Option Investor
Newsletter

Daily Newsletter, Thursday, 2/9/2017

Table of Contents

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

Market Wrap

Tax Reform!

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

Trump announced his tax reform plan is a mere weeks away, and the market set new all time highs. The news came during a meeting with airline executives and put a decidedly different spin on today's trading. During the early portion of the session it looked as if the market would continue to drift sideways within tight narrow ranges, after the announcement it looks as if the market will keep moving up into all-time-high territory.

Global indices were higher in the overnight session. Asian indices drift higher on rising oil and gold prices, aided by a letter from President Trump. President Trump sent a letter to China's supreme leader and received glowing praise for his efforts at establishing positive and constructive dialogue. This news helped support European markets which were further aided by positive earnings news that helped them gain about 1% on average. Asian indices were closed well before the Trump tax news, the European shortly after.

Market Statistics

Futures trading, like the global indices, was listless in the early hours. The indices were indicated to open flat to slightly positive, about 4 or 5 points for the SPX, and there was little change in that throughout the early session. There was a lot of earnings activity pre-open, and some positive labor data, but still no move in the futures. The open was positive and orderly. The indices began the day with marginal gains, quickly moved up to near term resistance, simmered for a half hour or so, heard the Trump news and then moved up to set new all time highs. The SPX topped out the first time before 11:30AM just shy of 2,310, +15 points, but held the days gains. A brief pullback led to consolidation that lasted well into the afternoon and eventually retested the early high. The test did not last long, the market blew right threw it and marched right on up to make another new high, where it remained until the close of the day.

Economic Calendar

The Economy

There was not a lot of data today but what there was is good. First up, initial jobless claims. Initial claims fell -12,000 to 234,000 versus expectations for a small gain. The previous week's figures was not revised. The four week moving average of claims fell -3,750 to hit 244,250, a new low dating back 43 years to November 3rd, 1973. On a not adjusted basis claims fell -6.9% versus the -2.1% projected by the government. Year over year not adjusted claims are down -10.75% and continue to trend lower over the long term. Simply stated, first time claims are trending lower over time, hitting new lows and remain consistent with ongoing labor market improvements.


Continuing claims rose by 15,000 from last week's not revised figure to hit 2.078 million. The four week moving average of claims fell however, shedding -3,750 to hit 2.075 million. Although it is still trending above the recent low this data is still trending near the long term low and is consistent with labor market health. The recent rise in continuing claims is due to seasonal factors that should work their way out of the data over the next few weeks.

Total claims made a small gain this week, 32,996, versus my expectation it would fall. Even so, total claims remains consistent with seasonal and long term trends, and the concept of labor market health. On a year over year basis claims are down -7.3% and will likely begin falling off as we go into the late winter and early spring.


Wholesale inventories was reported as 1% for December, in line with expectations, and up 2.6% year-over-year. The previous month was not revised. Wholesale sales rose 2.6%, faster than expected, and are up 6.8% year-over-year. The previous month was revised, up 0.1% to 0.5%. The inventory to sales ratio fell to 1.29, the lowest level in two years. While not a robust report it does reveal activity within the economy as wholesalers turnover and replace merchandise. The most positive aspect is that sales are outpacing increases in inventory; as sales deplete inventories manufacturer orders and production could see a boost.

The Dollar Index

The dollar got a boost from Trump's tax announcement. The Dollar Index gained 0.33%, extending its rebound but halted at resistance. The tax plan could be the spark to renew dollar bullishness. Lower taxes are expected to further the US economy's ability to grow, spur inflation and lead to higher interest rates and those are all supportive of dollar strength. Today's gains were capped at the short term moving average which is just above the $100.50 level. The indicators are bullish, both pointing higher, but a move above resistance is needed to get bullish on the index again. A break above the short term moving average would be bullish with upside target near $102.50 in the near term. A failure to move higher may result in a retest of support with target near $99.25.


The Gold Index

Gold prices retreat from their latest highs on the latest in Trump news, spot prices falling a little more than -0.25% after an initial push to retest yesterday's 2.5 month high. Gold has been supported on geo-political tension and soft dollar outlook but that could all be changing right now. Trump's tax plan, and the economic data, has put a bit of strength into the dollar while at the same time his letter to China has eased trade-war fear. If presidential activity and market sentiment continue to shift along those lines the impetus to own gold will disappear and prices will likely fall.

The Gold Miners ETF fell more than -2%, confirming resistance at the $25.50 level. This level is the the 3 month high and consistent with resistance associated with the post-election rally, the dollar's push to new long term highs and gold's fall to long term lows. The candle is long and black, engulfing the prior three days and confirming yesterday's small hanging man doji. The indicators are consistent with a peak, showing divergences that have foreshadowed market weakness for many weeks, but not yet indicative of a sell. If prices continue lower from here first target is the short term moving average near $23.50.


The Oil Index

Oil prices remain volatile and trapped within the near term range. Today's action was driven by a surprise draw in gasoline stockpiles, a net difference of 2 million barrels when compared to expectations, fueled by rising demand. This draw down may be a sign of shifting fundamentals and market rebalance but for now remain a single piece of data in an ocean of conflicting signals. Until a clearer indication of fundamental change is present oil prices will likely remain within the near term range between $51.50 and $54.75.

The oil sector advanced today as relatively firm oil prices support positive forward earnings outlook. The Oil Index gained 1.0%, extending its bounce from yesterday's bounce from the 2 month low, but does not look overly strong. Today's candle is a small spinning top doji, indicative of market indecision, and below potential resistance at 1235. The indicators are consistent with pullback and bounce from support but remain bearish in the near term so that support is likely to be tested again, near 1,200. Longer term outlook remains bullish, earnings growth, economic growth and the opportunity for rising demand are all in the cards, so this dip looks buyable.


In The News, Story Stocks and Earnings

Another big day for earnings with numerous reports before the open and after the close of trading. Early hours was dominated by a few names but the one that sticks out for me is Twitter. Twitter beat EPS estimates by a hair but missed big on revenue. The company reported the slowest quarter of revenue growth in its history and spurred renewed criticism of Jack Dorsey's choice to CEO two companies. Along with the miss forward guidance was weak and helped to depress share prices. Shares of the stock fell in the pre-market session, gapped lower at the open, shed nearly -13% and closed at the low of the day.


Coka Cola revenue beat, EPS matched estimates and guidance was weaker than expected. The company reported its 7th quarter of declining revenue on rising dollar value. KO down -2%.

YUM! Brands revenue missed, EPS beat, comp store sales miss. Operating profit grew 27% as strategic shifts take hold. Taco Bell and KFC remain steady, Pizza Hut is expected to struggle. Shares of the stock gained more than 1% to trade just shy of a near 2 year high.

Viacom reported a decline in year over year revenue but blew past top and bottom line estimates. Along with the beat the company outlined a 5 year strategic plan investors founds encouraging. Shares of the stock rose nearly 4% but were capped at resistance.


After hours was just as busy with reports from Pandora, Expedia and News Corp. Pandora missed top and bottom line expectations on weak growth. The company also gave weak forward guidance and sent shares plummeting 5% in after hours trading.

Expedia also missed top and bottom. Bookings for the quarter were in line with expectations but forward outlook is weak. Shares fell more than 3% in after hours trading.

News Corp reported earnings and revenue down from last year, a net loss, but beat expectations. Shares fell marginally on the news.


The Indices

The indices began the day in wait-and-see mode, waiting to see what might happen in terms of Trump, geopolitical tensions and earnings. To be honest, I don't think there was much expectation for much of anything to happen today at all, much less an indication of when we could expect to learn more about the Trump Tax Plan. There is a lot of expectation built into this plan, the chance for significant increase to forward earnings outlook exists, and that was shown by today's market moves.

The Dow Jones Transportation Average led today's action and is the only index to not set a new all time high. The transports created a medium sized white bodied candle moving up from support. Support is the short term moving average and a previous all time high, confirmed by the indicator. Both MACD and stochastic are consistent with a bounce from support in the near term, both also consistent with short term support at or just below current levels. Today's move is trend following, upside target is the current all time high. A break above that would be bullish.


The NASDAQ Composite made the second largest move, 0.58%, and set a new all time high. The index created another medium sized white bodied candle, extending its rally, but the indicators continue to weaken and give mixed signals. MACD is barely bullish, confirming today's high, but the peak is yet another lower peak in a string of 5 since the election. Stochastic is also warning by showing a peak above the upper signal line, overbought territory. These are by no means an indication of an end to the trend but are reasons for caution. Upside target is 5,750, first target for support is 5,600.


The S&P 500 posted a gain of 0.58%, exactly the same as the NASDAQ, and created a medium sized white bodied candle. Today's action breaks out of the near term consolidation in a move that set a new all time high, above 2,300. This move is trend following and rising up from support. Support is a long term up trend line and the short term moving average and confirmed by the indicators. Stochastic has been firing bullish signals for weeks and gave another one today, both %K and %D moving higher, %K crossing above the upper signal line. MACD is most promising as it confirmed today's move with a bullish crossover. Upside target is 2,400 in the near to short term.


The Dow Jones Industrial Average made the smallest gain today, only 0.40%, but was able to set a new all time high. The blue chips created a medium sized white bodied candle moving up from support and confirmed by the indicators. Support is the previous and recently set all time high, and the short term moving average. The indicators are both bullish, MACD confirming today with a bullish crossover. This move is trend following with upside target near 20,500 in the near to short term.


Aside from the NASDAQ I am pretty bullish on the market. The NASDAQ looks like it might be ready to correct, maybe not, but the others look ready to run. The economic trends are up, the earnings outlook is good, Trump induced fear is subsiding (at least stabilizing) and now we've got positive news on tax reform. I remain cautious, but I am expecting to see the markets move higher in the near to short term, providing no more black swans or other buzzwords pop up to scare the market lower.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Technical Breakout

by Jim Brown

Click here to email Jim Brown

Editors Note:

This sector is healing and a breakout over resistance is imminent. Despite negative comments about drug prices from the Trump administration, the biotech sector is rising.



NEW DIRECTIONAL CALL PLAYS

XBI - Biotech ETF - ETF Profile

The SPDR S&P Biotech ETF seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P Biotechnology Select Industry Index.

This is a sector ETF that tracks 90 biotech and pharma stocks having a market cap of at least $500 million. The index is rebalanced quarterly to remove stocks that have decreased and add stocks that have exceeded the market cap requirements. As such this ETF is focused on the larger cap names and many of the small cap stocks are not represented.

The XBI has rebounded from $61, where it fell after comments from the president in January, to $67 despite new comments earlier this week. The overall optimism about the economy, faster approval of drugs and tax cuts have lifted the sector.

If the ETF can move over $70 the next material resistance is $80. I am using an inexpensive March option because the sector can be volatile. There are no April options yet.

Buy Mar $68 call, currently $1.86, initial stop loss $63.85.


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

Finally!

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Dow, S&P and Nasdaq all made new historic highs and held the gains into the close. That was the good news. The Dow did give up 36 points in the closing minutes but still closed above the prior intraday highs. The S&P pushed through 2,300 to close at 2,308 and the Nasdaq closed above 5,700 and the NDX above 5,200. It was a banner day for new highs and closing above resistance.

Friday's market action is going to be key. If the indexes can hold their gains and even add to them at least a little bit, it would go a long way towards bringing the fence sitters off the sidelines.

Unfortunately, the bullish market knocked out two of our put positions for minor losses. We easily made that up on the bullish gains.



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


GIII - G-III Apparel

The long put position was stopped at $25.65.

HA - Hawaiian Holdings

The long put position was stopped at $51.85.

VMW - VMWare

The long call position was entered at the open.



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

BMY - Bristol Myers - Company Profile

Comments:

No specific news. Minor decline after two weeks of gains.

Original Trade Description: February 6th

Bristol-Myers Squibb Company discovers, develops, licenses, manufactures, markets, and distributes biopharmaceutical products worldwide. It offers chemically-synthesized drug or small molecule, and biologic in various therapeutic areas, including virology comprising human immunodeficiency virus infection (HIV); oncology; immunoscience; cardiovascular; and neuroscience. Its products include Baraclude for the treatment of chronic hepatitis B virus infection; Daklinza and Sunvepra for the treatment of hepatitis C virus infection; Reyataz and Sustiva for the treatment of HIV; Empliciti, a humanized monoclonal antibody for the treatment of multiple myeloma; Erbitux, an IgG1 monoclonal antibody that blocks the epidermal growth factor receptor; Opdivo, a fully human monoclonal antibody for non-small cell lung and renal cell cancer, and melanoma; Sprycel, a tyrosine kinase inhibitor for the treatment of adults with Philadelphia chromosome-positive chronic myeloid leukemia; Yervoy, a monoclonal antibody for metastatic melanoma; Abilify, an antipsychotic agent for adults with schizophrenia, bipolar mania disorder, and depressive disorder; Orencia to treat rheumatoid arthritis; and Eliquis, an oral factor Xa inhibitor targeted at stroke prevention in atrial fibrillation. Its products pipeline includes Beclabuvir, a non-nucleoside NS5B inhibitor for the treatment of HCV; BMS-663068, an investigational compound that is being studied in HIV-1; and Prostvac, a Phase III prostate-specific antigen to treat asymptomatic or minimally symptomatic metastatic castration-resistant prostate cancer. The company has clinical trial collaborations with Calithera Biosciences, Inc. and Janssen Biotech, Inc.; and a research collaboration with GeneCentric Diagnostics, Inc. Company description from FinViz.com.

BMY reported earnings of 63 cents that missed estimates for 67 cents. They guided for 2017 for earnings of $2.70-$2.90 and analysts were expecting $2.97. The shares were crushed with a $9 drop over five days. Complicating the earnings was news that sales of two drugs were slowing because of competition. However, what was not said was that BMY has dozens of other drugs currently being sold and dozens more in the pipeline. BMY has one of the richest pipelines in the business.

Fund manager Dodge & Cox did an extensive analysis of BMY and said the recent problems have just been a temporary setback and the strong pipeline of drugs plus their immuno-oncology business makes them particularly attractive and they initiated a large position. They said BMY has capitalized on its recent problems to become a focused biopharmaceutical company that is positioned to grow.

Several other analysts have recently called the BMY dip a buying opportunity. We are going to take them at their word.

Earnings April 27th.

Shares are starting to rebound from the $46 low and they have plenty of ground to cover. The biotech sector is actually positive over the last week as through investors believe the danger from Trump and drug prices may have passed or at least moved into a new stage.

Position 2/7/17:

Long March $52.50 call @ $1.11, no initial stop loss.


DVMT - Dell Technologies - Company Profile

Comments:

No specific news. New historic high close.

Original Trade Description: February 4th

Dell Technologies Inc. provides a range of technology solutions worldwide. It offers client computing devices, including desktop personal computers, notebooks, and tablets; rack, blade, tower, and hyperscale servers for enterprise customers; value tower servers for small organizations, networks, and remote offices; networking solutions; and storage solutions, including storage area networks, network-attached and direct-attached storage, and backup systems. It also sells peripherals, including monitors, printers, projectors, and other client and enterprise peripherals, as well as third-party software products. In addition, the company offers support and extended warranty, enterprise installation, and configuration services; and infrastructure and security managed, cloud computing and infrastructure consulting, and security consulting and threat intelligence services. Further, it provides application services, such as application development, maintenance, migration, management, and consulting, as well as package implementation, testing and quality assurance functions, business intelligence and data warehouse solutions; business process services comprising back office administration, call center management, and other technical and administration services; and system and information management, and security software services. Additionally, the company offers financial services, including originating, collecting, and servicing customer receivables primarily related to the purchase of its products. It serves corporate businesses; educational institutions, government, healthcare, and law enforcement agencies; small and medium-sized businesses; and consumers directly, as well as through retailers, third-party solution providers, system integrators, and third-party resellers. The company was formerly known as Denali Holding Inc. and changed its name to Dell Technologies Inc. in August 2016. Dell Technologies Inc. was founded in 1984 and is headquartered in Round Rock, Texas. Company description from FinViz.com.

The company came public without a lot of fanfare back in August and moved sideways for two months. Since the election, the stock has been unstoppable. There was a spike last week when Michael Dell was seen in one of the presidents CEO meetings and identified as the CEO of Dell Technologies. I do not think the average investor has picked up on the fact that Dell is public again.

You may recall that Dell recently bought EMC and VMWare and they are leveraging that technology internationally. Dell has been on a mission to divest as many non-core entities as possible. On October 31st, they sold the Dell Software Group for $2.4 billion. In November, they sold the Dell Services group for $3 billion. In September, they announced a deal to sell the EMC Enterprise Content division for $1.6 billion.

In Q3, they reported revenue of $16.8 billion. Not bad for a company many investors have forgotten about.

The original Dell Company created thousands of millionaires as the stock doubled and tripled, split and repeat multiple times. I know the chart is ridiculous with a $10 gain over the last month but it has very low volatility and the option is cheap. I have put off recommending it several times thinking I would wait for a dip, only it never dips.

Earnings March 9th.

Position 2/6/17:

Long March $65 call @ $1.75, see portfolio graphic for stop loss.


PANW - Palo Alto Networks - Company Profile

Comments:

Blowout earnings by Imperva (IMPV) sent the entire sector significantly higher.

Original Trade Description: Jan 23rd

Palo Alto Networks, Inc. provides security platform solutions to enterprises, service providers, and government entities worldwide. Its platform includes Next-Generation Firewall that delivers application, user, and content visibility and control, as well as protection against network-based cyber threats; Advanced Endpoint Protection, which prevents cyber attacks that exploit software vulnerabilities on various fixed and virtual endpoints and servers; and Threat Intelligence Cloud, which offers central intelligence capabilities, security for software as a service applications, and automated delivery of preventative measures against cyber attacks. The company provides firewall appliances; Panorama, a security management solution for the control of appliances deployed on an end-customer's network as a virtual or a physical appliance; and Virtual System Upgrades, which are available as an extensions to the virtual system capacity that ships with the physical appliances. It also offers subscription services covering the areas of threat prevention, uniform resource filtering, malware and persistent threat, laptop and mobile device, and firewall protection services, as well as cyber attack, threat intelligence, and content control services. In addition, the company provides support and maintenance services; and professional services, including application traffic management, solution design and planning, configuration, and firewall migration, as well as provides online and classroom-style education training services. Palo Alto Networks, Inc. primarily sells its products and services through its channel partners, as well as directly to medium to large enterprises, service providers, and government entities operating in various industries comprising education, energy, financial services, government entities, healthcare, Internet and media, manufacturing, public sector, and telecommunications. Company description from FinViz.com.

In November, PANW posted earnings that beat the street but revenue, which rose 34% missed estimates by a fraction. Revenue was $398.1 million and analysts were expecting $400.1 million. PANW had guided for revenue growth of 33% to 35% so they were right in the middle of their guidance range. Earnings of 55 cents beat estimates for 53 cents. Shares were crushed because the company said the market was "lumpy" and customers were taking longer to make purchase decisions.

In Q3 they added more than 1,500 new customers to hit 35,500 globally. Subscription revenue has risen to 60% of total revenue as they move to a cloud model.

In early January, noted short seller Andrew Left of Citron Research, put out a bullish note on PANW saying they had a fantastic moat, which would be a barrier to entry for other companies trying to duplicate their type of firewall. His price target is $170. Shares rallied $14 over the next three weeks on the call. At the same time Bernstein put out a very positive note on the company saying nobody serious about protecting their web environment should be without PANW as their security solution.

Shares have rebounded to their November gap down level of $144 and have found resistance. They are not giving back their gains but there was a slight retracement on Monday in a weak market. I believe they will overcome this resistance level and move higher, market permitting.

There is a persistent rumor in the market that Microsoft and Cisco Systems are both looking for a cybersecurity company to acquire. Given Palo Alto's position in the sector, they would be a good target.

Earnings February 28th.

Because of the price of the options, I am forced to turn this into a spread. If you want to go with a naked call, I would probably use the $150 strike.

Position 1/24/17:

Long March $145 call @ $6.00, see portfolio graphic for stop loss.
Short March $155 call @ $3.15, see portfolio graphic for stop loss.
Net debit $2.85


RHT - Red Hat Inc - Company Profile

Comments:

No specific news. Closed at a new 7-week high.

Original Trade Description: Jan 21st

Red Hat, Inc. provides open source software solutions to develop and offer operating system, virtualization, management, middleware, cloud, mobile, and storage technologies to various enterprises worldwide. It offers infrastructure-related solutions, such as Red Hat Enterprise Linux, an operating system platform that runs on hardware for use in physical, virtual, container, and cloud environments; Red Hat Satellite, a system management offering that helps to deploy and manage Red Hat infrastructure across physical and virtual servers, and cloud environments; and Red Hat Enterprise Virtualization, a software solution that allows customers to utilize and manage a common hardware infrastructure to run multiple operating systems and applications. The company offers application development-related and other technology solutions, such as Red Hat JBoss Middleware, a solution for developing, deploying, and managing applications, as well as integrating applications, data, and devices along with business processes automation; Red Hat cloud offerings, a software solution that enables customers to build and manage various cloud computing environments; Red Hat Mobile, a software development platform that enables customers to develop, integrate, deploy, and manage mobile applications for enterprises; and Red Hat Storage, a software solution that enables customers to treat physical server storage as a scalable, shared, centrally-managed pool of virtual storage and to manage large, unstructured, or semi-structured data in physical, virtual, and cloud environments. It also provides consulting, support, and training services; and real-time operating system, distributed computing, directory services, and user authentication. Company description from FinViz.com.

On December 21st, the company reported earnings of 61 cents that beat estimates by 3 cents. However, the beat came mostly from a lower tax rate. Revenue rose 17.5% to $615.3 million compared to estimates for $618.4 million so a slight miss there. Billings rose 8.7% to $679 million but misses estimates for $713 million. Subscription revenue rose 19% to $543 million and 88% of total revenue. That is recurring and will help smooth out future earnings.

The CEO explained that two large government deals worth $20 million slipped into Q4. Also, two large customers chose to be billed rather than pay up front and that took another $27 million out of billings. If those deals were included the billings would have been up +16% instead of 8.7%. The good news is that all of those deals are now in Q4 and that will give Q4 an earnings boost.

Earnings March 22nd.

Shares have rebounded to $74 and appear poised to break over that level and move back to the $80 range. I am using the March options, which expire 4 days before the earnings and they are half price the next cycle in June.

Position 1/23/17:

Long March $75 call @ $2.35, see portfolio graphic for stop loss.


SPY - S&P-500 ETF - ETF Profile

Comments:

The S&P finally pushed through 2,300 to close at 2,308. If the index can hold and add to those gains on Friday, we could be off to the races.

Original Trade Description: Jan 12th

The SPDR S&P 500 ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500 Index.

The SPY dipped to $225 intraday before the dip buyers rushed into the market. Initial support is $223 and I believe we have a chance to test that level before the inauguration. There are only four trading days left. If the bank earnings disappoint on Friday we could see a decline in low volume. With the three-day weekend ahead we could see traders move to the sidelines to avoid weekend event risk while the U.S. markets are closed.

We could also see a pre inauguration decline as traders worry about event risk surrounding the event.

Whatever the reason we could see the ETF test that level over the next four days. Assuming there is no disaster surrounding the inauguration, we could see a real rally begin afterwards.

This is a short-term position using March options just in case any potential dip turns into a crash. The estimated option premium should be less than $3.

Position 1/25/17 with a SPY trade at $228.25

Long MAR $232 call @ $1.69, no initial stop loss.


$VIX - Volatility Index - Index Description

Comments:

The VIX did not decline as much as you would have expected. Still some people buying insurance puts.

Original Trade Description: Jan 26th

The VIX is a computed index, much like the S&P 500 itself, although it is not derived based on stock prices. Instead, it uses the price of options on the S&P 500, and then estimates how volatile those options will be between the current date and the option's expiration date. The CBOE combines the price of multiple options and derives an aggregate value of volatility, which the index tracks.

The VIX closed at 10.63 and very close to record lows. You have to go back to June of 2014 for a lower recent close at 10.28. Before that, you have to travel back in time to Feb-2007 for a close at 10.05. The next lowest close was 9.48 in Dec-1993.

The point here is that volatility is near record lows only reached four times in the last 23 years. That qualifies for an abnormal event. I believe it is time we bought some VIX calls. The odds of the VIX remaining this low for the next two months are about as close to zero as you can get.

There is a very old saying in the market. "When the VIX is high, it is time to buy. When the VIX is low, it is time to go." You cannot get much lower than this.

The VIX is telling us that everyone expects the market to continue moving higher. Nobody is worried that some unexpected headline or event is going to trigger a significant market decline. When nobody expects an event is when we should be the most concerned.

Position 2/7/17:

Long March $12 call @ $2.40, no stop loss

Previously Closed 2/1/17: Long March $12 call @ $2.60, exit $2.50, -.10 loss.


VMW - VMWare - Company Profile

Comments:

No specific news. Closed at a new 52-week high.

Original Trade Description: February 8th

VMware, Inc. provides virtualization and cloud infrastructure solutions in the United States and internationally. Its virtualization infrastructure solutions include a suite of products and services designed to deliver a software-defined data center (SDDC), run on industry-standard desktop computers, servers, and mobile devices; and support a range of operating system and application environments, as well as networking and storage infrastructures. The company offers VMware vSphere, a SDDC platform, which enables users to deploy hypervisor, a layer of software that resides between the operating system and system hardware to enable compute virtualization; storage and availability products that provide data storage and protection options; network and security products; and management and automation products to manage and automate overarching IT processes involved in provisioning IT services and resources to users from initial infrastructure deployment to retirement. It also provides SDDC suites, such as VMware vCloud Suite, vSphere with Operations Management, and VMware vRealize suite for building and managing cloud infrastructure for use with the VMware vSphere platform. In addition, the company offers hybrid cloud computing solutions, including VMware vCloud Air Network Service Providers and VMware vCloud Air; and end-user computing solutions, which enables IT organizations to deliver secure access to applications, data, and devices to end users. Company description from FinViz.com.

In late January VMWare reported earnings of $1.11 that beat estimates for $1.08.Revenues of $2.03 billion also beat estimates for $1.99 billion. Overall revenues rose 8.8%, service revenues 9.8% and license revenues 7.5%. The exited the quarter with $8 billion in cash with free cash flow at $2.23 billion for the full year. They announced a new $1.2 billion share repurchase program.

For Q1 they guided for revenues of $1.625 billion to $1.725 billion and earnings of 93 to 96 cents. Dell Technologies owns 80% of VMW and the future earnings dates will be aligned with Dell's for transparency.

The company announced a joint venture with Amazon Web Services to provide VMWare on AWS beginning this summer. The VMW CEO said partnering with Amazon will allow VMWare customers to maintain their leadership while moving from a private cloud to the public cloud. Companies are increasingly closing or reducing existing data centers and moving operations to the cloud so someone else can be responsible for physical security, heating, cooling, electrical demand, server upgrades, etc. VMW is the number one maker of virtualization software and has shifted focus to combining customers public and private clouds into a hybrid cloud. VMWare has smaller partnerships with Google and Microsoft but they are also competitors in many cases.

At least five analysts hiked their price targets on VMW after the earnings and Amazon announcement.

Earnings April 27th.

Position 2/9/17:

Long April $92.50 call @ $2.25, see portfolio graphic for stop loss.



BEARISH Play Updates (Alpha by Symbol)

GIII - G-III Apparel Group - Company Profile

Comments:

No specific news. The NRF sales forecast from Wednesday was still powering the sector higher and we were stopped out for a minor loss.

Original Trade Description: January 28th

G-III Apparel Group, Ltd. designs, manufactures, and markets men's and women's apparel. It operates through two segments: Wholesale Operations and Retail Operations. The company's products include outerwear, dresses, sportswear, swimwear, women's suits, and women's performance wear; and women's handbags, footwear, small leather goods, cold weather accessories, and luggage. It markets swimwear, resort wear, and related accessories under the Vilebrequin brand; footwear, apparel, and accessories under Bass and G.H. Bass brands; and apparel products under Andrew Marc, Marc New York, Jessica Howard, Eliza J and Black Rivet, Weejuns, and other private retail labels. G-III Apparel Group, Ltd. also licenses its products under the Calvin Klein, ck Calvin Klein, Karl Lagerfeld, Guess, Guess?, Kenneth Cole NY, Reaction Kenneth Cole, Cole Haan, Levi's, Vince Camuto, Tommy Hilfiger, Jessica Simpson, Ivanka Trump, Jones New York, Ellen Tracy, Kensie, Dockers, Wilsons, G-III Sports by Carl Banks, and G-III for Her brands, as well as have licenses with the National Football League, Major League Baseball, National Basketball Association, National Hockey League, Touch by Alyssa Milano, Hands High, Collegiate Licensing Company, Major League Soccer, and Starter. The company offers its products to department, specialty, and mass merchant retail stores in the United States, Canada, Europe, and the Far East; and distributes products through its retail stores, as well as through G.H. Bass, Wilsons Leather, Vilebrequin, and Andrew Marc Websites. As of January 31, 2016, it operated 199 Wilsons Leather stores, 163 G.H. Bass stores, and 5 Calvin Klein performance stores. Company description from FinViz.com.

The holiday shopping season was not kind to any retailer except for Amazon. Most retailers are reporting negative comps and warning about slowing traffic. GIII was no exception. GIII warned Q4 saw a significant decline in sales that would cut 20 cents off earnings. They guided for the full year 2016 that ended January 31st, for revenue of $2.41 billion and earnings of $1.21-$1.31 compared to their prior guidance of $2.43 billion and earnings of $1.41 to $1.51. For 2017, they guided to earnings of $1.41-$1.51 compared to $2.44 in fiscal 2016.

The company said they were expecting positive comps in Q4 but now expect low double-digit negative comps. That is a heck of a swing. They blamed warmer weather and significantly lower traffic in the stores.

Earnings March 2nd.

Shares broke below support and closed at a three-year low on Friday. Given the trends in the retail sector, they could continue significantly lower with their guidance warning.

Position 1/30/17:

Closed 2/9/17: Long March $25 put @ $1.60, exit $1.14, -.46 loss.


HA - Hawaiian Holdings - Company Profile

Comments:

No specific news. Delta also posted strong January flight statistics and the sector was upgraded. HA gained $1 to stop us out.

Original Trade Description: February 1st

Hawaiian Holdings, Inc., through its subsidiary, Hawaiian Airlines, Inc., engages in the scheduled air transportation of passengers and cargo. It offers daily services on North America routes between the state of Hawai'i and Los Angeles, Oakland, Sacramento, San Diego, San Francisco, and San Jose, California; Las Vegas, Nevada; Phoenix, Arizona; Portland, Oregon; and Seattle, Washington. The company also provides daily services on its Neighbor Island routes among the six major islands of the State of Hawai'i; daily services on its international routes between the state of Hawaii and Sydney, Australia; and Tokyo and Osaka, Japan. In addition, it offers scheduled services between the state of Hawai'i, and New York City, New York; scheduled services between the State of Hawai'i and Pago Pago, American Samoa; Papeete, Tahiti; Brisbane, Australia; Auckland, New Zealand; Sapporo, Japan; Seoul, South Korea; and Beijing, China, as well as other ad hoc charter services. Hawaiian Holdings, Inc. markets its tickets through various distribution channels, including its Website, www.hawaiianairlines.com primarily for North America and Neighbor Island route customers, as well as through travel agencies and wholesale distributors primarily for its international route customers. As of December 31, 2015, the company's fleet consisted of 18 Boeing 717-200 aircraft for the Neighbor Island routes; 8 Boeing 767-300 aircraft; and 22 Airbus A330-200 aircraft for the North America, international, and charter routes, as well as 3 ATR42 turboprop aircraft. Company description from FinViz.com.

In late January HA reported earnings of $1.28 that missed earnings for $1.30. However, revenue of $633 million did beat estimates for $627.6 million. With fuel costs rising and much of HA routes considered long hauls, their costs are going to rise. Non0fuel costs are expected to rise 3% to 6% in Q1. They are currently negotiating a new contract with pilots and that will cause a rise in labor costs. Costs were already rising in Q4 and investors tanked the stock after earnings.

Earnings April 25th.

Shares have fallen $5 since the January 24th earnings and are hugging support at $50. If that level breaks, the next material support is $45.

Position 2/2/17:

Closed 2/9/17: Long March $50 put @ $2.10, exit $1.50, -.60 loss.


QCOM - Qualcomm - Company Profile

Comments:

No specific news. Shares did not rebound in a bullish tape.

Original Trade Description: January 30th

QUALCOMM Incorporated develops, designs, manufactures, and markets digital communications products and services in China, South Korea, Taiwan, the United States, and internationally. The company operates through three segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI). The QCT segment develops and supplies integrated circuits and system software based on code division multiple access (CDMA), orthogonal frequency division multiple access (OFDMA), and other technologies for use in voice and data communications, networking, application processing, multimedia, and global positioning system products. The QTL segment grants licenses or provides rights to use portions of its intellectual property portfolio, which include various patent rights useful in the manufacture and sale of certain wireless products comprising products implementing CDMA2000, WCDMA, CDMA TDD, and/or LTE standards, as well as their derivatives. The QSI segment invests in early-stage companies in various industries, including digital media, e-commerce, healthcare, and wearable devices for supporting the design and introduction of new products and services for voice and data communications. The company also develops and offers products for implementation of small cells; mobile health products and services; software products, and content and push-to-talk enablement services to wireless operators; and development, and other services and related products to the United States government agencies and their contractors. In addition, it licenses chipset technology and products for data centers. Company description from FinViz.com.

Qualcomm it under attack from every direction. A while back China's regulator assessed a $975 million fine for improper licensing and made them lower royalties. The South Korean FTC imposed a fine of $853 million because it found the company's licensing practices to be monopolistic. The KFTC found that Qualcomm's market share had risen from 34% in 2010 to 69% in 2015 while many competitors were forced out of the market.

In early January, the US FTC attacked the company for anticompetitive practices that prevented competitors from supplying chips to handset makers. This is another billion dollar problem.

Three days later Apple sued Qualcomm for $1 billion claiming Qualcomm charged five times as much for licensing than all other cellular patent licensors combined. Apple also claimed the company withheld $1 billion in rebates because Apple had cooperated with KFTC when that investigation was active.

There is blood in the water and there will probably be other suits from companies that suffered under the Qualcomm licensing scheme as well. The odds are also good that Qualcomm will have to change their licensing scheme, which will probably result in lower fees.

With roughly $4 billion in fines and suits over the last few weeks, the investor appetite for QCOM shares has evaporated. Brokers are slashing their ratings from buy to hold or even sell.

Last week the company reported earnings of $1.19 that matched estimates but missed on revenue. They guided for $1.15-$1.25 for Q1 and analysts were expecting $1.17. Other than that the guidance was lackluster with a lot of excuses and questions deflected.

Update 1/31/17: Qualcomm said NXP Semiconductor (NXPI) shareholders had approved the acquisition by Qualcomm. The acquisition is expected to be completed by the end of 2017. QCOM will start a new subsidiary in Amsterdam that will actually buy the shares for $110 each. The funding will come from $28.6 billion in cash currently held by Qualcomm overseas. They will not be taxed on the money as long as it is reinvested overseas.

Update 2/1/17: Qualcomm said NXP Semiconductor (NXPI) shareholders had approved the acquisition by Qualcomm. The acquisition is expected to be completed by the end of 2017. QCOM will start a new subsidiary in Amsterdam that will actually buy the shares for $110 each. The funding will come from $28.6 billion in cash currently held by Qualcomm overseas. They will not be taxed on the money as long as it is reinvested overseas.

Update 2/6/17: The company extended its tender offer for NXPI shares at $110 saying more than 43 million have already been tendered. Shares are currently trading at $100

Earnings April 26th.

Shares have collapsed on the news of the suits and fines and are threatening a steeper decline. Initial support is $50.

Position 1.31.17:

Long March $52.50 put @ $1.68, see portfolio graphic for stop loss.




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