The S&P gapped lower at the open and never retested the strong resistance at 2,100. It was no surprise the markets sank on Tuesday. The major supporters of the four-day rally last week were calendar events that caused funds to buy equities before the end of the quarter. Now that we are back into a "normal" market there is no reason for funds to buy stocks. There are numerous headlines ahead that could be negative so the best course of action for the funds is to wait patiently.
The S&P fell sharply at the open to 2,080 and held there for most of the day before rising slightly at the close. This was just enough selling to call it normal profit taking and not read too much into the market action.
All but two stocks in the portfolio posted losses. That is what happens in the first day of a weak market. The cautious traders rush to take profits. In the days ahead we could see some bargain hunting.
Current Position Changes
IWM - Russell 2000 ETF
The long put position was opened at 9:56 at $113.95.
HSY - Hershey Company
The long put position was opened at $110.00 at the open.
Check the graphic above for any profit stops in green.
We need to always be prepared for a profit exit at resistance.
Stop Loss Updates
Check the graphic above for any new stop losses in bright yellow.
We need to always be prepared for an unexpected decline.
BULLISH Play Updates
CNC - Centene Corp - Company Description
No specific news. Investors took profits in a weak market. Shares did finish well off the lows.
Original Trade Description: June 21st.
Centene Corporation operates as a diversified and multi-national healthcare enterprise that provides programs and services to under-insured and uninsured individuals in the United States. It operates through two segments, Managed Care and Specialty Services. The Managed Care segment offers Medicaid and Medicaid-related health plan coverage to individuals through government subsidized programs, including Medicaid, the State childrens health insurance program, long-term care, foster care, and dual-eligible individual, as well as aged, blind, or disabled programs. Its health plans include primary and specialty physician care, inpatient and outpatient hospital care, emergency and urgent care, prenatal care, laboratory and x-ray services, home health and durable medical equipment, behavioral health and substance abuse, 24-hour nurse advice line, transportation assistance, vision care, dental care, immunizations, prescriptions and limited over-the-counter drugs, specialty pharmacy, therapies, social work services, and care coordination. The Specialty Services segment provides pharmacy benefits management services; health, triage, wellness, and disease management services; vision services; dental services; correctional healthcare services; in-home health services; and integrated long-term care services, as well as care management software that automate the clinical, administrative, and technical components of care management programs.
On Monday Centene was upgraded by Barclays to overweight (buy) with an $82 price target. They based the upgrade on the growth and valuation potential after the completion of the $6.8 billion Health Net (HNT) merger at the end of March. Health Net had 5.9 million individuals in plans in all 50 states. They also offered employee assistance plans to approximately 7.3 million individuals. The combined companies now insure more than 10 million individuals. Barclays said the combined management team had improved with the merger.
Barclays said, "we believe shares of CNC have simply corrected too far and too long, and now represent a very attractive investment."
Earnings are July 26th.
Shares spiked $2 on the upgrade and failed to pull back on Tuesday. That spike pushed CNC over resistance and any further move higher would be a breakout.
Long August $72.50 call @ $1.97, see portfolio graphic for stop loss.
COST - Costco - Company Description
No specific news. Minor profit taking in a weak market.
Original Trade Description: June 11th.
Costco Wholesale Corporation, together with its subsidiaries, operates membership warehouses. The company offers branded and private-label products in a range of merchandise categories. It provides dry and institutionally packaged foods; snack foods, candy, tobacco, alcoholic and nonalcoholic beverages, and cleaning and institutional supplies; appliances, electronics, health and beauty aids, hardware, and garden and patio; meat, bakery, deli, and produce; and apparel and small appliances. The company also operates gas stations, pharmacies, food courts, optical dispensing centers, photo-processing centers, and hearing-aid centers; and engages in the travel business. They operate 690 warehouse stores plus online shopping.
A Costco membership costs $55. It is almost worth the cost if all you bought was gasoline. The store charges 7-15 cents less than the prevailing rates at other local stations. There are normally lines at the Costco pumps because it is a bargain. If you purchased 15 gallons of gas per week and saved an average of 10 cents you would save $78 a year and more than enough to cover the cost of the membership. Multicar families would save even more.
However, Costco to many people means bulk purchases of items too big to store in your normal pantry. The mental image of Costco is someone pushing a cart with cases of toilet paper, paper towels, laundry soap and canned goods. While that may be true for a lot of shoppers there are still bargains on everything else. My son stopped there on Saturday to buy 15 gallons of ice cream, 10 watermelons, scores of picnic plates and plastic utensils for a party he was throwing. I know people who only shop at Costco and do not go to stores like Safeway, Kroger, etc. Once you get the Costco shopping virus it is hard to not go there. You can even by caskets at Costco. Members bought 465,000 cars through Costco in 2015. The warehouse chain is the number 1 seller of organic food at $4 billion in 2015 compared to Whole Foods at $3.6 billion. Costco has 84 million paying members and you can cancel at any time and get a full refund.
This has helped Costco maintain an average annual growth rate of 13% while other stores are lucky to manage 2-4% a year. Walmart only grew at 0.44% last year and Target 5.4%. In the latest quarter adjusted for fuel and currency fluctuations Costco managed only 3% same store sales growth compared to estimates for 4.6%. They blamed the colder than normal April weather and the weak retail consumer. We already know from other retailers that sales were down sharply all across the sector.
They reported adjusted earnings of $1.24 compared to estimates for $1.22. Revenue rose +2.6% to $26.77 billion and missed estimates for $27.07 billion for the reasons I stated above. Analysts expect earnings to grow 12% annually over the next two years.
Earnings are Sept 29th.
Shares spiked up to $154 after earnings on May 26th and then went sideways for a week while those gains were consolidated. Now they are trending higher again and even closed up on Friday in a weak market.
Long Oct $160 call @ $4.40, see portfolio graphic for stop loss.
GRUB - GrubHub - Company Description
No specific news. Minor profit taking in a weak market.
Original Trade Description: June 27th.
I recommended GRUB as a LEAP position in the LEAPS Newsletter on Sunday. With the minor drop back to support today I am recommending it here on a short term option.
GrubHub Inc., together with its subsidiaries, provides an online and mobile platform for restaurant pick-up and delivery orders in the United States. The company connects approximately 44,000 local restaurants with diners in approximately 1,000 cities. It operates GrubHub and Seamless Websites through grubhub.com and seamless.com. The company also offers GrubHub and Seamless mobile applications and mobile Websites for iPhone, iPad, Android, iWatch, and Apple TV devices; and Seamless Corporate program that helps businesses address inefficiencies in food ordering and associated billing. In addition, it provides Allmenus.com and MenuPages, which provide an aggregated database of approximately 380,000 menus from restaurants in 50 states.
GrubHub is a concept that is catching fire and the bigger they get the more restaurants want to sign on to the service. They now serve 44,000 restaurants. They do not markup prices. Whatever the restaurant charges is what you pay. Diners can customize any order to their own taste specifications and dietary needs.
Restaurants benefit because the service drives more orders. Many people cannot take 2 hours out of their day to go to the restaurant to eat. GrubHub brings the restaurant to them. Restaurants typically see about 30% more takeout orders during their first year when they sign up for the Grubhub service. Delivery fees range from free to $3.99.
GrubHub currently has more than 6.9 million diners. Ordering through the GrubHub online menu is 50% faster than ordering from the restaurant on the phone.
The company recently announced participation with national chain restaurants including Boston Market, Johnny Rocket's, California Pizza Kitchen, Veggie Grill, On the Border and Panda Express. This is a natural for fast food chains. They prepare the food fast and it gets to the diner fast.
An analyst at Moness Crespi Hardt just upgraded them to buy from neutral saying the fundamentals are rapidly improving with the addition of the chain restaurants. Secondly they completely overhauled their tech platform in 2015 and the benefits are rising quickly. They are also integrating POS features including Apple Pay. He also believes they are a potential acquisition target by companies like Amazon, Uber and Postmates. His biggest point is the addition of the chain restaurants. Adding companies with hundreds or even thousands of restaurants will catapult them to the next level.
Earnings August 2nd.
Shares have been rising and they closed at an 8-month high on Thursday. In Friday's market crash they gave back only 1.4%, which was nothing compared to the rest of the market. In Monday's market they dropped back to retest Friday's low but that support held. This is very good relative strength.
Long Aug $30.00 call @ $2.30, see portfolio graphic for stop loss.
JPM - JP Morgan - Company Description
No specific news. Major drop after European banks crashed. I removed the stop loss with the option at 30 cents.
Original Trade Description: May 11th.
JPMorgan Chase & Co. operates as a financial services company worldwide. It operates through Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking, and Asset Management segments. The Consumer & Community Banking segment offers deposit and investment products and services to consumers; lending, deposit, and cash management and payment solutions to small businesses; residential mortgages and home equity loans; and credit cards, payment services, payment processing services, auto loans and leases, and student loans. The Corporate & Investment Bank segment provides investment banking products and services, including advising on corporate strategy and structure, capital-raising in equity and debt markets, as well as loan origination and syndication; treasury services, such as cash management and liquidity solutions; and cash securities and derivative instruments, risk management solutions, prime brokerage, and research services. It also offers securities services, including custody, fund accounting and administration, and securities lending products for asset managers, insurance companies, and public and private investment funds.
JP Morgan has 15% revenue exposure to Brexit. That will be the major market mover the rest of the week. They are also expected to increase their capital return percentages for buybacks and dividends. Those will be announced next Wednesday.
I am playing the call side because the potential for a short squeeze on a remain vote or a major buy the dip program on an exit vote. The put options are more than double the call options so it appears everyone is expecting the worst. Shares have declined to the bottom of their uptrend channel.
I am using the August options to capture all the events over the next couple weeks. Earnings are July 14th and we will exit before earnings.
This is probably a 100% loser or a 200% gainer. There is no in between because of the binary nature of the event. We cannot use stop losses on this position because of the potential for opening gaps.
Long August $65 call @ $1.31, see portfolio graphic for stop loss.
NVDA - Nvidia - Company Description
No specific news. Nice rebound from the opening dip to gain 69 cents.
Original Trade Description: June 28th.
NVIDIA Corporation operates as a visual computing company worldwide. It operates in two segments, GPU and Tegra Processor. The GPU segment offers processors, which include GeForce for PC gaming; Quadro for design professionals working in computer-aided design, video editing, special effects, and other creative applications; Tesla for deep learning, accelerated computing, and general purpose computing; and GRID for cloud-based streaming on gaming devices. The Tegra Processor segment provides processors that integrate a computer onto a single chip under the Tegra brand name; DRIVE automotive computers, which offer supercomputing capabilities; and tablet and portable devices for mobile gaming under the SHIELD name. The companyÂ’s products are used in gaming, professional visualization, datacenter, and automotive markets. It sells its products primarily to original equipment manufacturers, original design manufacturers, system builders, motherboard manufacturers, add-in board manufacturers, and retailers/distributors.
Q1 earnings rose 46% to 33 cents and beat earnings by a penny. They hiked full year revenue guidance as well as the current quarter. Tor Q2 they raised the forecast to $1.35 billion that was above analyst estimates at $1.28 billion. Gaming revenue was up 17% to $687 million but all areas of effort saw significant gains. They recently released a new graphics card that is twice as fast and 40% cheaper than the card it is replacing.
Nvidia's Graphics Processing Units or GPUs have become more than just video chips. They have become supercomputing processors and can be packaged in large groups to parallel process monster datasets and computations that would have taken weeks with conventional chips. They are truly revolutionizing the processor industry.
The focus on Artificial Intelligence or AI, a lot of companies like Google and Amazon are turning to GPUs to handle the monster amounts of data they collect every day. Facebook already uses Nvidia M40 GPU accelerators to power its Big Sur machine learning computers. Those NVIDIA GPUs were specifically designes to train deep neural networks for enterprise data centers, and the company says they are 10-20 times faster than other network computers. Nvidia said their GPD powered machine learning computers can help train networks new things in just a few hours that would take days or weeks with less powerful systems.
The new P100 GPU is 12 times faster than the prior version and can provide more performance than "several hundred computer nodes" and up to eight P100s can be interconnected to provide previously unheard of computing power. The chips in the GPUs contain more than 15.3 billion transistors each and the largest chip ever built at 16 nanometer technology. That is twice as many as on Intel's biggest chips. The P100 delivers more than 10 teraflops of performance. One teraflop can process one trillion floating-point instructions per second and the P100 can do 10 teraflops or 10 trillion calculations per second.
The COSMOS weather forecasting application runs faster on the P100 than the 27 servers, running twin multicore processors each that were previously tasked with the project. Intel makes commodity processors for the millions of PCs and servers in the world. Nvidia is light years ahead of Intel in technology. Nvidia's data center revenue increased 63% in Q1.
More than 50 automakers are testing the new Drive PX chip for self-driving cars. The chip combines inputs from cameras, lasers, maps and sensors to allow cars to drive themselves and learn from each experience.
Earnings August 11th.
Shares closed at a new high at $48.50 on Thursday. On Friday they dropped to $45.30 to stop us out. That was a $3 drop. Today the stock rebounded off the opening low and only gave back 49 cents. I believe with any market that is not crashing Nvidia will be back at new highs very quickly.
Long August $47 call @ $2.55, see portfolio graphic for stop loss.
PVH - PVH Corp - Company Description
No specific news. Gave back two days of gains in a weak market.
Original Trade Description: June 27th.
PVH Corp. operates as an apparel company in the United States and internationally. The company operates through six segments: Calvin Klein North America, Calvin Klein International, Tommy Hilfiger North America, Tommy Hilfiger International, Heritage Brands Wholesale, and Heritage Brands Retail. It designs, markets, and retails mens and womens apparel and accessories, branded dress shirts, neckwear, sportswear, jeans wear, intimate apparel, swim products, handbags, footwear, golf apparel, fragrances, cosmetics, eyewear, hosiery, socks, jewelry, watches, outerwear, small leather goods, and home furnishings, as well as other related products. The company offers its products under its own brands, such as Calvin Klein, Tommy Hilfiger, Van Heusen, IZOD, ARROW, Warners, Olga, and Eagle; and licensed brands comprising Speedo, Geoffrey Beene, Kenneth Cole New York, Kenneth Cole Reaction, Sean John, MICHAEL Michael Kors, Michael Kors Collection, and Chaps, as well as various other licensed and private label brands.
PVH has been absolutely crushed in the sell off because they were thought to have as large presence in the UK. Shares closed at a new 9-month high of $102.70 on Thursday. Today they touched $84 intraday for a whopping $18 or roughly 18% decline in two days from a new high.
PVH thought it was important enough that they filed a disclosure with the SEC saying they only derived 3% of their revenues from the UK. Even with the massive drop in the pound the company did not think any UK weakness would be material to their results.
The company has been on a growth spurt by acquiring brands and doing license deals with other brands to improve the variety of its offerings. On June 15th the CEO spoke at a Piper Jaffray Consumer Conference and said business was improving in Q2. He said the problems with other retailers represented an opportunity for the Calvin Klein and Tommy Hilfiger brands. He said the Tommy Hilfiger women's business generates 30% of their revenue and was a growth opportunity since they recently added it to the line. They teamed up with super model Gigi Hadid to make the brand more relative to younger, fashion oriented women.
With their Q1 earnings they raised guidance from $6.30-$6.50 to $6.45-$6.55 a share for the full year. The CEO said the guidance was conservative because this "does not seem like the environment ro tray and be a hero."
Earnings August 24th.
Long August $90 call @ $4.23, see portfolio graphic for stop loss.
QRVO - Qorvo Inc - Company Description
Qorvo was crushed for a -$2.68 loss after Pacific Crest warned again on slowing iPhone sales and potentially disappointing sales of the iPhone 7 in September. The analyst cut Skyworks (SWKS) and Cirrus Logic (CRUS) and Apple suppliers in general. The drop stopped us out for a minor loss.
Original Trade Description: June 14th.
Qorvo, Inc. provides technologies and radio frequency (RF) solutions for mobile, infrastructure, and defense and aerospace applications worldwide. It operates through Mobile Products (MP) and Infrastructure and Defense Products (IDP) segments. The MP segment supplies its RF solutions into mobile devices, including smartphones, notebook computers, wearables, tablets, and cellular-based applications for the Internet of things. The IDP segment provides low noise amplifiers, switches, radio frequency filter solutions, CMOS system-on-a-chip solutions. This segment supplies its RF solutions to wireless network infrastructure, defense, and aerospace markets; and connectivity applications for commercial, consumer, industrial, and automotive markets.
Qorvo is a major supplier to Apple and other smartphone manufacturers. The slowdown in Apple iPhone sales hurt earnings last quarter but sales increases to Samsung and Chinese handset maker Huawei have helped to offset sluggish demand. The Samsung Galaxy S7 is selling very well and taking over the smartphone market. Strong base station demand rose +25% sequentially and a 9% increase in defense spending is helping offset the perceived slowdown in iPhones.
However, sales of the new iPhone 5E were only expected to be 10-15 million but sales have ramped up and are now expected to be in the 40-45 million range. Citigroup upgraded Qorvo and downgraded Slyworks saying the high performance Qorvo chips were much better than the Skyworks product and the company had a commanding lead in that segment. Qorvo is much better positioned for the carrier aggregation market and the low-band market fed by Skyworks was seeing a lot more competition.
Qorvo should benefit significantly from the ramp of 3G and 4G handsets into India and lower dollar emerging markets. The 5G specifications are starting to emerge and Qorvo is expected to be a leader in that transition, which will involve hundreds of millions of chips.
Earnings August 3rd.
Shares of QRVO gained 74 cents today in a very weak market. I have to stretch some on the strike because shares are just under $55 and that strike is too expensive. I am going out to $60 to get some premium relief.
Closed 7/5/16: Long Aug $60 call @ $2.10, exit $1.15, -.95 loss.
SWHC - Smith & Wesson - Company Description
Another new 3-month high. The FBI released the background check numbers for June. They processed 2,131,485 checks for a 39% increase in purchases over 2015. The 2015 number was a 10.5% increase over 2014. For the first six months of 2016 they have processed 13,829,491 background checks which is 60% of all 2015. Assuming nothing changes in the economy we are well on our way to a new record for the year.
Original Trade Description: June 25th.
Smith & Wesson was founded in 1852 and manufacturers firearms in the U.S. and internationally under many different brands but primarily Smith & Wesson.
Gun sales are booming again. With every terrorist attack or mass shooting more consumers rush out to buy guns for self defense. With the potential for additional attacks in the U.S. this trend is not going to slow. However, sales are cyclical. They surge after attacks like San Bernardino or Orlando or after speeches by politicians about gun control. President Obama has been the best gun salesman we have ever had. Every push by the administration to get more laws passed results in millions of new gun sales. The constant gun headlines over the last two weeks have lifted S&W to 3-month highs.
In their Q4 earnings where there was a surge in gun sales after San Bernardino. In their recent Q1 earnings there was no mention of the Orlando shootings because the shooting was only 4 days before their earnings. The Q1 results did not have any sales bump from that event.
In their Q1 report, they posted earnings of 63 cents compared to estimates for 54 cents. Revenue of $221 million also beat estimates for $214 million. They guided for the full year for revenue between $740-$760 million and analysts were expecting $723 million. They guided for full year earnings of $1.83-$1.93 and analysts were only expecting $1.66. Q1 sales rose +22% and the CEO said demand was strong. They forecast current quarter revenue at $190-$200 million and analysts were only expecting $162 million. That is a massive improvement.
Since the Orlando shooting there has been nonstop headlines about gun control. Gun stores are reporting four times the volume in traffic and many stores are having trouble keeping guns in stock. This is going to be a banner quarter for S&W.
Earnings August 25th.
Shares have been in constant rebound since the earnings on June 16th erased fears about slowing sales. The stock gained 51 cents on Friday despite the severely negative market.
Long Sept $27 call @ $1.70, see portfolio graphic for stop loss.
Z - Zillow Group - Company Description
No specific news. Minor profit taking after a 3-month high.
Original Trade Description: June 29th.
Zillow Group, Inc. operates real estate and home-related information marketplaces on mobile and the Web in the United States. It offers a portfolio of brands and products to help people find vital information about homes, and connect with local professionals. The company's brands focus on various stages of the home lifecycle, such as renting, buying, selling, financing, and home improvement. Its portfolio of consumer brands includes real estate and rental marketplaces comprising Zillow, Trulia, StreetEasy, and HotPads. The company also provides advertising services to real estate agents and rental and mortgage professionals; and owns and operates various brands that offer technology solutions to real estate, rental and mortgage professionals, including DotLoop, Mortech, Diverse Solutions, and Retsly.
Back in August 2015 Zillow Group split its stock 2:1 but the new stock had no voting rights. The Class C stock trades under the symbol Z while the Class A stock with rights traded under the symbol ZG. The company did this so the voting rights would not be diluted. Multiple companies have done this including the biggest to date with Google and Facebook. The split has no impact on the company operation except that employees now receive Z shares and any acquisitions will be made with Z shares.
The company acquired Trulia.com for $2.6 billion in 2015 and contrary to analyst concerns the integration has been relatively smooth. There were some hiccups but everything is functioning normally today.
They reported Q1 earnings of 13 cents that beat estimates for a loss of 9 cents. Revenue rose from $127.3 million to $186 million and beat estimates for $177 million. They also raised full year guidance from $805-$815 million to $825-$835 million. Analysts were expecting $794 million. They ended the quarter with $514 million in cash. Marketplace revenue rose 23%, real estate revenue rose 34% and mortgage revenue rose 65%.
Earnings August 2nd.
In early June, the company made a windfall settlement with Move.com for $130 million after two years of litigation. Analysts were expecting $1.8-$2.0 billion. This pending litigation had been a cloud over the stock for the last 8 months. After the settlement shares spiked to $32 and traded sideways for two weeks before moving up to new highs at $35.50. The Brexit crash knocked the shares back to $32.75 but after the last two days of gains it is threatening to breakout once again.
Shares closed at $35 so the August $40 strike is a little far out for a short period of time. I am going to stretch to the November $40 strike, which will have significant expectation premium when we exit before earnings.
Long Nov $40 call @ $2.30, initial stop loss $32.50.
BEARISH Play Updates (Alpha by Symbol)
HSY - Hershey Company - Company Description
Shares declined sharply at the open to give us a bad fill, then rebounded intraday to $113 before falling back to close at $110.55. The key point is that we are in the position and analysts are trashing the potential merger and talking up all the hurdles Mondelez would have to jump to get a deal done and there are a lot.
Original Trade Description: July 2nd.
The Hershey Company manufactures, imports, markets, distributes, and sells confectionery products. It offers chocolate and non-chocolate confectionery products; gum and mint refreshment products comprising chewing gums and bubble gums; pantry items, such as baking ingredients, toppings, beverages, and sundae syrups; and snack items, including spreads, meat snacks, bars and snack bites, and mixes. The company provides its products primarily under the Hersheys, Reeses, Kisses, Jolly Rancher, Almond Joy, Brookside, Cadbury, Good & Plenty, Heath, Kit Kat, Lancaster, Payday, Rolo, Twizzlers, Whoppers, York, Scharffen Berger, Dagoba, Ice Breakers, Breathsavers, and Bubble Yum brands, as well as under the Golden Monkey, Pelon Pelo Rico, IO-IO, Nutrine, Maha Lacto, Jumpin, and Sofit brands.
Snack maker Mondelez bid roughly $23 billion for Hershey last week and the offer was quickly refused. Hershey has turned down several acquisition offers since 2002. In 2002 the Wrigley company tried to buy it and failed. In 2007 Cadbury also failed. In 2010 the trust prevented Hershey from bidding to buy Cadbury. The problem with acquiring Hershey is that the Hershey Trust Co. owns 81% of the voting stock and 8.4% of the common stock. Nothing will happen unless the trust approves.
The trust was setup in 1909 to benefit the Milton Hershey School for underprivileged children and the community of Hershey Pennsylvania. The trust has built up a $12 billion endowment for the school and is well liked for the good works done around the community.
The board has also said multiple times they do not want to sell the company.
Another factor is the Pennsylvania Attorney General. Any sale would require the approval of the AG under a 2002 state law. He has the power to overrule the trust if he feels any sale would not benefit the citizens of Pennsylvania.
Here is where the challenge comes in. If Mondelez buys the Hershey Company then the trust gets a lump sum of money but that is all they will ever get. Once they spend it the benefit is over. If Hershey stays independent the trust will remain the benefactor of Hershey PA for another century. The profits from Hershey will continue to flow through the trust to the school and other entities to support the community. Hershey pays out about $500 million a year in dividends. The AG is not likely to allow the golden goose to be sold.
I believe this acquisition bid will fail. Mondelez may raise the offer but I doubt the board, trust or AG will accept it. The spike in the stock to $115 will fail and shares will return to the $95-$100 level where they were trading lat week.
This is a speculative position so do not play with money you cannot afford to lose. I am making this a spread because the put options are expensive for obvious reasons.
Earnings July 28th.
Long August $110 put @ $5.15, no initial stop loss.
Short August $100 put @ $1.52, no initial stop loss.
Net debit $3.63
IWM - Russell 2000 ETF - ETF Description
The IWM dropped to 113.95 this morning to trigger the put position but recovered slightly at the close. The ETF has a series of lower highs and today's decline could be the beginning of several as it falls back to retest support at $108.
Original Trade Description: July 2nd.
The Russell 2000 ETF attempts to track the investment results of the Russell 2000 Index composed of small-capitalization U.S. equities.
The Russell 2000 is facing strong resistance from 1150-1165. The index actually touched 1,190 in early June but I seriously doubt we will see that level again. The S&P closed right at 2,100 and has strong resistance from 2100-2115. The Dow closed only 72 points under the post Brexit close at 18,011.
We recovered from the post Brexit crash on a combination of equity fund window dressing for the end of the quarter and pension funds rebalancing the ratio of bond to equities. Reportedly they had to buy up to $18 billion in equities.
Now we are at resistance and all those uplifting events are over. The uncertainty over the UK exit still exists and the dollar/pound imbalance will cause a significant number of earnings warnings for Q3.
All the fundamentals point to a weak July and the artificial lift from the end of the quarter buying is over.
Note the volume in SPY and IWM puts for August on Thursday. The far right column is the open interest and the second from the right is the volume traded on Thursday. This is about 3 times the number of calls for the same period. The vast majority of traders are expecting a market decline.
I am recommending we buy puts on the IWM because the premiums are cheaper. I am recommending an entry trigger because we could still move higher ahead of the long weekend. S&P future are down -4 but that could be temporary.
Position 7/5/16 with an IWM trade at $113.95
Long August $112 puts @ $2.62. No initial stop loss.
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