Option Investor

Daily Newsletter, Tuesday, 12/20/2016

Table of Contents

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

Market Wrap

Unlucky 13

by Jim Brown

Click here to email Jim Brown

The Dow traded to within 13 points of 20,000 but could not reach that target.

Market Statistics

There was a decent amount of short covering at the open with Goldman Sachs spiking $4 to add about 30 points to the Dow. The Dow ETFs saw a huge spike in volume on what appeared to be traders trying to juice the Dow to that 20K level as shorts were forced to cover. The Dow 3X ETF saw a huge spike in volume right at the open and that caused the index to spike but the rally stalled by 10:AM. Another surge at the close was able to lift the Dow into the close but both efforts fell short.

Goldman Sachs rebounded +$4 after two days of declines as shorts were forced to cover. Goldman is now up 38% since the election or 67 points and has been responsible for more than 400 Dow points. The Dow is up 2,086 points since the election, which means Goldman has been responsible for 21% of the Dow's gains.

The Dow 20K topic was the only thing traders were focused on this morning. The only economic report was the State Personal Income for Q3. Incomes rose 1.1% nationwide compared to +1.2% in Q2 and +0.3% in Q1. The report was ignored.

The economic calendar for the rest of the week will also be ignored. Volume is declining sharply and it will continue to decline for the rest of the week as traders shutdown their PCs and head for the malls and holiday parties.

Darden Restaurants (DRI) reported earnings of 64 cents that beat estimates by a penny. Revenue of $1.64 billion missed estimates for $1.65 billion. They guided for the full year 2017 to earnings of $3.87-$3.97 per share. Same store sales growth was choppy. Olive Garden saw +2.6%, Longhorn Steakhouse +0.1%, Capital Grille +1.2%, Eddie V's +2.7%, Yard House +0.7%, Seasons 52 -0.3% and Bahama Breeze +2.6%. Shares spiked $2 on the news but faded in the afternoon to close negative. Darden had rallied 23% since the election. Given the choppy results, this looks like a potential short for January.

BlackBerry (BBRY) reported adjusted earnings of 2 cents, compared to expectations for a loss of a penny. However, revenue of $289 million missed estimates for $330 million. They guided slightly higher saying they now expect to post an adjusted profit for 2017 compared to prior expectations to breakeven to a 5 cent loss. CEO John Chen said, "We achieved significant milestones in Q3, delivering the highest gross margin in the company's history for the second consecutive quarter and continuing to transform our infrastructure and operations to support an enterprise software business." The company posted a record gross margin of 70% and 80% of gross revenue was recurring. Chen is transitioning the company from a hardware business to a software business. Shares spiked sharply on the earnings but faded to a loss by the close.

CarMax (KMX) reported earnings of 72 cents that beat estimates of 71 cents. Revenue of $3.7 billion rose 4.4% but missed estimates for $3.79 billion. Used vehicle revenues rose 6.2% with unit sales rising 9.1% to 156,789 vehicles. Same store sales rose 5.4%. During the quarter, the company opened six stores. In fiscal 2017, they plan on opening 15 stores and 13-18 in 2018. They repurchased 3.8 million shares and have $1.69 billion remaining under the current authorization. They had cash of $23.7 million at the end of the quarter.

Navistar (NAV) dropped more than $3 after reporting a loss of 42 cents on revenue of $2.06 billion compared to $2.59 billion in the year ago quarter. Analysts were expecting a loss of 24 cents and revenue of $2.18 billion. The company said weak demand for heavy-duty trucks hurt earnings and the industry conditions in the first half of 2017 would be challenging. Orders for Class 8 long haul 18-wheelers fell -46.5% in October. Shares fell -$3 at the open but the stock rebounded to close positive.

After the bell Dow component Nike (NKE) reported earnings of 50 cents compared to estimates for 43 cents. Revenue of $8.2 billion beat estimates for $8.09 billion. Revenues for the Nike brand were up 8% on a constant currency basis. The Converse brand saw revenues rise 5%. Nike repurchased 17 million shares during the quarter for roughly $900 million. That is part of a four-year $12 billion authorization. Only $3.1 billion has been spent. Cash on hand at the end of the quarter was $5.9 billion. Nike shares rallied $1.50 in afterhours. That would equate to about 10 Dow points.

Nike's sales growth in the U.S. continue to decline as Under Armour and Adidas gain market share. U.S. sales rose only 3% while sales in China rose 17% with strong sales in Western Europe as well.

FedEx (FDX) reported earnings of $2.80 compared to estimates for $2.90. Revenue of $14.93 billion rose 19% but barely beat estimates of $14.91 billion. The company lowered its outlook for 2017 from $11.85-$12.35 to $10.95-$11.45. Analysts were expecting $12.15. FedEx said shipping volumes were 10% higher than Q4-2015. The missed earnings were due to increased costs in building out extra capacity to handle the volume surges. The expansions will add capacity and make sure they can process the expected Q4 volume in 2017. The CEO said the Polar Vortex that hit the U.S. with snow, ice and very cold temperatures over the last week was hampering holiday deliveries. Shares fell $7 in afterhours.

Guggenheim and Nomura both initiated coverage of Square (SQ) with a buy rating. Nomura has a price target of $18, Guggenheim $16 and Needham initiated last week with a $17 target. Despite the upgrades, the stock only gained 12 cents. That is hardly a vote of confidence by investors.

Drexel Hamilton initiated coverage on SalesForce.com (CRM) with a buy rating and $100 price target. The analyst said the company was only a teenager compared to Microsoft and Oracle but they are already leading in the sector. The analyst called CRM the "Zen master of the Cloud." Shares rallied only 50 cents on the coverage.

Fred's Pharmacy (FRED) agreed to buy 865 stores from Rite Aid (RAD) in an all cash transaction for $950 million. The sale is needed to complete the Walgreens (WBA) acquisition of Rite Aid. The divestiture would make Fred's one of the largest pharmacy's in the USA. Walgreens has 13,200 stores in 11 countries and Rite Aid has 4,600 stores in 31 states. Fred's currently has 641 stores.

Nvidia (NVDA) is leading a charmed life. Goldman Sachs added the stock to its conviction buy list with a target of $129. Goldman said the positive secular trends in gaming, virtual reality (VR), artificial intelligence (AI), machine learning (ML) and automotive were all benefits to Nvidia. The bank sees Nvidia's datacenter business doubling in fiscal 2018 and rising another 53% in 2019. Nvidia is currently in the middle of its fiscal 2017 so that forecast starts next year.

I am continually kicking myself for letting us get stopped out on that last dip through $90 in Option Investor.

The current crude futures contract expired at the close at $52.23. The new front month contract became current at $53.58 and a 17-month high. I expect this to bleed off over the next two days because there was no headline to support the higher price.


Dow 20,000 will be hit. It is a big fat target and hitting it before the holiday weekend will have Dow 20,000 headlines in all the papers and social news. For fund managers this would be the perfect scenario as it would bring in a lot more money from retail investors who do not normally focus on the market but would see the headlines.

I wrote about the distribution in progress last week. Today was no different. The market gapped open above resistance at 19,950-19,965 and the sellers were waiting. The initial spike was immediately sold and every recovery intraday was also sold. This is classic distribution. The surge at the close was more than likely short covering or another attempt to spike the index to 20,000 that failed.

The Dow closed at a new high and left the index close enough to 20,000 that any decent spurt of buying at Wednesday's open could hit that target but it is not likely to last. There will be too little overall volume the rest of the week to push the index significantly higher.

However, if we get a headline or a big buy program that gaps significantly through that 20K level we could get another big surge of short covering that pushes the market higher. There are a lot of traders expecting a decline in January and quite a few of them are short various stocks and indexes in expectation of that decline. If the market suddenly powers through 20K the short squeeze could be strong.

The S&P hit solid resistance at 2,270 at the open and failed to move above that level the rest of the day. The S&P continues to benefit from the sector rotation where today's strong stocks offset weakness in yesterday's strong stocks. The key level to watch is 2,250.

The Nasdaq Composite closed at resistance at 5,485 for a new high close but not quite a new intraday high. That is currently 5,486.75. The Nasdaq benefitted from a rally in financials, semiconductors and biotechs. The Nvidia upgrade helped as did another upgrade to Western Digital (WDC). The Nasdaq is poised to breakout with next resistance well above at 5,550. The key is getting past the potential January meltdown.

The Russell 2000 had a nice gain of 12 points to put it within reach of the prior closing high at 1,388. The small caps also benefitted from the surge in financials. We need to watch for a possible double top at 1,388 as that would be the logical level for a failure.

Over the last 20 years, the Dow has posted gains in 16 years for the week before Christmas. The average gain was 1.6%. None of those years had an 11% gain in five weeks prior. There are two potential outcomes. There is a chance that a touch of 20K results in a temporary decline that could last the rest of the year but could be minimal because window dressing will keep it supported. Once into January those windows will be undressed. The second option is a surge through 20K that triggers enormous short covering and price chasing by those that think the market is running away from them.

The seven days of distribution at the 19,950 level has weakened the potential for an electric shock type of rejection after a touch of 20K. Much of the stock that would have been for sale has already been sold. Volume has already collapsed. The last two days have averaged only 6.1 billion shares and the rest of the week will be even lower. While low volume can increase volatility, it can also produce boredom. Since the close tonight, the S&P futures have been flat at +0.25. There is almost no movement other than a .25 point twitch up or down every 30 min. Traders are already shutting down for the holidays. This is why I do not expect a big move over the next three days. Anything is always possible because the program traders can move the market if they want to make a splash. I would continue to recommend keeping a low profile, mostly in cash until January. Take your kids shopping instead!



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New Option Plays

Election Gainer

by Jim Brown

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Editors Note:

A lot of companies rallied post election. Some deserved it, some did not. I don't see the compelling reason behind the 23% rally in Darden.


No New Bullish Plays


DRI - Darden Restaurants - Company Profile

Darden Restaurants, Inc., through its subsidiaries, owns and operates full-service restaurants in the United States and Canada. As of May 29, 2016, it owned and operated 1,536 restaurants, which included 843 Olive Garden, 481 LongHorn Steakhouse, 54 The Capital Grille, 65 Yard House, 40 Seasons 52, 37 Bahama Breeze, and 16 Eddie V's restaurants. Company description from FinViz.com.

Darden Restaurants (DRI) reported earnings on Tuesday of 64 cents that beat estimates by a penny. Revenue of $1.64 billion missed estimates for $1.65 billion. They guided for the full year 2017 to earnings of $3.87-$3.97 per share. Same store sales growth was choppy. Olive Garden saw +2.6%, Longhorn Steakhouse +0.1%, Capital Grille+1.2%, Eddie V's +2.7%, Yard House +0.7%, Seasons 52 -0.3% and Bahama Breeze +2.6%. Shares spiked $2 on the news but faded in the afternoon to close negative. Darden had rallied 23% since the election.

The idea behind the rally was the end of the push for a $15 per hour minimum wage. When Clinton lost, that effort turned into wishful thinking because republicans have held the view that a lower wage offers entry level workers an opportunity and they can move up in the organization if they are qualified and work hard. Was that worth a 23% rally in Darden shares? I find it hard to believe.

Now that Darden earnings are over, we should expect a couple weeks of post earnigns depression and given the recent rally and the chance for a market decline in early January, the Darden drop could be significant.

Buy Feb $72.50 put, currently $1.55, initial stop loss $78.15.

In Play Updates and Reviews

Poised for a Breakout?

by Jim Brown

Click here to email Jim Brown

Editors Note:

Despite all the angst about Dow 20,000, the indexes appear poised to break through that level on Wednesday. Tuesday saw the Dow come within 13 points of Dow 20K at the open but was unable to seal the deal. Resistance in the 19,950-19,965 range kept the index in check all day. A surge of late day buying/short covering lifted the index back to 19,975 but was unable to ring the 20K bell.

We are either poised for a breakout on Wednesday or a breakdown. Volume was strong at the open but faded as the day progressed. Wednesday's volume will be even weaker.

Dow component Nike reported earnings after the bell and rallied $1.50. In Dow terms that is about 10 points. However, FedEx disappointed on earnings and fell -$6. FDX is not a Dow component but it could be a drag on the industrials. Recent warnings from other Dow components could add to the FDX disappointment.

There are two potential events for Dow 20K. One is a touch and collapse and the other is a gap through that triggers a lot more short covering. A large percentage of traders are short the Dow stocks in anticipation of a January decline. A gap through 20K could trigger a big move higher but it is likely to only be temporary.

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

No Changes

If you are looking for a different type of option strategy, try these newsletters:

Credit spreads and naked puts = OptionWriter

Long term option investments = LEAPS Investor

3-6 month Option Trades = Ultimate Investor

Iron Condors = Couch Potato Trader

Long and short equity trades = Premier Investor

BULLISH Play Updates

ADP - Automatic Data Processing - Company Profile


No specific news. New 52-week high. Coverage initiated by Barclays at overweight and $115 price target.

Original Trade Description: December 5th.

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.

Position 12/6/16:

Long Feb $97.50 call @ $2.10, see portfolio graphic for stop loss.

FFIV - F5Networks - Company Profile


No specific news. Nice gain over the $144 level.

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 of $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.

Position 12/8/16 with a FFIV trade at $142.25

Long Jan $145 call @ $3.80, see portfolio graphic for stop loss.

UNH - UnitedHealth - Company Profile


No specific news. Shares still weak after WellCare (WCG) guided below analyst estimates for 2017 on Monday.

Original Trade Description: December 7th

UnitedHealth Group Incorporated operates as a diversified health and well-being company in the United States. The company's UnitedHealthcare segment offers consumer-oriented health benefit plans and services for national employers, public sector employers, mid-sized employers, small businesses, individuals, and military service members; and health care coverage, and health and well-being services to individuals aged 50 and older addressing their needs for preventive and acute health care services. It also provides services dealing with chronic disease and other specialized issues for older individuals; Medicaid plans, Children's Health Insurance Program, and health care programs; and health services, including commercial health and dental benefits. This segment serves through a network of 1 million physicians and other health care professionals, as well as approximately 6,000 hospitals and other facilities. Its OptumHealth segment offers health management services, including care delivery and management, wellness and consumer engagement, distribution, and health financial services. This segment serves individuals through programs offered by employers, payers, government entities, and directly with the care delivery systems. The company's OptumInsight segment provides software and information products, advisory consulting services, and business process outsourcing and support services to hospitals, physicians, commercial health plans, government agencies, life sciences companies, and other organizations. Its OptumRx segment offers pharmacy care services and programs, including retail pharmacy network management, home delivery and specialty pharmacy, manufacturer rebate contracting and administration, benefit plan design and consultation, claims processing, and clinical program services, such as formulary management and compliance, drug utilization review, and disease and drug therapy management. Company description from FinViz.com.

UNH will have about $184 billion in revenue in 2016 to put it at number six on the Fortune 500 list. With its broadening of scope using its various Optum programs it is maximizing profits by widening the service component of its business. Here is an excellent article on why UNH will be the most profitable. Amazon of Healthcare

I am not going to go into an in depth explanation of UNH. That article I referenced has plenty of information why UNH should be a long term holding of any investor.

Earnings January 17th.

I wanted to play UNH last week when it was at $152 but it had resistance at $153 and I decided to wait another day to see if that resistance was broken. Shares gapped up to $158 at the open the next day and ran to $162.50 over the next four days. Now that big gain has been digested and shares pulled back to $156 before adding a couple dollars on Wednesday. I believe the UNH rally will continue for the reasons listed in that article above. I am willing to take a shot here that the market rally also continues even if Wednesday's futures related spike fades in the days ahead. We have 16 trading days until 2017 and we should close the year at higher levels.

Position 12/13/16 with a UNH trade at $160.25

Long Jan $165 call @ $2.58, see portfolio graphic for stop loss.

VRTX - Vertex Pharmaceuticals - Company Profile


No specific news. No material movement. Eventually we are going to see either a monster spike or dip on an unexpected headline.

Original Trade Description: December 14th.

Vertex Pharmaceuticals Incorporated engages in discovering, developing, manufacturing, and commercializing medicines for serious diseases. The company focuses on developing and commercializing therapies for the treatment of cystic fibrosis (CF) and advancing its research and development programs. It markets ORKAMBI for the treatment of patients with CF 12 years of age and older who have two copies (homozygous) of the F508del mutation in their CFTR gene; and KALYDECO (ivacaftor) for the treatment of patients with CF 6 years of age and older who have the G551D mutation in their CFTR gene. The company also develops VX-661, a corrector compound that is in a Phase III development stage in combination with ivacaftor in multiple CF patients; VX-371, an investigational epithelial sodium channel, which is in a Phase II development stage; and VX-152 and VX-440 that are CFTR corrector compounds in Phase I clinical trial. In addition, it engages in the research and mid-and early-stage development programs in the areas of oncology, pain, and neurology. Company description from FinViz.com.

Vertex missed earnings by 2 cents with a 17 cent loss that was significantly better than the 39 cent loss in the year ago quarter. Sales of Kalydeco rose 6% to $176 million and revenue for Orkambi jumped 79% to $243 million. The problem is that the drugs have a very limited patient population in the U.S. of about 11,000 for this version of cystic fibrosis. They are close to receiving approval in the EU for these drugs. They have expanded their testing into other population groups to see if the drugs will continue to perform in other versions. There are 2,000 known mutations of the disease.

Shares declined in late November when one of the trials on a specific mutation failed to produce any additional results.

Shares have bottomed at the early November lows and have begun to rebound. If the market rolls over, Vertex could become a favorite oversold opportunity for institutional investors looking to put some profits back to work in a beaten down stock.

Earnings January 26th.

We cannot buy a post earnings option because there is no February strike and March is grossly expensive. That means the January expiration is our only option.

Position 12/15/16:

Long Jan $82.50 call @ $2.70, see portfolio graphic for stop loss.

BEARISH Play Updates (Alpha by Symbol)

CAT - Caterpillar - Company Profile


No specific news. Shares spiked 1.7% on a last gasp attempt by traders to hit Dow 20K. The move was powered by short covering at the open and shares traded flat the rest of the day.

Original Trade Description: December 17th

Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide. The company's Construction Industries segment offers backhoe, small wheel, skid steer, multi-terrain, compact track, medium and compact wheel, and track-type loaders; mini, wheel, and track excavators; track-type tractors; and select work tools, motor graders, telehandlers, soil compactors, and pipelayers, as well as its related parts for the heavy and general construction, rental, mining and quarry, and aggregates markets. Its Resource Industries segment provides electric rope and hydraulic shovels; draglines; drills; highwall and longwall miners; hard rock vehicles; articulated, large mining, and off-highway trucks; large wheel loaders; wheel tractor scrapers; wheel dozers; machinery components; hard rock continuous mining systems; electronics and control systems; and select work tools for use in mining and quarry applications. The company's Energy & Transportation segment offers reciprocating engines, generator sets, marine propulsion systems, gas turbines and turbine-related services, diesel-electric locomotives, and other rail-related products and services. Its Financial Products segment provides retail and wholesale financing for Caterpillar equipment, machinery, and engines; offers property, casualty, life, accident, and health insurance; insurance brokerage services; and purchases short-term trade receivables. The company's All Other segments remanufactures Cat engines and components, and provides remanufacturing services for other companies; offers business strategy, and development, management, manufacturing, marketing, and support primarily for paving, forestry, industrial, waste, and Cat products. Company description from FinViz.com.

Caterpillar's business has been in decline for several years as the energy sector went into hibernation and Asia's economic growth appeared to slow. For some reason, the stock bottomed on January at $58 and rallied to almost $100 despite a weak outlook in every earnings cycle. The $18 post election bounce was just another example of irrational exuberance. The election did not sell more tractors overnight and a pickup in their business could be several quarters away.

The best thing Caterpillar has in its favor is OPEC's decision to cut production. That means a year from now oil prices may have recovered slightly and energy companies may begin to buy more tractors. That is a long time off for an $18 spike.

Earnings in 2014 were $6.38, 2015 $4.64, 2016 they are estimated to be $3.26 and for 2018 analysts expect $3.15. However, CAT said last week that the estimates were overly optimistic. While Asian sales may have quit declining there is no material rebound at present.

Earnings Jan 24th.

This is a play on the retracement of that $18 bounce. When the company says analyst expectations are overly optimistic you can bet analysts will begin to lower their numbers. That should produce an extra weight on the stock in addition to any normal decline with the Dow in January.

The earnings are Jan 24th and the February options are expensive. Since this is a short-term position, I am recommending the January options. I believe any material decline will happen in the first two weeks of January.

Position 12/19/16:

Long Jan $90 put @ $1.89, see portfolio graphic for stop loss.

DIA Dow ETF - ETF Profile


No material news. The Dow spiked at the open thanks to Goldman Sachs and that caused some short covering in the ETFs and lifted several Dow stocks. We are just passing time until the first week in January.

Original Trade Description: December 7th

The SPDR Dow Jones® Industrial Average ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Dow Jones Industrial Average.

Remember Dow 10,000? Traders talked about it for weeks. When it was finally hit, they were passing out Dow 10,000 hats on the floor of the NYSE for a week. That was December 11th 2003. It was a big milestone for the market.

Now 13 years later we are about to double that with Dow 20,000. Given the place on the calendar, the massive post election rally and the potential for normal profit taking in January, the Dow 20,000 touch could be a massive sell on the news event.

However, we are only 386 points way and it could happen as soon as next week. The Fed rate announcement on Wednesday could either cripple that potential or accelerate it if the Fed maintains a dovish posture on future rate hikes. I believe we will hit Dow 20K before the end of December. When that happens I want to be short the DIA ETF and plan on holding it through January.

I am choosing the Dow because it is the most overbought and could produce the biggest percentage move. Just look at Goldman's chart and the profit that needs to be removed there.

Because there will be plenty of other traders thinking along the same lines I want to enter the put position at 19,900 or $199 on the DIA ETF. I know I am jumping in front of a speeding train to enter a short position on a runaway market but the potential is very high for a good trade.

Position 12/12/16:

12/12 - 1/2 position: Long Feb $195 put @ $3.40, no initial stop loss.

12/13 - 1/2 position: Long Feb $195 put @ $3.15, no initial stop loss.

GATX - GATX Corporation - Company Profile


Citigroup initiated coverage with a buy rating and the stock gapped higher on short covering. Stocks can go down faster than they go up and we are just waiting for the January correction.

Original Trade Description: December 15th

GATX Corporation leases, operates, manages, and remarkets assets in the rail and marine markets in North America and internationally. The company operates in four segments: Rail North America, Rail International, American Steamship Company (ASC), and Portfolio Management. The Rail North America segment primarily leases railcars and locomotive, as well as other ancillary services. This segment also offers repair, maintenance, modification, and regulatory compliance services on the railcar fleet. The Rail International segment leases railcars, as well as offers repair, regulatory compliance, and modernization work for railcars. The ASC segment operates a fleet of vessels that provide waterborne transportation of dry bulk commodities, such as iron ore, coal, limestone aggregates, and metallurgical limestone for steel makers, automobile manufacturing, electricity generation, and non-residential construction markets. The Portfolio Management segment is involved in leasing, asset remarketing, and marine operations, as well as manages portfolios of assets for third parties. As of December 31, 2015, it operated a fleet of 17 vessels; a fleet of approximately 106,100 cars; a fleet of 18,400 boxcars; and a fleet of 611 older four-axle and 26 six-axle locomotives. Company description from FinViz.com.

There has been no news since the company announced a 40 cent dividend on Oct 28th. The dividend is payable on Dec 31st to holders on Dec 15th. That is today. That means nobody else is going to be buying the shares to get the dividend.

Earnings Jan 19th.

GATX has rallied 69% since the election. I can only assume it was because of the rally in the Dow Transports in anticipation of a better economy in 2017. There is no current fundamental reason for a 69% rally and odds are good once the stock begins to roll over with the market it could fall very hard. Apparently other investors believe the same way since the only put strike with any volume is the January 60 puts. There is more volume in that one strike than all the other strikes combined.

Position 12/16/15:

Long Jan $60 put @ $2.35, no initial stop loss to avoid any volatility spikes.

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