Option Investor

Daily Newsletter, Tuesday, 9/19/2017

Table of Contents

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

Market Wrap

Holding Their Breath

by Jim Brown

Click here to email Jim Brown

Most of the indexes moved sideways ahead of the FOMC meeting.

Market Statistics

The three major indexes all closed at new highs but it was definitely a battle. There was a $1.3 billion sell side imbalance in market on close orders on the NYSE according to Art Cashin. That imbalance was eventually covered without any major impact in the closing minutes.

The S&P reached its intraday high at almost 2,508 at noon and traded in a very tight 2-point range the rest of the day. Everyone was holding their breath ahead of the FOMC announcement and Yellen press conference.

The morning economic reports were mildly positive but for the most part were ignored because of the President's speech at the UN and the impending FOMC meeting.

New Residential Construction for August dipped slightly from 1.19 million in July to 1.18 million. This was well off the cycle peak at 1.32 million in October. Analysts blamed the decline on the leveling off of construction activity to a sustainable path. Builders have been burned many times in the past by racing to build more homes to fill demand only to have the demand cycle turn and leave them with unsold inventory. Builders are comfortable with the current pace and they are seeing profits rise from the increase in prices due to high demand.

Single-family starts were 851,000 and multifamily starts at 329,000 compared to 838,000 and 352,000 respectively.

August import prices rose +0.6% after a decline of -0.1% in July. The prior five months saw a total decline of -0.2% so the August rise was unexpected. This was the largest gain since June 2016. The lifting factor was fuel prices with a 4.2% jump and 4.8% rise petroleum products. These numbers were before Harvey because the survey period is earlier in the month. Export prices rose +0.6% as well. Over the trailing 12 months, import prices are up +2.1% and export prices +2.3%.

The API inventories after the bell showed a -1.44 million barrel rise in oil that was less than half the 3.9 million barrel analyst consensus. Gasoline inventories fell -5.06 million barrels and distillates fell by -6.13 million and the biggest weekly decline since 2004. The API said 13 refineries are postponing autumn maintenance for several weeks to months in order to produce more fuel and capture the high crack spreads caused by the spike in fuel prices.

Crude prices rose about 50 cents after the API numbers.

The calendar for Wednesday starts with home sales but they will not move the market. The movement will be supplied by the FOMC statement and the Yellen press conference. According to the CME FedWatch Tool, there is 100% chance there will be no rate hike. The only thing they can do to rock the market is to begin quantitative tightening or QT by reducing the amount of securities they are buying each month. Currently that averages about $60 billion. This replaces the securities (treasuries and mortgage backed securities) that mature each month. This has been discussed multiple times and some believe the start of QT could be on Wednesday. Others believe they will wait until December because of the hurricane impact on the economy.

In stock news, T-Mobile (TMUS) and Sprint (S) are back in serious talks once again over a potential merger. T-Mobile is majority owned by Deutsche Telekom and Sprint is majority owned by Softbank. The discussions revolve a stock for stock merger and T-Mobile CEO John Legere is expected to run the combined entity. However, Softbank's Masayoshi Son also wants a say in the company decisions. The challenge is getting regulators to approve a merger between the 3rd and 4th largest carriers in the US. That could reduce competition. AT&T (T) and Verizon (VZ) shares rose on that very idea that competition would be reduced. A deal has been discussed multiple times over the years but never got past the discussion stages.

The disaster for the day was Best Buy (BBY). They held their first investor day presentation in five years and now they are probably wishing they had waited another five years. The guidance was long term but analysts hated it. Best Buy is targeting revenue of $43 billion for fiscal 2021 up from $39.4 billion in 2017. They expect non-GAAP earnings of $1.9-$2.0 billion compared to $1.7 billion in 2017. That would equate to earnings per share of $4.75-$5.00 or roughly a 9% annual growth rate. Analysts were already expecting 2021 earnings at the high end of that range. Investors were underwhelmed and shares fell -9% intraday.

Cloud company Veritone (VERI) has been announcing a new partnership almost daily and the stock is exploding higher. The company focuses on AI in the cloud. They are a new company that went public in May and anybody short this stock is in a lot of pain. There was no news today but shares gained 34%. This is when you need a time machine to go back four weeks when the stock was $8.

Tesla (TSLA) shares fell slightly after Jefferies initiated coverage with an underperform rating and $280 price target. The analyst said Tesla could lose half its value if it cannot reach its production targets. He also worried that margins would decline as a result of product mix and low margins on batteries. He said achievements to date have been visionary but earnings are not going to scale quickly. He sees losses until 2020. This compares to consensus earnings for $5.33 in 2019. Competing analysts now see Tesla as a software company rather than a car company. More than 60% of Tesla's employees are programmers. Even Elon Musk says it is a software company that also makes cars, batteries and solar roofs.

The analyst picked a good spot technically for his sell call. The stock hit the resistance high on Monday and this is definitely an opportunity for a double top pattern to emerge.

Refrigerated foods producer Bob Evans Farms (BOBE) will be acquired by Post Holdings (POST) for $1.5 billion. That works out to $77 per share. The transaction is expected to close in Q1-2018. Post said it would be immediately accretive to revenue and free cash flow.

Warren Buffet has won $2 million in a bet against hedge fund returns. In 2007, Buffett offered to bet any actively managed fund that an index fund would outperform the managed fund over a 10-year period. He proposed the bet in one of his shareholder newsletters. Only one fund manager took him up on the bet. That was Ted Seides, former co-manager of Protege Partners. The bet pitted low cost S&P 500 index funds against a group of Protege's handpicked hedge funds.

The 10-year bet does not expire until December 31st but Seides has conceded. The group of Protege funds averaged 2.2% a year since 2008 and the S&P funds averaged 7%. A $1 million investment in the hedge funds would have earned $220,000 while the same investment in the S&P earned $854,000. The money will be donated to Girls Inc of Omaha, Nebraska. Berkshire Hathaway shares are up 93% over the same period.

News broke late in the afternoon that President Trump was planning on making it easier for US gun manufacturers to sell guns overseas. The president is going to shift oversight of international non-military firearm sales from the security-focused State Department to the trade-focused Commerce Department. This could be a windfall for US gun manufacturers. Since other countries can sell into the US, we should be able to sell to other countries. This is another example of how the president is trying to reduce trade restrictions and benefit US companies.

After the close, FedEx (FDX) shares fell sharply after profits declined 17% because of a June cyberattack on its TNT Express business in Europe. This caused significant delays in shipping and shutdown TNT for a prolonged period. FDX said that "most" of TNT operations are up and running but profits, revenue and package volumes are still down from prior levels.

FDX reported earnings of $2.19, down from $2.65 in the year ago quarter. Adjusted earnings were $2.51 and that was a major miss of estimates at $3.17. Revenue rose 4% to $15.3 billion and also missed estimates for $15.37 billion. They guided for the full year to earnings of $12.00-$12.80 and down from the prior forecast for $13.20-$14.00. Shares fell about $4 in afterhours after an initial $9 drop.

Adobe Systems (ADBE) reported earnings of $1.10, which beat estimates for $1.00. Revenue of $1.84 billion rose 26% and beat estimates for $1.81 billion. They guided for the current quarter for revenue of $1.95 billion and earnings of $1.15. Analysts were expecting $1.95 billion and $1.10 for earnings. Shares fell $5 on the in line revenue guidance.

Bed, Bath and Beyond (BBBY) reported earnings of 67 cents that missed estimates for 93 cents. This was also lower than the $1.11 in the year ago quarter. Revenue of $2.9 billion missed estimates for $3.0 billion. They said the earnings were impacted by an 8 cent restructuring charge, 2 cents due to Harvey and 1 cent due to an accounting change. Shares fell sharply to to $21.50 after closing at $27.02 but recovered to end the session at $24.

Hurricane Maria is going to blow right over Puerto Rico but then turn north and miss much of the Bahamas and Florida. Based on current estimates it could make landfall in North Carolina or anywhere north of there. Hurricane Jose is still loitering off the East Coast and the closer Maria gets the more the two storms will interact. Jose could push Maria onto land, or farther out to sea, or they could combine for an even bigger mess in the NJ/NY area. The yellow X in the bottom graphic is the remnants of tropical storm Lee, which has broken apart.

On this date in 1985, an 8.1 magnitude earthquake hit Mexico and more than 10,000 people were killed. In memory of that earthquake, many building managers held earthquake drills on Tuesday morning. On Tuesday afternoon a 7.1 magnitude earthquake hit just outside Mexico City. The amount of damage is still unknown but I am sure residents were glad they participated in the drill this morning.


The biotech sector declined -1% to close at a two week low. There was no specific reason other than there were strong gains since late August and traders decided to take profits. The decline in biotech stocks weighed on the Russell 2000 and the Nasdaq. The chart suggests the decline may not be over.

The biotechs were more than likely a drag on the S&P as well and the index gained less than 3 points. Healthcare stocks were also a drag. This was a new high and it was another close over 2,500. Both of those items are bullish.

Typically, the market posts gains on the Tuesday before a Fed announcement so today qualified but the gains were minimal. This suggests traders are more than a little concerned about the outcome.

The biggest decliner on the Dow was UnitedHealth (UNH) on worries the Obamacare repeal might actually happen this time. Lawmakers have come up with what they believe is a better plan and they might actually get it passed. The healthcare stocks were hammered with CNC -5%, AET -3%, MOH -6%, CI -2%, ANTM -2% and UNH -2%. One of the features of the replacement bill is the halt to government subsidies to these healthcare companies.

UNH removed 24 points from the Dow and the financial stocks, energy and telecom added significantly more points. If the Dow can keep the rotation going with new leaders every day, we could see some higher highs.

The next target is 22,500 and round number resistance.

The Nasdaq Composite only gained 6 points and closed right on resistance at 6,460. The index is poised to breakout with any further gains. The big cap tech stocks contributed to the gains but they were still mixed. If you look at the stocks in the winners/sinners list below, there are a lot of biotech/medical stocks in the loser column.

The Nasdaq has been moving very slow since that big short squeeze the prior Monday and it is about time for a large directional move. Let's hope that direction is positive.

The Russell 2000 was the weakest of the broad market indexes because of biotechs. Despite that drag, the Russell managed to post only a fractional loss thanks to the positive input from the financial sector. If the Russell can eventually more to a new high over 1,450 this market could catch fire.

Traders are walking on eggshells and are barely trading. Volume was only 5.8 billion shares and the A/D was almost dead even. I do not know what they expect to happen post Fed and I am in the same boat. I see no reason to put new money at risk until after we see what happens on Wednesday.

There is always another day to trade if you have money in your account.

Enter passively, exit aggressively!

Jim Brown

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New Option Plays

Uncertainty Pause

by Jim Brown

Click here to email Jim Brown

Editors Note:

Market direction is a coin toss after the FOMC announcement. The lackluster markets so far this week coupled with the low volume and flat advance/decline line, suggests traders are unsure about post Fed direction. We should never put new money to work when market direction is a coin toss.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

Minor Yardage

by Jim Brown

Click here to email Jim Brown

Editors Note:

The S&P added less than 3 points but it was still a new high and over 2,500. The prior resistance at 2,500 is losing its grip on the S&P thanks to continued gains in the Dow. As the Dow adds 40-60 points a day, the S&P is trailing along with 2-3 points a day. The Nasdaq Composite gained 7 points to close exactly on resistance at 6,460. There are definitely some sellers at these levels but the buyers are moving the ball one running play at a time.

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

MNK - Mallinckrodt
The Long put position was entered at the open.

BBY - Best Buy
The Long call position was stopped at $55.85.

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

A - Agilent Technologies - Company Profile


The company said the FDA had approved their PD-L1 IHC 28-8 PharmDX cancer diagnostic test for additional typed of cancers. Shares rose only slightly but it was a new closing high.

Original Trade Description: September 12th.

Agilent Technologies, Inc. provides application focused solutions to the life sciences, diagnostics, and applied chemical markets worldwide. Its Life Sciences and Applied Markets segment offers liquid chromatography systems and components; liquid chromatography mass spectrometry systems; gas chromatography systems and components; gas chromatography mass spectrometry systems; inductively coupled plasma mass spectrometry instruments; atomic absorption instruments; microwave plasma-atomic emission spectrometry instruments; inductively coupled plasma optical emission spectrometry instruments; laboratory software and informatics systems; laboratory automation and robotic systems; dissolution testing; vacuum pumps; and measurement technologies. The company's Diagnostics and Genomics segment provides reagents, instruments, software, and consumables; arrays for DNA mutation detection, genotyping, gene copy number determination, identification of gene rearrangements, DNA methylation profiling, and gene expression profiling, as well as sequencing target enrichment services; and equipment focused on production of synthesized oligonucleotides for use as active pharmaceutical ingredients. Its Agilent CrossLab segment offers GC and LC columns, sample preparation products, custom chemistries, and various laboratory instrument supplies; and startup, operational, training, and compliance support, as well as asset management and consultation services. The company markets and sells its products through direct sales, electronic commerce, resellers, manufacturers' representatives, and distributors. It has a collaboration agreement with University of Leuven to focus on detecting genetic abnormalities in cell-free DNA and embryo biopsies. Company description from FinViz.com.

Agilent reported earnings of 59 cents that rose 20.4% and beat estimates for 52 cents. Revenue of $1.11 billion rose 6.7% and beat estimates for $1.08 billion. They ended the quarter with $2.56 billion in cash and $1.8 billion in debt. Free cash flow was $228 million. They guided for revenues of $1.15-$1.17 billion for Q3 and earnings of 60-62 cents. Analysts were expecting $1.14 billion and 59 cents. The company raised guidance for the full year from $4.36-$4.38 billion to $4.435-$4.455 billion. Earnings guidance is now $2.29-$2.31, up from $2.15-$2.21. Analysts were expecting $2.22 and $4.39 billion.

Earnings expected on Nov 14th.

Shares spiked on the earnings and have been moving steadily higher. On Monday they gained $1 and closed at a new high. This stock may not be as "exciting" as Alibaba or Amazon but the options are cheap and they rarely decline.

Position 9/13/17:

Long Nov $67.50 call @ $1.70, see portfolio graphic for stop loss.

ALB - Albermarle - Company Profile


No specific news but shares exploded higher for another $3.63 gain.

These gains are getting ridiculous and I am sure glad I did not close this position on the initial breakout.

Original Trade Description: Aug 21st.

Albemarle Corporation develops, manufactures, and markets engineered specialty chemicals worldwide. The company offers lithium compounds, including lithium carbonate, lithium hydroxide, lithium chloride, and lithium specialties and reagents for applications in lithium batteries, high performance greases, thermoplastic elastomers for car tires, rubber soles and plastic bottles, catalysts for chemical reactions, organic synthesis processes, life science, pharmaceutical, and other markets; cesium products for the chemical and pharmaceutical industries; and zirconium, barium, and titanium products for pyrotechnical applications. It also manufactures cesium products for the chemical and pharmaceutical industries; and zirconium, barium, and titanium products for various pyrotechnical applications, including airbag igniters; and performance catalyst solutions, such as polymer catalysts, curatives, organometallics, and electronic materials for polyolefin polymers, packaging, non-packaging, films, injection molding, alpha-olefins, electronic materials, solar cells, polyurethanes, epoxies, and other engineered resins markets. In addition, the company offers bromine and bromine-based solutions for fire safety, chemical synthesis, mercury control, water purification, beef and poultry processing, and various other industrial applications, as well as for the oil and gas well drilling, and completion fluids applications. Further, Albemarle Corporation provides clean fuels technologies, which is primarily composed of hydroprocessing catalysts; and heavy oil upgrading, which is primarily composed of fluidized catalytic cracking catalysts and additives for application in the refining industry. It serves petroleum refining, consumer electronics, energy storage, construction, automotive, lubricants, pharmaceuticals, crop protection, food safety, and custom chemistry services markets. Company description from FinViz.com.

With production of electric cars exploding with more than 1 million expected to be manufactured in 2018, the demand for Lithium-ion (Li-ion) rechargeable batteries is also exploding. When Tesla's Gigafactory reaches full production in 2020 of 35 gigawatt-hours, that will be more battery capacity than the entire world produced in 2014. Tesla has blamed the battery shortage for misses in auto production and they are already planning on building a second Gigafactory. The demand for lithium is suddenly huge and Albemarle is already responsible for 35% of global production.

They reported Q2 earnings of $1.13, up 22%, that beat estimates for $1.11. However, revenue of $737.3 million missed estimates for $740.6 million. They guided for full year earnings of $4.20-$4.40, a 21% rise and revenue of $2.90-$3.05 billion. The revenue miss was due to a divestiture of a specialty chemicals business and currency exchange issues. They repurchased $250 million in stock in the first 6-months of 2017 and paid dividends of $69.8 million.

Next earnings Nov 6th.

Shares declined after the revenue miss but rebounded exactly from long-term uptrend support.

Update 9/18/17: Shares exploded higher by nearly $4 after the company said it had developed a new technology to produce lithium in Chile without requiring additional brine pumping. They are planning to boost production by 80,000 metric tons a year on a sustainable basis. Their lithium business rose 36% in Q2 and they are targeting 50% market share of the industry.

Position 8/22:

Long Oct $120 call @ $1.75, see portfolio graphic for stop loss.

BBY - Best Buy - Company Profile


The company held its first analyst meeting in five years and the results were a disaster. The guidance for 2021 was in line with estimates and earnings were roughly expected to rise 9% per year. The light to in line guidance caused a 8% drop in the stock. We were stopped out with only a minor gain.

Original Trade Description: Sept 2nd.

Best Buy Co., Inc. operates as a retailer of technology products, services, and solutions in the United States, Canada, and Mexico. The company operates through two reportable segments, Domestic and International. Its stores provide consumer electronics, such as home theater, home automation, digital imaging, health and fitness, and portable audio products; computing and mobile phones, including computing and peripherals, networking, tablets, smart watches, and e-readers, as well as mobile phones comprising related mobile network carrier commissions; and entertainment products, such as gaming hardware and software, movie, music, technology toy, and other software products. The company's stores also offer appliances, which include refrigeration and laundry appliances, dishwashers, ovens, coffee makers, blenders, etc.; and other products comprising snacks, beverages, and other sundry items. In addition, it provides services, such as consultation, design, delivery, installation, set-up, protection plan, repair, technical support, and educational services. The company offers its products through stores and Websites under the Best Buy, bestbuy.com, Best Buy Mobile, Best Buy Direct, Best Buy Express, Geek Squad, Magnolia Home Theater, Pacific Kitchen and Home, bestbuy.com.ca, and bestbuy.com.mx brand names, as well as through call centers. It has approximately 1,200 large-format and 400 small-format stores. Company description from FinViz.com.

On August 29th, Best Buy reported earnings of 69 cents that beat estimates for 63 cents. Revenue of $8.9 billion also beat estimates for $8.7 billion. Same store sales rose 5.4%. They raised full year guidance for revenue to rise 4% compared to prior guidance for 2.5%. Operating income is expected to rise 4.0-9.0% compared to prior guidance of 3.5-8.5%. Shares were crushed for a $9 loss on the news.

There was no specific reason except that Best Buy had been doing so well and the stock was trading at a record high. Analysts came out after the crash saying the selloff was overdone because the Apple product announcement in mid September would create additional store traffic the rest of the year and likely boost earnings.

Sometimes events cause unexpected reactions. Given their earnings beat, strong comps and raised guidance, I think we should buy the dip. Support has appeared at $54 and the next move should be positive as saner investors realize this is a bargain.

Earnings Nov 24th.

Position 9/5/17:

Closed 9/19: Long Dec $57.50 call @ $2.59, exit $2.96, +.37 gain.

CAT - Caterpillar - Company Profile


No specific news. Shares continued to post gains thanks to a positive Dow.

Original Trade Description: Aug 29th.

Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives for heavy and general construction, rental, quarry, aggregate, mining, waste, material handling, oil and gas, power generation, marine, rail, and industrial markets. Its Construction Industries segment offers backhoe, compact, track-type, small and medium wheel, knuckleboom, and skid steer loaders; small and medium track-type, and site prep tractors; mini, wheel, forestry, small, medium, and large track excavators; and motorgraders, pipelayers, telehandlers, cold planers, asphalt pavers, compactors, road reclaimers, and wheel and track skidders and feller bunchers. The company's Resource Industries segment provides electric rope and hydraulic shovel, landfill and soil compactor, dragline, large wheel loader, machinery component, track and rotary drill, electronics and control system, work tool, hard rock vehicle and continuous mining system, scoop and hauler, wheel tractor scraper, large track-type tractor, and wheel dozer products; longwall, highwall, and continuous miners; and mining, off-highway, and articulated trucks. Its Energy & Transportation segment offers reciprocating engine powered generator set and engine, integrated system, turbine, centrifugal gas compressor, diesel-electric locomotive and component, and other rail-related products and services. The company's Financial Products segment offers finance for Caterpillar equipment, machinery, and engines, as well as dealers; property, casualty, life, accident, and health insurance; and insurance brokerage services, as well as purchases short-term trade receivables. Its All Other operating segments provides parts distribution and digital investments services. Company description from FinViz.com.

CAT has been alternately ignored or talked down for the last couple years but the shares keep rising. Part of the recent gains came from the guidance. The company has been bitten by the global slowdown in construction since the financial crisis. Then it was hit by the slowdown in the energy sector. Every expected rebound falied to appear and CAT continued to give cautious guidance. That changed over the last several months.

The global economy is rebounding. There are massive construction projects now underway in China and Asia. The Eurozone is also seeing a resurgence in consrtuction. Commodity metals are booming and mines are reopening shuttered capacity and opening new mines. Everything is suddenly positive for CAT.

In December they guided for full year 2017 revenues of $38 billion "as a reasonable midpoint expectation." Analyst estimates for earnings of $3.25 were "too optimistic" according to CAT.

In January they guided for $36-$39 billion in revenue and $2.90 in earnings.

In April they guided for $38-$41 billion in revenue and $3.75 in earnings.

In July they guided for $42-$44 billion in revenue and $5 in earnings.

In April they guided for revenue from construction at flat to 5%. In July they guided for 10% to 15% growth.

In April they guided for revenue from mining at 10% to 15%. In July they guided for 20% to 25% growth.

In April they guided for energy revenue at flat to 5%. In July they raised it to 5% to 10%.

After the devastation in Houston, there were new estimates from analysts today for 17% or higher revenue growth in construction equipment.

Shares spiked at the open to a new high before fading slightly with the market. I believe revenue estimates will continue to rise because they are running out of year and their conservative guidance will have to become more accurate.

Earnings October 24th.

CAT is reactive to Dow movement but shares have ignored the recent Dow weakness. Today's close at $116.01 is a record high.

Update 9/13/17: In Tuesday's investor day meeting the new CEO said they were targeting $55 billion in revenue in 2018 with margins of 14%-17% compared to 12% in 2017. That would take them back to 2014 levels before the bear market in commodity/energy began. That is 28% above 2017 levels. He was careful not to call it a target but said that level was achievable if the current rebound in mining, energy and construction continued.

Update 9/18/17: UBS upgraded CAT from neutral to buy and raised the price target from $116 to $140. The analyst said the growing cash position, rising earnings and revenue projections were all bullish. CAT is expected to produce $10 billion in free cash flow over the next two years and return most of that to investors. UBS said a survey of 50 mining companies found that 60% expected to hike new equipment budgets in 2018 and 50% expect to rebuild their entire fleet.

Position 8/30/17:

Long Nov $120 call @ $2.75, see portfolio graphic for stop loss.

DVMT - Dell Technologies - Company Profile


No specific news. Shares consolidating ahead of the Toshiba vote on Wednesday.

Original Trade Description: Sept 13th.

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. Company description from FinViz.com.

Dell suffered from years of banner growth that set it up for years of disappointments when that growth slowed. Dell created a new market niche when it started in 1984 and but by the early 2000s there were dozens of copycat clones. The PC revolution had stalled by 2010 as tablets and smartphones stole market share. Michael Dell organized a buyout and took the company private. They eventually acquired EMC in August 2016 and by doing so returned to the public market as Dell Technologies. Shares closed at a new high on Wednesday.

In its first year as a new public company they paid down $9.5 billion in debt and completed three major divestitures. They created a $35 billion revenue channel and added 10,000 business customers for the year.

They recently signed a long term deal in partnership with GE that is one of the largest non-governmental contracts in Dell or EMC history. Under the agreement Dell becomes the sole source IT infrastructure supplier to GE. The Dell Technologies family of businesses includes Dell, Dell EMC, Pivotal, RSA, SecureWorks, Virtustream and VMware. It stands as a $74 billion market leader with the industry's most expansive portfolio from the edge to the data center to the cloud.

The Dell PowerEdge server is now the largest selling X86 server in the world and Dell is also number one in global workstation shipments and global monitor shipments.

For Q2, they reported adjusted earnings of $1.88 and revenue of $19.3 billion, up 48% from Q2-2016 and +8.3% from Q1-2017.

Expected earnings December 7th.

Shares rallied after earnings and then plateaued at $75 for over a week. They began moving up again this week to close at a new high. With business booming and Q3 normally a strong quarter, they could continue to move higher.

Position 9/14/17:

Long Dec $80 call @ $2.40, see portfolio graphic for stop loss.

SWK - Stanley Black & Decker - Company Profile


No specific news. Shares closed at another new high.

Original Trade Description: Sept 16th.

Stanley Black & Decker, Inc. provides tools and storage, commercial electronic security, and engineered fastening systems worldwide. Its Tools & Storage segment provides corded and cordless electric power tools and equipment, including drills, wrenches and drivers, grinders, saws, routers, and sanders; pneumatic tools and fasteners, such as nail guns, nails, staples, and anchors; lawn and garden products comprising trimmers, mowers, edgers, and related accessories; home products, such as vacuums, paint tools, and cleaning appliances; power tool accessories that include drill and router bits, abrasives, and saw blades; measuring, leveling, and layout tools; planes, hammers, demolition tools, knives, saws, chisels, and industrial and automotive tools; and storage products, such as tool boxes, sawhorses, medical cabinets, and engineered storage products. The company's Security segment offers alarm monitoring, video surveillance, fire alarm monitoring, systems integration, and system maintenance services; markets asset tracking, infant protection, pediatric protection, patient protection, wander management, fall management, and emergency call products; sells automatic doors, commercial hardware, locking mechanisms, electronic keyless entry systems, keying systems, and tubular and mortise door locksets. Its Industrial segment sells fastening products and systems comprising stud welding systems, blind rivets and tools, blind inserts and tools, drawn arc weld studs, plastic and mechanical fasteners, self-piercing riveting systems, nut running systems, micro fasteners, high-strength structural fasteners, and hydraulic tools and accessories; sells and rents custom pipe handling, joint welding, and coating equipment; and provides pipeline inspection services. Company description from FinViz.com.

With two disasters already and three more hurricanes heading for U.S. shores, there is going to be a significant jump in the number of tools sold over the next quarter. Investors have already lifted SWK to a new high but shares are holding right at the breakout level. The three new hurricanes are likely to give it that additional lift and produce a breakout.

For Q2, the company reported earnings of $2.01 that beat estimates for $1.96. Revenue of $3.229 billion also beat estimates for $3.17 billion. For the full year they guided to earnings of $7.18-$7.38, up from prior guidance of $7.08-$7.28. This is before the hurricane demand so guidance should rise again with the next earnings. Organic revenue is expected to rise 10% to 13% for 2017.

Earnings Oct 26th.

I considered buying the short-term October $150 call for $1.95 with shares at $148. There are five weeks before expiration but without a strong rally, the premium could deflate quickly since it expires before earnings. I elected to go with the next available strike in January at $155. That is farther out of the money than I usually go but we will have an earnings premium in the option when we exit before earnings. That will keep premiums from deflating.

Position 9/18/17:

Long Jan $155 call @ $3.20, see portfolio graphic for stop loss.

TER - Teradyne - Company Profile


No specific news. Minor gain but back over $36.

Original Trade Description: Aug 30th.

Teradyne is a leading supplier of automation equipment for test and industrial applications. Teradyne Automatic Test Equipment (ATE) is used to test semiconductors, wireless products, data storage and complex electronic systems which serve consumer, communications, industrial and government customers. Our Industrial Automation products include collaborative robots used by global manufacturing and light industrial customers to improve quality and increase manufacturing efficiency. In 2016, Teradyne had revenue of $1.75 billion and currently employs approximately 4,400 people worldwide. Company description from Teradyne.

For Q2 they reported earnings of 90 cents compared to estimates for 86 cents. Revenue of $696.9 million beat estimates for $684.2 million. They raised revenue guidance to $455-$485 million and analysts were expecting $445 million.

In just the last 30 days analyst estimates for Q3 have risen from 38 cents to 43 cents. Full year estimates have risen from $1.88 t $1.97 per share. Zacks rates the Electronics Testing Equipment sector as #6 out of 250 industry sectors. Every new electronic device manufactured needs a new set of testing equipment.

Earnings October 26th.

Shares have been stuck under resistance at $35 for six weeks and broke out today. Analysts believe they will continue higher and make new highs. The $36 level is the next resistance.

Position 8/31/17:

Long Oct $37 call @ .90, see portfolio graphic for stop loss.

VAR - Varian Medical Systems - Company Profile


No specific news. Shares fell back to initial support thanks to weakness in the biotech sector.

Original Trade Description: Aug 2nd.

Varian Medical Systems, Inc. designs, manufactures, sells, and services medical devices and software products for treating cancer and other medical conditions worldwide. It operates through two segments, Oncology Systems and Imaging Components. The Oncology Systems segment provides hardware and software products for treating cancer with radiotherapy, fixed field intensity-modulated radiation therapy, image-guided radiation therapy, volumetric modulated arc therapy, stereotactic radiosurgery, stereotactic body radiotherapy, and brachytherapy. Its products include linear accelerators, brachytherapy afterloaders, treatment simulation, verification equipment, and accessories; and information management, treatment planning, image processing, clinical knowledge exchange, patient care management, decision-making support, and practice management software. This segment serves university research and community hospitals, private and governmental institutions, healthcare agencies, physicians' offices, oncology practices, radiotherapy centers, and cancer care clinics. The Imaging Components segment offers X-ray imaging components for use in radiographic or fluoroscopic imaging, mammography, special procedures, computed tomography, computer aided diagnostics, and industrial applications. It also provides Linatron X-ray accelerators, imaging processing software, and image detection products for security and inspection purposes. This segment serves original equipment manufacturers, independent service companies, and end-users. In addition, the company offers products and systems for delivering proton therapy; and develops technologies in the areas of digital X-ray imaging, volumetric and functional imaging, and improved X-ray sources. Company description from FinViz.com.

Expected earnings October 25th.

On July 26th, Varian reported earnings of $1.04 that beat estimates for 95 cents. Revenue of $662.4 million just barely missed estimates for $663.2 million due in part to currency translation issues. They sell their high dollar imaging systems all over the world.

The guided for the current quarter for earnings of $1.15-$1.23 and analysts were expecting $1.18. This should have been positive but the stock fell $6 because of the minor revenue miss.

If the market is going to be historically weak in August, shares that have already been beaten up will fare better than the rest of the market. I am choosing the $105 strike instead of the $100 strike for reduced cost/risk going into August.

Position 8/3/17:

Long Nov $105 call @ $1.75, see portfolio graphic for stop loss.

VIX - Volatility Index - Index Profile


The VIX gained slightly despite the new highs on the indexes.

We still have plenty of time. North Korea is still a factor and could erupt at any time.

This is the fourth longest period in history of the markets without a 5% decline. While it does not look likely today, it could happen at any time.

Original Trade Description: July 12th.

The CBOE Volatility Index (VIX Index) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. Since its introduction in 1993, the VIX Index has been considered by many to be the world's premier barometer of investor sentiment and market volatility. Several investors expressed interest in trading instruments related to the market's expectation of future volatility, and so VX futures were introduced in 2004, and VIX options were introduced in 2006.

The VIX closed at a 24-year low on July 14th at 9.51. The index has been spending a lot of time under 10 over the last three months and this is highly abnormal. The VIX typically trades up to 20 or more three times a year or more. That has not happen since the days before the election. This period of abnormal volatility WILL eventually end.

With the Trump administration getting more desperate to achieve some legislative goals there is always the risk they will go to extremes to get them accomplished. Add in the unknown but rapidly expanding Russian probes and anything is possible. We saw the Dow fall triple digits intraday on just the release of 5 emails from Trump Jr. If the probe actually uncovered something material, it could cause a major market meltdown.

The debt ceiling and the budget expire on Sept 31st. If Congress cannot get a budget passed and raise the debt ceiling, the government would shut down on October 1st. We have seen this before. The last time it happened the U.S. lost its AAA credit rating and the market declined sharply for more than a week.

What about North Korea? Military force could be used at any time but North Korea seems dead set on testing another nuke and expanding its ICBM tests. If fighting breaks out between the U.S. and North Korea it would cause a significant market decline because of the geopolitical concerns and the potential loss of life in Seoul, South Korea.

Even if none of those events occurred, there is always the risk of a 10% market decline just because we have not had one in a very long time. With August and September the worst months of the year for the market, the potential for a correction this year could be higher than normal. The Nasdaq is already up 18% and the Dow 9% for the year. The FAANG stocks are at record highs, which many say are unsupported by fundamentals.

There are so many potential opportunities for a market disaster. It only makes sense to take out some protection while the volatility is at record lows. I am recommending a November call to get us past the Aug/Sep period and the potential for a debt ceiling event in early October.

Position 7/20/17:

Long Nov $15 call @ $1.85, no stop loss, see portfolio graphic for stop loss.

XRAY - Dentsply Sirona Inc - Company Profile


No specific news. The decline accelerated as shares move closer to support at $57.50. if that support level breaks we will be out with a stop loss at $57.25.

Original Trade Description: Sept 9th.

DENTSPLY SIRONA Inc. designs, develops, manufactures, and markets various dental and oral health products, and other consumable healthcare products primarily for the professional dental market worldwide. It operates through two segments, Dental and Healthcare Consumables; and Technologies. The company provides dental consumable products, including endodontic instruments and materials, dental anesthetics, prophylaxis pastes, dental sealants, impression materials, restorative materials, tooth whiteners, and topical fluoride products; and small equipment products comprising dental hand pieces, intraoral curing light systems, dental diagnostic systems, and ultrasonic scalers and polishers. It also offers dental laboratory products, such as dental prosthetics that include artificial teeth, precious metal dental alloys, dental ceramics, and crown and bridge materials. In addition, the company provides dental equipment, such as treatment centers, imaging equipment, and computer aided design and machining systems for dental practitioners and laboratories; and dental implants and related scanning equipment, treatment software, and orthodontic appliances for dental practitioners and specialists, and dental laboratories. Further, it offers healthcare consumable products, such as urology catheters, various surgical products, medical drills, and other non-medical products. DENTSPLY SIRONA Inc. markets and sells its dental products through distributors, dealers, and importers to dentists, dental hygienists, dental assistants, dental laboratories, and dental schools; and urology products directly to patients, as well as through distributors to urologists, urology nurses, and general practitioners. Company description from FinViz.com.

Dentsply reported Q2 earnings of 65 cents that missed estimates by a penny. Revenue of $992.7 million missed the estimate for 1,004 million. Sales in the U.S. fell 9.7% but sales in Europe rose 2.5%. They guided for the full year for earnings of $2.65-$2.75.

The stock was crushed on the miss with a $9 drop over the following week.

However, there was a reason for the miss. Effective September 1st, they moved from a single distributor to multiple distributors. The existing distributor slowed purchases in the quarter in order to reduce inventory before the change in the distribution model.

The CEO said "In September, we should begin to benefit from the expanded distribution of our equipment in North America which should drive growth in the back half of this year and beyond. As we work through the distribution transition and integration initiatives, we are strengthening our foundation for the future. We believe that this should translate into more consistent growth and strong double digit earnings growth in the back half of the year creating momentum exiting the year going into 2018."

Shares have begun to rebound and should return to their highs on the "double digit earnings growth" guidance.

Earnings Nov 8th.

There are no Nov/Dec options. I am using the January but just because we buy time does not mean we have to use it.

Position 9/11/17:

Long Jan $60 call @ $2.70, see portfolio graphic for stop loss.

BEARISH Play Updates (Alpha by Symbol)

MNK - Mallinckrodt - Company Profile


No specific news. Shares rebounded slightly fro Monday's historic low close.

Original Trade Description: August 19th.

Mallinckrodt public limited company develops, manufactures, markets, and distributes branded and generic specialty pharmaceutical products and therapies in the United States, Europe, the Middle East, Africa, and internationally. The company's Specialty Brands segment markets branded pharmaceutical products for autoimmune and rare diseases, including the specialty areas of neurology, rheumatology, nephrology, ophthalmology, and pulmonology; and immunotherapy and neonatal respiratory critical care therapies, as well as analgesics and hemostasis products, and central nervous system drugs. This segment offers Acthar, an injectable drug for various indications, such as neurology, rheumatology, nephrology, and pulmonology; Ofirmev, an intravenous formulation of acetaminophen for pain management; Inomax for inhalation; Therakos, an immunotherapy treatment platform; and Exalgo, a form of hydromorphone. It is also developing StrataGraft, a full-thickness product for severe burns and other complex skin defects. Its Specialty Generics segment provides specialty generic pharmaceuticals and active pharmaceutical ingredients (APIs) consisting of hydrocodone and hydrocodone-containing tablets; oxycodone and oxycodone-containing tablets; methylphenidate HCl extended-release tablets; and other controlled substances, including acetaminophen products. The company markets its branded products to physicians, pharmacists, pharmacy buyers, hospital procurement departments, ambulatory surgical centers, and specialty pharmacies. It distributes its branded and generic products through independent channels, including wholesale drug distributors, specialty pharmaceutical distributors, retail pharmacy chains, hospital networks, ambulatory surgical centers, and governmental agencies; and APIs directly or through distributors to other pharmaceutical companies. Company description from FinViz.com.

MNK is in trouble from multiple angles. Early this month a District Court invalidated 11 patents for the drug Inomax as competing companies prepare to launch generic copies. MNK said they planned to appeal but the patents expire anyway next October so it is only about 12 months before the onslaught of generic copies. Inomax represents 15% of revenue for MNK. The next generic challenge for MNK is the drug Acthar, which accounts for more than 50% of their revenue.

MNK is also under investigation on its marketing of opioid medications. States are becoming stricter about how companies sell these drugs off label. For instance, if a drug is approved for post surgical pain and the company also markets it for back pain or arthritis that is called off label. It is an effort to convert an entirely new class of patients into addicts.

Nobody knows if MNK is guilty of anything but the Missouri Atty General is expanding their probe.

Earnings Nov 7th.

Shares have been declining for months but they accelerated after the court ruling on Sept 1st. They closed at a historic low on Monday.

The November options just appeared today and the premiums are high and wide. I am going to reach out to the January puts. Just because we are buying time does not mean we have to use it.

Position 9/19/17:

Long Jan $30 put @ $2.30, see portfolio graphic for stop loss.

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