideways in the $92-99 zone. The stock broke down through the bottom of that trading range today with a -4.98% plunge toward technical support at the simple 50-dma. The broader market looks very vulnerable right now with the S&P 500, the NASDAQ composite, and the small cap Russell 2000 all piercing key support levels with today's sell-off. If this market weakness continues we want to take advantage of it.

Stocks tend to overreact to big market moves, especially to the downside. FB is no exception. When traders panic they sell everything. We want to be ready to buy FB when it nears support. Prior resistance near $85-86 should be new support. Tonight we are suggesting a buy-the-dip trigger to buy FB calls at $85.50. If triggered we'll start with a stop at $81.40, just below the simple 200-dma.

- Suggested Positions -

Long OCT $90 CALL (FB151016C90) entry $1.05

08/27/15 Zuckerberg announced that FB hit a new milestone - one billion people used FB in a single day.
08/24/15 Strategy Update = remove the stop loss. Expect more volatility
08/24/15 Trade opens. FB gapped down at $77.03.
08/22/15 Adjusted entry point. FB missed our buy-the-dip trigger at $85.50 by a few cents on Friday. We want to buy calls at the opening bell on Monday morning, August 24th.
Option Format: symbol-year-month-day-call-strike


iShares Russell 2000 ETF - IWM - close: 114.49 change: +2.01

Stop Loss: No stop at the moment (See August 24th update)
Target(s): To Be Determined
Current Option Gain/Loss: +6.5%
Average Daily Volume = 31 million
Entry on August 25 at $114.05
Listed on August 22, 2015
Time Frame: Exit PRIOR to October option expiration
New Positions: see below

Comments:
08/27/15: Traders bought the afternoon dip in the IWM and the small cap ETF closed up +1.78%. Unfortunately the IWM is still underperforming the big cap indices and ETFs.

No new positions at this time.

Trade Description: August 22, 2015:
Stocks are getting crushed. Worries about a slowing Chinese economy worsened this week. This China concern combined with uncertainty about the Federal Reserve raising rates was enough of a catalyst to spark a serious sell-off. The U.S. market just experienced its worst weekly decline in more than four years.

Friday's action looks like a capitulation sell-off. Volume soared. It was the heaviest volume day of the year. Most of that volume was down volume. The S&P 500 posted zero new highs on Friday. All ten sectors were in the red. The two-day (Thursday-Friday) decline has pushed all of the major U.S. indices into negative territory for 2015 (although the NASDAQ composite is only -0.6% year to date).

The Dow Jones Industrial Average and the NASDAQ-100 index are both in correction territory, which is a decline of more than -10% from its highs. The small cap Russell 2000 index also hit correction territory on Friday. The tone on Friday was fearful with the volatility index (VIX), a.k.a. the fear gauge, soaring +46% to a new high for 2015. One CNBC commentator described the action on Friday as investors just "puking" up stocks to get out of the market.

According to 18th century British nobleman Baron Rothschild, "The time to buy is when there's blood in the streets." We think Friday's market sell-off qualifies as a "bloody" day for stocks.

Did you notice that the Dow Industrials, the NASDAQ composite, and the S&P 500 were all down -3.1% (or worse) but the small cap Russell 2000 index was only down -1.3% on Friday? This relative strength is a reflection of investors' fears. If China is the bogeyman then no one wants big multi-nationals that do a lot of business overseas. Small cap companies tend to be more U.S. focused. They do less business overseas and should have less exposure to China or a rising U.S. dollar.

Tonight we are suggesting a bullish trade to buy calls on the IWM, which is the small cap Russell 2000 ETF. The afternoon peak on Friday was $116.66 for the IWM. We are suggesting a trigger to buy calls if the IWM trades at $116.85 or higher.

Please note that this is just a trade. We are not calling a bottom for the stock market. On a short-term basis stocks are very oversold and due for a bounce. The big cap indices (S&P 500, NASDAQ, and Dow Industrials) all closed on their low for the day. Normally that's a bearish indication for the next trading day. There is a very good chance that stocks see another spike lower on Monday morning before bouncing. That's one reason why we are suggesting a trigger to buy IWM calls on a bounce.

- Suggested Positions -

Long NOV $115 CALL (IWM151120C115) entry $4.15

08/25/15 Trade opened this morning. The IWM gapped higher at $114.05
08/24/15 Adjust Entry Strategy = new entry = buy IWM calls at the opening bell tomorrow (Tuesday, August 25th). No stop loss at the moment.
Previous entry trigger was $116.85
08/24/15 Adjust option strike = use the November $115 calls
Option Format: symbol-year-month-day-call-strike


Netflix, Inc. - NFLX - close: 117.66 change: +7.53

Stop Loss: None. No stop at this time.
Target(s): To Be Determined
Current Option Gain/Loss: +2.0%
Average Daily Volume = 8.0 million
Entry on August 27 at $114.94
Listed on August 25, 2015
Time Frame: Exit PRIOR to Earnings in October
New Positions: see below

Comments:
08/27/15: Wow! I warned readers last night that NFLX would likely gap open one way or the other. I removed the restriction on avoiding gap entry points. Let's hope that doesn't turnaround and bite us since NFLX gapped open almost $5.00 this morning.

Our trigger to buy calls was $110.65 but NFLX opened at $114.94 this morning. Shares spent the rest of the session churning sideways near the $118 area, although there was a brief dip to $113.00 this afternoon. The next challenge for NFLX could be round-number resistance at $120.00.

I would hesitate to launch positions at this time.

Trade Description: August 25, 2015:
Some of the market's best-loved stocks have been crushed in the last couple of weeks. NFLX is one of them but this big decline offers a big opportunity.

If you're not familiar with NFLX, here is a brief summary from the company, "Netflix is the world's leading Internet television network with over 62 million members in over 50 countries enjoying more than 100 million hours of TV shows and movies per day, including original series, documentaries and feature films. Members can watch as much as they want, anytime, anywhere, on nearly any Internet-connected screen. Members can play, pause and resume watching, all without commercials or commitments."

NFLX is cashing in on a massive sea change in consumer media viewing habits. Traditional TV is dead. Cable is worried as more and more consumers "cut their cord" and only consume media on streaming services. NFLX is the leading streaming service in the world.

The company said their customers watched over 10 billion hours of streaming content in the first quarter of 2015. That is a +20% jump from a year ago. The company has been focused on building up their own original content creation and expanding overseas. Just this week NFLX announced a deal with Japanese company SoftBank that would bring NFLX to Japan. Softbank is a bit of a technology conglomerate with stakes in multiple companies. One of their biggest investments is an 80% stake in Sprint (S). NFLX also struck a deal with T-Mobile. There seems to be a trend here of consumers, Netflix, and their smart phones.

The carnage over the last several days has been brutal. Shares of NFLX have plunged from its recent highs above $125.00 to almost $85.00 during Monday's market crash. Today the stock bounced with a range of $101.52-107.88. There is no denying the volatility in NFLX's stock. However, multiple analysts have said that investors should buy the "market darlings" like NFLX during this sell-off. They believe stocks like NFLX will outperform in the next few weeks and over the next few months.

Prior to the market's crash over the last few days analysts were upgrading their price targets on NFLX into the $140 area.

Tonight we are listing two different entry triggers to buy calls.

NOTE: This is an aggressive, higher-risk trade. NFLX options are expensive and the stock is volatile. We are not listing a stop loss at this time. Traders can try and limit their risk by adjusting their position size.

If NFLX rallies from current levels then we want to buy calls if shares traded at $110.65. We'll use the November $120 call.

If NFXL sinks from current levels then we want to buy calls on a dip at $92.00. We'll use the November $100 call.

- Suggested Positions -

Long NOV $120 CALL (NFLX151120C120) entry $12.65

08/27/15 Trade is open. NFLX gapped higher at $114.94
08/26/15 removed the gap-open disclaimer on entry points for NFLX
Option Format: symbol-year-month-day-call-strike


The TJX Companies - TJX - close: 71.44 change: +0.63

Stop Loss: None. No stop at this time
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.0 million
Entry on August -- at $---.--
Listed on August 26, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Comments:
08/27/15: I am surprised by the relative weakness in TJX today. The S&P 500 surged +2.4% but TJX only rallied +0.88%. Traders bought the dip near round-number support at $70.00 this afternoon but TJX had a hard time getting past the $71.60 area all day long.

Currently our suggested entry point to buy calls is $72.05.

Trade Description: August 26, 2015
Believe it or not but there are only 120 days until Christmas 2015. Most of us are just adjusting to school starting again but retailers are already planning for the 2015 holiday shopping season. Historically the time to buy retailers has been early fall (i.e. right now) and then sell on Black Friday (day after Thanksgiving). TJX could be a great way to play that seasonal trend.

TJX is in the services sector. According to the company, "The TJX Companies, Inc. is the leading off-price retailer of apparel and home fashions in the U.S. and worldwide. As of May 2, 2015, the end of the Company's first quarter, the Company operated a total of 3,441 stores in seven countries, the United States, Canada, the United Kingdom, Ireland, Germany, Poland, and Austria, and three e-commerce sites. These include 1,126 T.J. Maxx, 987 Marshalls, 498 HomeGoods and 6 Sierra Trading Post stores, as well as tjmaxx.com and sierratradingpost.com in the United States; 239 Winners, 97 HomeSense, and 39 Marshalls stores in Canada; and 416 T.K. Maxx and 33 HomeSense stores, as well as tkmaxx.com, in Europe."

Just a couple of days before the market collapsed TJX reported its Q2 2016 earnings results (on August 18th). Wall Street was looking for a profit of $0.76 per share on revenues of $7.25 billion. TJX beat both estimates with a profit of $0.80 per share and revenues of $7.36 billion. Earnings were up +7% from a year ago and revenues were up +6.5%. Gross margins improved. Comparable-store sales improved from +3% a year ago to +6%. TJX said their customer traffic improved for the fifth quarter in a row.

Most retailers have not been doing so hot this year so TJX management was naturally optimistic given their strong results. Carol Meyrowitz, Chairman and Chief Executive Officer of The TJX Companies, Inc., commented on her company's quarter,

"We are extremely pleased that our momentum continued in the second quarter. Our 6% consolidated comparable store sales growth and 7% adjusted EPS growth significantly exceeded our expectations. It was great to see that comp sales were entirely driven by customer traffic - our fifth consecutive quarter of sequential traffic improvement - and that we had strong sales across all of our divisions. Our flexible model and ability to offer an eclectic, exciting merchandise mix at outstanding values continues to resonate with consumers in all of our geographies. We were also very pleased with our solid merchandise margins. We are proud of our strong comp sales, traffic increases and merchandise margins, all of which are core to a successful retail business. We enter the back half of the year in an excellent position to keep our momentum going and have many exciting initiatives planned. I am convinced that our gift-giving selections will be better than ever this year, and that our fall and holiday marketing campaigns will keep attracting more shoppers to our stores. Above all, we will be offering consumers amazing values every day! The third quarter is off to a solid start and we are raising our full year comp sales and earnings per share guidance. Today, we are a nearly $30 billion retailer with a clear vision for growth, a differentiated apparel and home fashions business, and world-class organization. Looking ahead, we are confident that we will achieve, and hope to surpass, our plans as we continue to bring value around the world and grow TJX to a $40 billion-plus company!"
TJX management did lower their Q3 guidance but they raised their full year 2016 EPS forecast. They also raised their 2016 comparable store sales estimate from +2-3% to +3-4%. It was the second quarter in a row that management raised their guidance.

The stock market's recent sell-off produced a correction in shares of TJX, which fell from its August high of $76.78 down to an intraday low of $67.25 on Monday morning. That is a -12.4% correction. Shares just happened to bounce near technical support at the simple 200-dma and its late July lows near $67.00. In spite of the sharp retreat the point & figure chart is still bullish and still forecasting at long-term $98.00 target.

Tonight we are suggesting a trigger to buy calls at $72.05. This is a relatively longer-term trade and hope to hold this position for several weeks.

Trigger @ $72.05

- Suggested Positions -

Buy the 2016 Jan $75 CALL (TJX160115C75)

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

Wynn Resorts Ltd. - WYNN - close: 78.52 change: +4.23

Stop Loss: 79.25
Target(s): To Be Determined
Current Option Gain/Loss: +272.3%
Average Daily Volume = 2.5 million
Entry on August 14 at $93.40
Listed on August 13, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

Comments:
08/27/15: WYNN produced a big bounce (+5.69%) but failed to hit our new stop loss at $79.25. The intraday high was $78.98. If the market continues to rally tomorrow morning I would expect WYNN to hit our stop and close this trade. Our biggest risk is probably WYNN gapping open higher.

No new positions.

Trade Description: August 13, 2015:
Casino stocks have been a bad bet this year. CZR and LVS are both down for the year. MGM seems to be an exception with a very minor gain. Yet one of the biggest losers is WYNN. Shares of WYNN are down -36% in 2015. The bear market started last year. Shares of WYNN peaked just below $250.00 in early 2014 and now they're down -60% from the highs. The catalyst for this dramatic decline is a plunge in gaming revenues from Macau.

WYNN is in the services sector. According to the company, "Wynn Resorts, Limited, owns 72.2% of Wynn Macau, Limited (www.wynnmacaulimited.com), which operates a casino hotel resort property in the Macau Special Administrative Region of the People's Republic of China. The Company also owns and operates a casino hotel resort property in Las Vegas, Nevada.

Our Macau resort is a resort destination casino with two luxury hotel towers (Wynn Macau and Encore) with a total of 1,008 spacious rooms and suites, approximately 280,000 square feet of casino space, casual and fine dining in eight restaurants, approximately 57,000 square feet of retail space, and recreation and leisure facilities, including two health clubs and spas and a pool.

Our Las Vegas operations (Wynn Las Vegas and Encore) feature two luxury hotel towers with a total of 4,748 spacious hotel rooms, suites and villas, approximately 186,000 square feet of casino space, 34 food and beverage outlets featuring signature chefs, an on-site 18-hole golf course, meeting space, a Ferrari and Maserati dealership, approximately 96,000 square feet of retail space, two showrooms, three nightclubs and a beach club."

The problems started in June 2014. China launched a nationwide crackdown on corruption. This had a huge impact on how many government officials decided to vacation and gamble in Macau. The region also saw a drop in other high rollers not wanting to be seen tossing money around. Plus the Chinese government enacted harsh no-smoking rules in Macau. There was a direct impact on gambling revenues that is still being felt today.

WYNN reported its 2015 Q1 results on April 28th. Analysts were expecting a profit of $1.33 per share on revenues of $1.17 billion. The company delivered a profit of $0.70 (big miss) and revenues plunged -27.8% to $1.09 billion. Its Macau revenues were down -37.7%. Management also announced they were reducing their quarterly dividend.

We looked at playing WYNN as a bearish candidate back in June after several bearish analyst calls on the gambling companies with exposure to Macau. A Sterne Agee analyst noted that table-only gross gaming revenues in Macau were down -46% from a year ago in the first week of June. They estimate that June 2015 will see Macau gambling revenues fall -33% to -38%. June is on track to be the 13th monthly decline in gambling revenues and the tenth month in a row of double-digit declines.

A Susquehanna Financial Group analyst also warned that the region could suffer further declines. There are rumors of an complete smoking ban and there seems to be no let up on the government's anti-corruption efforts. Meanwhile a Wells Fargo analyst is forecasting June gambling revenues in Macau to plunged -30% to -40% to about $2 billion. This would be the lowest monthly total in more than four years.

The stock saw a big bounce in early July on an upgrade but the rally didn't last. WYNN reported its Q2 results on July 29th. Analysts were forecasting $0.97 per share on revenues of $1.07 billion. WYNN missed both estimates with a profit of $0.74 as revenues plunged -26% to $1.04 billion. Their Macau business saw revenues drop -35.8%.

Believe it or not but shares of WYNN saw a relief rally on this earnings news. Maybe investors were expecting even worse numbers. Yet the rally failed the very next day. That's because the situation in Macau hasn't changed. July was the 14th month in a row of falling revenues for the casino industry.

The recent headlines regarding the Chinese government's devaluation of their currency (the yuan, a.k.a. the renminbi) could be a clue that their economy is slowing down faster than expected. That's bad news for the casino business. If the Chinese economy is retreating it would seem unreasonable to expect a recovery in the gambling business.

Shares of WYNN have plunged to key support in the $93.60-94.00 region. We are suggesting a trigger to buy puts at $93.40. A breakdown to new lows could spark the next leg lower after weeks of consolidating sideways.

Traders should note that WYNN can be a volatile stock. The most recent data listed short interest at 13.7% of the relatively small 80.8 million share float. Currently the point & figure chart is bearish and forecasting an $85.00 target.

- Suggested Positions -

Long SEP $90 PUT (WYNN150918P90) entry $3.25

08/26/15 new stop @ 79.25
08/24/15 new stop @ 81.55
08/22/15 new stop @ 85.75
08/20/15 new stop @ 91.65, more conservative traders may want to take some money off the table now that our put option has doubled in value.
08/19/15 new stop @ 97.25
08/14/15 triggered @ $93.40
Option Format: symbol-year-month-day-call-strike


CLOSED BEARISH PLAYS

Bed Bath & Beyond Inc. - BBBY - close: 62.50 change: +1.29

Stop Loss: 61.55
Target(s): To Be Determined
Current Option Gain/Loss: +88.2%
Average Daily Volume = 2.0 million
Entry on July 24 at $66.80
Listed on July 23, 2015
Time Frame: Exit PRIOR to earnings in late September
New Positions: see below

Comments:
08/27/15: The stock market's big rally today fueled a +2.1% gain in BBBY. Our stop loss was $61.55. Shares gapped open higher at $61.55 immediately closing this play.

- Suggested Positions -

NOV $65 PUT (BBBY151120P65) entry $2.55 exit $4.80 (+88.2%)

08/27/15 stopped out
08/24/15 new stop @ 61.55
08/20/15 new stop @ 64.35
08/06/15 new stop @ 65.25
08/01/15 new stop @ 66.25
07/25/15 new stop @ 67.65
07/24/15 triggered @ $66.80
Option Format: symbol-year-month-day-call-strike

chart:


Tupperware Brands - TUP - close: 50.66 change: +1.92

Stop Loss: 51.25
Target(s): To Be Determined
Current Option Gain/Loss: +240.7%
Average Daily Volume = 489 thousand
Entry on August 11 at $56.50
Listed on August 08, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

Comments:
08/27/15: After underperforming earlier this week TUP finally bounced. Shares rallied +3.9% and hit our stop loss at $51.25. The stock is still on track to post its ninth weekly loss in a row.

- Suggested Positions -

SEP $55 PUT (TUP150918P55) entry $1.35 exit $4.60 (+240.7%)

08/27/15 stopped out
08/24/15 new stop @ 51.25
08/22/15 new stop @ 54.15
08/12/15 new stop @ 56.65
08/11/15 triggered @ $56.50
Option Format: symbol-year-month-day-call-strike

chart:


WESCO Intl. - WCC - close: 54.81 change: +2.80

Stop Loss: 54.25
Target(s): To Be Determined
Current Option Gain/Loss: +115.8%
Average Daily Volume = 592 thousand
Entry on August 05 at $58.40
Listed on August 04, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: see below

Comments:
08/27/15: It looks like shorts started to panic in WCC today. The stock gapped higher and then ran to a +5.3% gain. Today is the first time WCC has closed above its simple 10-dma since mid July.

Our stop loss was hit at $54.25.

- Suggested Positions -

SEP $55 PUT (WCC150918P55) entry $0.95 exit $2.05 (+115.8%)

08/27/15 stopped out
08/24/15 new stop @ 54.25
08/22/15 new stop @ 56.05
08/20/15 new stop @ 57.05
08/08/15 new stop @ 59.35
08/05/15 triggered @ $58.40
Option Format: symbol-year-month-day-call-strike

chart: