Option Investor
Newsletter

Daily Newsletter, Monday, 12/5/2016

Table of Contents

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

Market Wrap

Follow Through Or Petering Out?

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

The broad market climbed higher, the blue chips setting new all time highs. Are we seeing follow through or the last legs of the Trump rally petering out? A look at the charts says it all, the post-election Trump Rally is petering out but this does not mean that the continuation of the greater bull market and longer term rally begun with the Trump election has come to an end, only that near term outlook is a little shaky and no wonder, there are 3 major central bank meetings over the next 2 weeks along another boat load of macro-economic data. And whatever geopolitical tensions Trump can stir up with his tweets.

Today's action was largely influenced by the Italian referendum, shrugged off, while the global market awaits Mario Draghi and the ECB. The EU central bank is set to announce its latest policy decision, no changes expected, this week. The Italian referendum, it mostly means no changes in Italy for another year or two, but also that Italian banks may face hard times in the future. Asian markets were down on the news, having closed long before the rebound staged by EU indices. In the EU markets were happy with the results, opening with a gain from last week's closing low and extending that gain throughout the session. The DAX led with gains in the range of 1.6%.

Market Statistics

Futures trading indicated a positive open all morning, in the range of 0.5%. Trading was a little choppy but held that range into the opening bell, setting a new all time intraday for the Dow as soon as trading commenced. There was a small pop right after the open, taking the indices up to the highs of the day but after that action was very lack luster. The indices tread water near or just below their highs although they did manage to remain in the green across the board up to and until the close of the session.

Economic Calendar

The Economy

Only one economic report today, released at 10AM. The ISM Non-Manufacturing Index jumped an unexpected 2.4% to hit 57.2. The gains were made on strong Activity, New Orders and Employment. Activity came in at 61.7%, New Orders at 57% and Employment at 58.2% and show expanding levels of growth across the industry.

Moody's Survey Of Business Confidence fell -2.9% to 29.6, the lowest level in 6 weeks, as global sentiment takes a hit. Mr. Zandi says that despite a dimming of outlook for both current and future conditions confidence remains high and shows an economy expanding in line with potential.


The 4th quarter earnings cycle is getting closer and closer and in fact begins this week with the first 2 companies will report for the 4th quarter. That being said it is still a few weeks before things really get started. The 3rd quarter is mostly over though too, 99% have reported, the final 5 report this week and next week. The blended rate of earnings is 3.1% and likely to stand through the official end of the season.


Looking forward to the fourth quarter, full year and next year. Fourth quarter earnings growth expectation is 3.3% and likely to rise at least 4% by the time the reporting cycle is all said and done, final target in the range or 7.5% to 8.5% year over year earnings growth. At this time full year 2016 blended rate is 0.1%, also likely to rise by the time the 4th quarter season is wrapped up. Next year, full year 2017 is expected to see year over year growth of 11.4%, 11.5% in the 1st quarter and 10.7% in the 2nd.


There is quite a bit of data out this week and next, the two biggest items the ECB meeting this week and the FOMC meeting next week. In and around all that are reads on CPI, PPI, housing, factory orders, the consumer, retail sales and much much more. Tomorrow the calendar is light with Productivity/Unit Labor Costs, Trade Balance and Factory Orders... nothing market moving here.

The Dollar Index

The Dollar Index saw profit taking and pull back on the heels of the Italy referendum. The referendum itself doesn't really have that much impact on the dollar but it did spark buying in the euro. The index fell a little more than -0.5% to break back below the recently broken long term high and potential support level in favor of stronger support at the short term moving average. The moving average did halt the move and the indicators are, so far at least, consistent with support at this level. If support holds it will be the 2nd of 2 successively higher support levels, the first set early last month at $97.50. For now, support is near the 100 level and looks like it will be tested further, a break could go as low as $98.65, possibly December 8th when the ECB meets.


The Oil Index

Oil prices continue to drift higher on OPEC hopes, I remain skeptical. OPEC production, with caps, is still at a level that contributed to the current supply/demand imbalance and will do nothing to alleviate it, if they even live up to the agreement. Prices may continue to rise into the near term but I think there is more than a 50/50 chance the bottom will fall out sooner or later. The risk is that demand will actually pick up to match production but that is not expected either. WTI settled up 0.25% but fell in the after hours, shedding close to -1% on profit taking.

The Oil Index is trying to sustain a break out and may be gathering strength. The index gained just over 1% in today's session to trade above the 1235 resistance level (the 50% retracement level dating back to 2008 and of importance many times since) but was halted at the 1,250 level. Today's candle is a small spinning top, above potential resistance, with rising indicators. The indicators, both MACD and stochastic, suggest that the index is gaining strength, the caveat is that the MACD peak is not yet showing a lot of strength and stochastic is still below the upper signal line and as yet equally consistent with potential resistance. A break above 1,250 would be bullish and could go as high as 1,300 in the near term, a fall from this level has support targets near 1,200, 1,175 and 1,150.


The Gold Index

Gold prices fell in today's session despite the drop in the dollar. Spot prices fell roughly -1% intraday, closing with a loss near -0.5% and trading near $1170. Despite today's weakness the dollar is getting stronger and has at least a stable if not bullish outlook, so likely to keep pressure on gold. The ECB meeting this week could be a mover, if they do anything to materially weaken or strengthen the euro and by extension the dollar and gold. Support target for gold should it fall is near $1,150.

The gold miners slipped some today but found support, at least in the near term. The Gold Miners ETF GDX opened with a loss, fell lower, and then rebound to create a white bodied candle but still closed with a slight loss. The ETF remains in consolidation near the lower end of a triangle-like range and near the lows of a 4 month down trend. The indicators are consistent with a bullish signal but in light of the short term down trend, and outlook for gold, are more likely indicative of correction/consolidation within a down trend and precursor to further downside. Support is near $20, a break below here could go as low as $16.50 in the near to short term.


In The News, Story Stocks and Earnings

The VIX fell nearly -14%, dropping from the short term moving average and falling below 12.50 once again. The fear index appears to have decided not to spike again, and to retreat back near the long term lows. This is an indication of lower option prices and a good time to buy and/or put on protection in case of unexpected volatility. It may also indicate that the rally in equities isn't as over as it may look.


Apple is in the spotlight again and for a number of reasons, as if it ever really isn't in the spotlight. Not only is Trumps evolving China policy having an impact on the brands penetration into the country the company is experiencing a sharp decline in Watch sales while at the same time entering the world of self driving cars. Today's news is that Watch shipments have fallen -70% and that the company is interested in self-driving software. Shares of the stock fell more than -1.0% intraday and appear to be headed down toward the lower end of a trading range near $105.


Rexnord Corporation, maker of things like ball bearings and gears, came under scrutiny following some tweets from President Elect Trump concerning their proposed move to Mexico. The company is planning on moving a factory from Indiana to Monterrey, shifting 300 jobs to Mexico, but has yet to comment on Trump's attention. Shares of the stock fell more than -1% in today's session.


The Indices

The indices drift higher today but not all are looking to strong at this point. Today's action was led by the NASDAQ Composite which posted a gain of 1.01%. The tech heavy index created a medium sized white bodied candle, bouncing up from support levels near 5,250 and the short term moving average. The indicators do not yet confirm but this is a trend following bounce so has a good chance of leading to something more. Support is 5,250, a break below here is likely to go down to the long term up trend line near 5,000. First target for resistance is near 5,400.


The next biggest gainer in today's session is the S&P 500. The broad market climbed 0.58% and did not, but is coming to close to, set a new a high. The index is also bouncing from potential support levels, near 2,190, and setting up for a move higher. The indicators are not yet rolled over but as yet consistent with a consolidation/test of support within an uptrend and could confirm with only a day or two of further upside. Support is near 2,200, resistance near 2,215, a break beyond either could take the index 50 to 100 points in the near term.


The Dow Jones Transportation Average made the third largest gain in today's session, 0.36%. The transports created yet another small spinning top candle in the slow drift up to test the current all time high. The indicators continue to weaken although there is some renewed bullishness in the stochastic; %K has made a bullish crossover of %D within the upper signal zone, a sign of continued strength within an uptrend. MACD is a bit of a worry, it continues to wind down toward 0, but is at least coming off of a very strong peak and one likely to be followed up by another wave, if past history is any indication. Upside target is near 9,300 and the current all time high.


The Dow Jones Industrial Average made the smallest gain in today's session, only 0.24%. The blue chips created a very small black candle after opening at a new all time high, and then falling slightly from there. The index appears to be drifting higher, confirmed by a bullish stochastic crossover high in the upper signal zone. Momentum is winding down to 0 here as well, but coming off a 2 year extreme peak so prices are likely to continue rising from here, or at least retest these levels if they should fall. The 19,000 looks like a good target for near term support, 18,750 next target. Upside targets are near 19,500 for now, 20,000 longer term.


Today's action look like more upward drift and more sector rotation, led by the NASDAQ. The indications are not real strong but it looks like the post-election Trump rally is not quite over. It is getting extended, it is in danger of correction, there are reason to be wary but for now the near trend is up and long term outlook is positive, for both the economy and earnings growth. Between now and then there will surely be a buyable dip, and that is what I am waiting for. It could come over the next two weeks, sparked by central bank meetings and economic data, but that is TBD. I remain cautious but bullish, letting my winners run, keeping an eye out for correction and looking for the next great entry in the bull market.

Until then, remember the trend!

Thomas Hughes


 

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New Option Plays

Profit Taking Over

by Jim Brown

Click here to email Jim Brown

Editors Note:

Shares of ADP declined with the Nasdaq last week but could be ready to make a new high. ADP hit $97.25 twice over the prior week then pulled back to $95 in the Nasdaq decline. That is a very minor pullback given the $9 post election rally.



NEW DIRECTIONAL CALL PLAYS

ADP - Automatic Data Processing - Company Profile

Automatic Data Processing, Inc., together with its subsidiaries, provides business process outsourcing services worldwide. The company operates through two segments, Employer Services and Professional Employer Organization (PEO) Services. The Employer Services segment offers a range of business outsourcing and technology-enabled human capital management (HCM) solutions, including payroll services, benefits administration services, talent management, human resources management solutions, time and attendance management solutions, insurance services, retirement services, and tax and compliance solutions. This segment's integrated HCM solutions include RUN Powered by ADP, ADP Workforce Now, ADP Vantage HCM, and ADP GlobalView, which assist employers of all sizes in all stages of the employment cycle from recruitment to retirement; and ADP SmartCompliance and ADP Health Compliance. The PEO Services segment provides a human resources (HR) outsourcing solution through a co-employment model to small and mid-sized businesses. This segment offers ADP TotalSource that provides various HR management services and employee benefits functions, such as HR administration, employee benefits, and employer liability management into a single-source solution. Company description from FinViz.com.

ADP reported a 26.5% rise in earnings to 86 cents that beat estimates by 9 cents. Revenues rose 7.5% to $2.92 billion and beat estimates for $1.91 billion. The number of employees on client payrolls rose 2.7%. They ended the quarter with $2.82 billion in cash and long-term debt of $2 billion. The announced the sale of their CHSA and COBRA business to WageWorks for $235 million. The sale will be completed in Q2 2017.

The company guided for 2017 revenue growth of 7% to 8% and 15% to 17% earnings growth. The PEO Services segment revenues are expected to rise 14% to 16%.

The company just declared a 57-cent quarterly dividend to raise the annual dividend to $2.28.

Earnings Feb 1st.

ADP holds a dominant position in the payroll processing sector. With employment expected to rise again in 2017 this could be an attractive investment for funds that are tired of chasing industrials and bank stocks in the current rally.

Shares took profits last week from a very nice climb and could be ready to try for a new high.

There is resistance at $97 but given the time of year and the overbought conditions in the rest of the market, we could see a breakout. Options are relatively cheap.

Buy Feb $97.50 call, currently $2.10, initial stop loss $93.85.


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

Gap and Fade

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Dow gapped open +107 points despite the NO vote in Italy but faded to give back more than 60 points at the close. The S&P futures opened down -12 on Sunday night and spent most of the night deeply in the red. Early Monday morning the futures reversed strongly and the markets gapped higher instead of lower. Reportedly there were a lot of shorts fearing the worst and they were squeezed at the open.

However, The Dow has moved into a pattern of big intraday gains that fade into the close. That is not healthy because it suggests the buyers have no conviction and the sellers are still waiting for any rebound they can sell. We need for the pattern to reverse where the markets open weak and close strong. That shows investors are buying the dips rather than selling the rips.



Current Portfolio


Stop Loss Updates

Check the graphic below for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline.


Profit Targets

Check the graphic below for any profit stops in green. We need to always be prepared for a profit exit at resistance.




Current Position Changes


NVDA - Nvidia Corp

The long call position was entered at the open.

VXX - Volatility ETF

Enter the position at the open on Tuesday using the new option strike.

FFIV - F5 Networks

The long call position remain unopened until a trade at $142.25.



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BULLISH Play Updates


FFIV - F5Networks - Company Profile

Comments:

Nice rebound but not quite enough to trigger the entry into the position. No specific news.

The position remains unopened until a trade at $142.25.

Original Trade Description: November 21st.

F5 Networks, Inc. develops, markets, and sells application delivery networking products that optimize the security, performance, and availability of network applications, servers, and storage systems. It offers Local Traffic Manager, which provides intelligent load-balancing, traffic management, and application health checking; BIG-IP DNS that automatically directs users to the closest or best-performing physical, virtual, or cloud environment; Link Controller, which monitors the health and availability of each connection in organizations with more than one Internet service provider; Advanced Firewall Manager, a network firewall; and Application Security Manager, an Web application firewall that provides comprehensive, proactive, and application-layer protection against generalized and targeted attacks. The company also provides Access Policy Manager, which provides secure, granular, and context-aware access to networks and applications; Carrier-Grade Network Address Translation, which offers a set of tools that enables service providers to migrate to IPv6 while continuing to support and interoperate with existing IPv4 devices and content; and Policy Enforcement Manager that offers traffic classification capabilities to identify the specific applications and services to service providers. In addition, it offers cloud-based and other subscription services; BIG-IP appliances; VIPRION chassis-based systems; and Traffix Signaling Delivery Controller for diameter signaling and routing. Company description from FinViz.com.

The big attack on the Internet several weeks ago was driven by malware that had been placed on IoT devices including security cameras, cable boxes, burglar alarms and dozens of other device types. These devices are typically delivered without any material malware defenses. It is up to each manufacturer to overcome this in the future with some kind of defense.

However, FFIV provides software and hardware to prevent denial of service attacks from these devices as well as the more robust attacks from computers and servers. With more and more servers in the cloud it is harder to protect them from attack like you would dedicated physical servers in a dedicated data center. This is where FFIV excels.

The company's Silverline service places a sophisticated cloud based filter around critical infrastructure that stops attacks instantly. Aided by hardware based firewalls in dedicated data centers they protect data and equipment from all outside attacks.

For Q3 they reported earnings of $2.11 compared to estimates for $1.94. revenue ot $525 million beat estimates for $520 million.

Earnings Jan 21st.

FFIV shares spiked on earnings in late October and have been moving steadily higher. They are about to break over resistance at $144 and we could see another leg higher when that happens.

With a FFIV trade at $142.25

Buy Jan $145 call, currently $3.15, initial stop loss $137.25.


FLOW - SPX Flow Inc - Company Profile

Comments:

No specific news. Decent rebound and still holding over prior resistance.

Original Trade Description: November 30th.

SPX FLOW, Inc. provides various engineered solutions worldwide. The company engineers, designs, manufactures, and markets products and solutions used to process, blend, filter, dry, meter, and transport fluids with a focus on original equipment installation, including turn-key systems, modular systems, and components, as well as aftermarket components and support services. It operates through three segments: Food and Beverage, Power and Energy, and Industrial. The Food and Beverage segment offers mixing, drying, evaporation, and separation systems and components, as well as heat exchangers, and reciprocating and centrifugal pump technologies primarily under the Anhydro, APV, Bran+Luebbe, Gerstenberg Schroeder, LIGHTNIN, Seital, and Waukesha Cherry-Burrell brands. The Power and Energy segment provides pumps, valves, and related accessories, principally for use in oil extraction, production, and transportation at wells, as well as for pipeline applications under the APV, Bran+Luebbe, ClydeUnion Pumps, Copes-Vulcan, Dollinger Filtration, LIGHTNIN, M&J Valve, Plenty, and Vokes brands. This segment primarily serves customers in the oil and gas industry, as well as in nuclear and other conventional power industries. The Industrial segment offers air dryers, filtration equipment, mixers, pumps, hydraulic technologies, and heat exchangers under the Airpel, APV, Bolting Systems, Delair, Deltech, Hankison, Jemaco, Johnson Pump, LIGHTNIN, Power Team, and Stone brands. This segment principally serves customers in the chemical, air treatment, mining, pharmaceutical, marine, shipbuilding, infrastructure construction, and general industrial and water treatment industries. Company description from FinViz.com.

SPX Flow was spun off from SPX Corp (SPXC) in September 2013. Shares sold off from the $40+ opening to $15 over the next six months. After a quick rebound to $31 in May the stock has moved sideways for the rest of the year.

They reported earnings of 34 cents that beat estimates for 33 cents. Revenue of $466.8 million narrowly missed estimates for $467.7 million. They guided for full year earnings of $1.27-$1.47 with revenue of $2.0 billion.

The CEO said the company had made good progress in its restructuring efforts post split. Revenue was light in Q3 because of a delay in shipping some orders in the energy sector. They are looking forward to a rebound in the energy sector and manufacturing in general.

Earnings Feb 1st.

Shares closed right at 52-week resistance at $31.50 and are poised for a breakout, market permitting. The stock gained $1 today in a weak market.

Position 12/1/16:

Long March $35 call @ $1.51, see portfolio graphic for stop loss.


NVDA - Nvidia Corp - Company Profile

Comments:

No specific news. Excellent rebound that started after the open so we actually got a decent entry instead of stuck buying a $3.50 gap higher.

Original Trade Description: December 3rd.

NVIDIA Corporation operates as a visual computing company worldwide. It operates in two segments, GPU and Tegra Processor. The GPU segment offers processors, which include GeForce for PC gaming; Quadro for design professionals working in computer-aided design, video editing, special effects, and other creative applications; Tesla for deep learning, accelerated computing, and general purpose computing; and GRID for cloud-based streaming on gaming devices. The Tegra Processor segment provides processors that integrate a computer onto a single chip under the Tegra brand name; DRIVE automotive computers, which offer supercomputing capabilities; and tablet and portable devices for mobile gaming under the SHIELD name. The company's products are used in gaming, professional visualization, datacenter, and automotive markets. It sells its products primarily to original equipment manufacturers, original design manufacturers, system builders, motherboard manufacturers, add-in board manufacturers, and retailers/distributors. Company description from FinViz.com.

Nvidia is taking market share from every chipmaker in the market. Their graphics cards are the hottest things going and every model sells out and are resold for higher prices in the secondary market. Their GPU products are the fastest processors available for extreme computing environments, monster applications, data mining, machine learning and artificial intelligence. One recent benchmark showed an Intel server would take over 2,000 hours to process one massive computation program. A Nvidia GPU server only took 30 hours. Amazon and other cloud providers are buying 1000s of GPU equipped servers to handle massive cloud applications.

They are also moving into a stronger position in the self driving vehicle sector with superfast visual and logic chipsets that can 1000s of inputs in a second to help the car navigate and avoid collisions.

Every time Nvidia announces a new product they are years ahead of the competition.

Earnings Feb 9th.

Shares are up +165% in 2016 alone but they are far from done. They spiked 10% after earnings in early November and held the highs for two weeks despite market volatility in tech stocks. On Thursday, Nvidia shares finally cracked when the Nasdaq fell -77 points for the second consecutive decline of more than 1%. On Friday, shares posted a gain and showed no signs of further weakness. Over the last two weeks, MKM Partners upgraded them to a $106 price target and Needham raised their target to $100. The problem is that most analysts do not understand the technological revolution underway at Nvidia.

Options are not cheap but you sometimes get what you pay for. You can spread it to reduce the cost but I am not going to recommend that today. As the stock moves higher we can spread later once the distant strikes become more valuable.

Position 12/5/16:

Long Feb $95 call @ $5.03, see portfolio graphic for stop loss.



SMG - Scotts Miracle Grow - Company Profile

Comments:

No specific news. Nice intraday rise but faded at the close.

Original Trade Description: November 12th.

The Scotts Miracle-Gro Company manufactures, markets, and sells consumer lawn and garden products worldwide.

Nine states had legalization of marijuana on the ballot in some form and eight approved the measures. California, Massachusetts, Maine and Nevada approved it for recreational use. Arkansas, Florida and North Dakota approved it for medical use, which is a first step towards eventual recreational use. Montana approved a measure for commercial growing and distribution. Arizona was the only state where a recreational use measure failed.

Scotts has already said the legalization of pot was good for their business since growers want to grow it fast and grow it indoors. Over the last two years, Scotts has acquired two hydroponic acquisitions. One of them was a marijuana nutrient and growing products maker. They are branching out into the equipment and lighting required for indoor plant cultivation with the acquisition of Gavita, a grow light and hardware producer. They recognize pot as an "emerging high-growth opportunity" under their Hawthorne Gardening Company brand. They want to invest $500 million in the marijuana industry.

Scotts recently spun off its Scotts LawnService yard fertilizer business into a partnership with TruGreen so that low margin business is gone. The partnership pays distributions back to Scotts.

In the last quarter, sales rose 7% with consumer purchases rising 10%. This compares to the full year revenue growth of 2%. This shows how fast the business is growing with the new focus. They are projecting 6% to 7% revenue growth in 2017 and adjusted earnings of $4.10-$4.30. They called those numbers conservative.

Earnings Feb 2nd.

Position 11/14/16:

Long March $90 call @ $3.90, see portfolio graphic for stop loss.


WDC - Western Digital - Company Profile

Comments:

No specific news. Shares declined ahead of their analyst day on Tuesday as cautious investors took profits. Susquehanna reiterated a buy rating with a price target at $88. Shares closed at $62. Tuesday will be their first analyst day in four years.

I removed the stop loss for Tuesday to avoid any post meeting volatility.

Original Trade Description: November 12th

Western Digital Corporation, together with its subsidiaries, engages in the development, manufacture, sale, and provision of data storage solutions that enable consumers, businesses, governments, and other organizations to create, manage, experience, and preserve digital content worldwide. The company's product portfolio includes hard disk drives (HDDs), solid-state drives (SSDs), direct attached storage solutions, personal cloud network attached storage solutions, and public and private cloud data center storage solutions. It provides HDDs and solid-state drives for performance enterprise and capacity enterprise markets desktop, and notebook personal computers (PCs).

Western Digital bought flash memory maker SanDisk in October 2015 and this is going to supercharge their product offerings. They have already raised guidance after a couple quarters of integration. Revenue in Q3 rose 38% to $4.7 billion.

Last week WDC announced a 50-cent quarterly dividend payable Jan 17th to holders on Dec 30th.

The consensus rating of 27 analysts is a buy with a price target of $69.64. Shares closed at $58.89 on Friday.

They reported earnings on Oct 27th and spiked to $62. Post earnings depression saw them fade back to $55 and now they are moving up again. I believe they will exceed that $62 earnings high. They traded at $115 in 2015.

Earnings Jan 25th.

Position 11/14/16:

Long Jan $62.50 call @ $2.20, see portfolio graphic for stop loss.



BEARISH Play Updates (Alpha by Symbol)

VXX - VIX Futures ETF - Company Profile

Comments:

That $30 entry trigger did not work out. We saw a $29+ high on Thr/Fri and I thought we might get a spike to $30 this morning on the Italian vote. The market gapped higher instead and the VXX fell nearly $2. Now that $30 target is out of range. With only 19 trading days left in 2016 and fund managers prohibited from selling because they cannot afford to miss any year-end move, the VXX is likely to continue lower. I am changing the recommendation to buy the March $24 put at the open on Tuesday.

Original Trade Description: September 21st.

The VXX is a short-term volatility product based on the VIX futures. As a futures product it has the rollover curse. Every time they roll to a new futures contract they have to pay a premium and that lowers the price of the ETF. It is a flawed product with a perpetual decline built in from the monthly roll over in the futures contracts.

As evidence of this flaw, they have now down four 1:4 reverse stock splits. The last four reverse splits occurred at $13.11 (11/2010), $8.77 (10/2012), $12.84 (11/2013), $9.52 (8/8/16). The prospectus says it can reverse split anytime it trades under $25 for a prolonged period and the splits will always be 1:4.

After the August split the ETF moved sideways for four weeks at $36. The volatility event on Sept 9th with the Dow falling -2.5% spiked the VXX from $33 to $42 in three days. That bounce has faded and it is almost back at $33. You are probably thinking, the $40 level would have been a good entry point and you are right in hindsight. However, with the market in danger of breaking down if the Fed had hiked rates, it was better to wait. Now there is nothing on the horizon to cause a spike other than normal market movement.

This is going to be a long-term position. I am not putting a stop loss on the position because long term the VXX always goes down. If we get another volatility spike we will buy another position at a higher level and then ride them both back down.

Buy March $24 put, currently $2.36, no stop loss.




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