Compared to the prior weeks the market was rather calm for the last six days. Calm is always good because premiums evaporate in a quiet market.
There were a lot of ups and downs but the S&P stayed in a roughly 20-point range. The Dow was the big mover as a result of earnings misses and the decline in oil prices.
Now that we are in August and one of the weakest months of the year, I would be surprised if we broke out to the upside. The 17,775 level on the Dow is strong resistance and 2,110 on the S&P. A few Nasdaq big caps have been leading the broader market up but the correction in Apple has slowed those gains.
With three weeks left in summer, the trading volume is going to decline. We have been seeing higher volume on down days and that suggests the portfolio adjustments have begun ahead of the possible September rate hike.
The dollar index set a four-month high on Wednesday and that is going to continue to weigh on equities. The Q2 earnings have been better than expected with a +1.1% growth but revenue has been ugly with a -3.6% decline. Guidance warnings have been plentiful.
Slowing earnings, the potential for a rate hike, the rising dollar and the summer doldrums should all work to give the market a bearish bias for the next several weeks. We will have the obligatory short squeezes along the way so be prepared for some volatility.
On the positive side there were no stops triggered last week. We have two weeks to go on August positions so keep your fingers crossed.
Send Jim an email
Items shaded in blue were previously closed.
Current Position Changes
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.
HOT - Starwood Hotels (Bear Call Spread)
Starwood reported earnings in late July that beat the street but then warned that full year earnings would be in a range of $2.93-$3.03 and 10 cents below the prior range. They cited the strong dollar and some restructuring. Earlier they had told analysts they were exploring from "strategic and financial alternatives" but in the earnings they did not provide an update or what those alternatives might be. Shares spiked last week on a rumor that InterContinental Hotels was in talks to merge/acquire Starwood. Both chains immediately denied that any conversations were being held. The long call is wide because we will stop out early.
Earnings Oct 29th.
Sell short Sept $82.50 call, currently $1.07, stop loss $80.35
Buy long Sept $90 call, currently .45, no stop.
Net credit 62 cents.
QRVO - Qorvo Inc (Bear Call Spread)
Chip supplier Qorvo reported earnings of 78 cents that missed estimates for 98 cents. They guided for the current quarter for earnings of $1.05 to $1.15 and analysts were expecting $1.25. The company said communication chip sales for the LTE sector were declining due to weak phone sales. Management said Chinese demand was slowing and they were previously the biggest buyers.
Qorvo was formed in January in a merger of RFMD and TQNT. Shares are now trading at a post merger low.
Sell short Sept $60 call, currently $1.40, stop loss $58.85
Buy long Sept $65 call, currently .65, no stop.
Net credit 75 cents.
These were potential plays I did not use today. If you are looking for something else to play you can start here. These are not official recommendations.
Bear Call Spreads
Symbol Strikes Credit
OXY - 72.5/77.5 - .57 - N/A
HES - 60/65 - .60 - N/A
XOP - 41/45 - .39 - N/A
TRIP - 82.5/87.5 - .80 - N/A
Existing Play Recommendations
Links to original play recommendation
TIF - Tiffany (Bear Call Spread)
LULU - LuluLemon Athletica (Bear Call Spread)
XOP - Oil Exploration ETF (Bear Call Spread)
YUM - YUM Brands (Bear Call Spread)
NFLX - Netflix (Bull Put Spread)
ZOES - Zoes Kitchen (Bull Put Spread)
GLD - Gold ETF (Bear Call Spread)
ESRX - Express Scripts (Bear Call Spread)
Prices Quoted in Newsletter
At Option Investor we have a long-standing policy prohibiting the editors and staff from actually trading the individual recommendations in order to conform to SEC rules concerning trades.
The prices quoted in the newsletter are the end of day prices in most cases.
When discussing fills or stops the prices quoted are the bid/ask at the time the entry trigger or exit stop is hit. This is NOT a price that someone on staff actually got using a live order.
For entry/exit points at the market open the prices quoted will be the opening print. The majority of the time the readers are able to get a better fill than the opening print because of market maker bias at the open.
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All of these rules normally produce worse prices than an active trader would normally get. Because they are standardized there may be some cases where a price quoted was better than an actual fill. If you received a price that was dramatically different than what was quoted please let us know.