Walmart and Boeing combined to knock over 100 points off the Dow and neither one of them posted earnings. These were "out of the blue" events that pushed the markets significantly lower.

The -$6 Walmart loss was caused by long-term guidance in an analyst meeting. The company said earnings could decline 6-12% in 2016 as the result of higher wages and rising spending to improve their stores and their online shopping experience.

The -$6.70 drop in Boeing came after Delta (DAL) said there was a "glut of wide-body jets coming off leases, creating an aircraft bubble." Delta is shopping for some new long haul wide-body jets and the CEO said he is being deluged with offers to sell Boeing 777-200 and Airbus A330-200 models. This surplus of used jets raised concerns that Boeing will not be able to sell as many of the current models of the 777 at significantly higher prices.

Resale values have declined -14% in 2015 and lease rates are down more than -10%. With the current model 777-200ER selling for $80 million or more Delta said it was seeing 9-10 year old models for as little as $10 million. Singapore Airlines has "dozens" of these coming off lease soon. The cost to upgrade interiors and paint runs about $300,000.

At the same time Russia's Aeroflot carrier is trying to cancel a deal to buy (22) 787 Dreamliners worth $4.8 billion. Instead, Aeroflot is trying to buy 34 planes from competitor Transaero Airlines, which is struggling under a huge debt load.

The damage from those two events caused a -157 point Dow loss, Nasdaq -13 and S&P -9. The S&P is still declining from resistance at 2,020 that it hit on Friday. This could be a significant roadblock for any rally this week. Fortunately, prior resistance at 1,990 acted as support on Wednesday. The rest of the week may be a battle between those 1990-2020 levels.

With the earnings cycle heating up, I want to be very cautious about what plays I add. We had a good month in the October cycle, which wraps up on Friday. I would like to have a good November as well but that will take some artful dodging around the various earnings reports.

Jim Brown

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Current Portfolio

Current positions

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.

XOP - Oil Exploration ETF (Closed)

We were stopped out of the short call the prior week and I recommended we close the long call while it still had value. The XOP had rallied $8 on the short squeeze in oil prices.

Closed Oct $38 Long Call, entry .13, exit $1.87, +1.74 gain.
Previously closed Oct $35 Short call, entry .61, exit .79, -.18 loss
Net gain $1.56

AMBA - Ambarella Inc (Not entered)

I profiled a put spread on Ambarella last Wednesday with the stock at $61.82. The stock gapped down -$5 on Thursday and the play was not entered. I have warned in the past that readers should not enter positions where the stock moves aggressively against the play at the open. Typically, a gap in the wrong direction of more than $1 should be enough to keep everyone out of the trade. A $5 gap lower means something changed dramatically. In this case, it was a major downgrade on GoPro with the price target cut in half. Ambarella makes chips for GoPro cameras.

WYNN - Wynn Resorts (Closed)

WYNN shares rebounded nearly $20 on news the Chinese government was going to revitalize gambling in Macau after 16 consecutive months of declines. They did not say when or what they were going to do, only that they planned to support Macau.

We were stopped out of the short call for a nice gain and I recommended we close the long call while it still had value. It was $14 out of the money so I doubt it will continue to appreciate.

Closed Oct $85 long call, entry .51, exit .20, -.31 loss
Previously closed Oct $80 short call, entry $1.25, exit .09, +1.16 gain.
Net gain 85 cents.

New Recommendations

XBI - Biotech SPDR ETF (Call Spread)

Biotech stocks are still declining and support at $60 on this ETF appears to be in danger of breaking. The rebound from the September decline was lackluster and there appears to be solid resistance at $65.

Sell short Nov $68.33 call, currently $1.25, stop loss $65.65
Buy long Nov $75.00 call, currently .50, no stop loss
Net credit 75 cents.

MON - Monsanto (Put Spread)

Monsanto posted results that missed on both earnings and revenue but announced a layoff of 2,600 workers and a $3 billion accelerated share buyback. They announced a restructuring plan that investors liked and shares have been rising since the report on Oct 7th to close at $90.25 with a $1.06 gain today in a bad market.

Earnings Jan 6th.

Sell short Nov $85 put, currently .82 cents. Stop loss $87.15.
Buy long Nov $80 put, currently .34, no stop.
Net credit 48 cents.

Optional Positions

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.

Call Spreads

Symbol - Strikes - Credit - Earnings

KMX - 60.00/65.00 - .50 - Dec 18th
YUM - 72.50/77.50 - .81 - Jan 5th

Existing Play Recommendations

Links to original play recommendation

CAT - Caterpillar (Bear Call Spread)

RRC - Range Resources (Bear Call Spread)

WYNN - Wynn Resorts (Bear Call Spread)

RRC - Range Resources (Reentry Bear Call Spread)

CAT - Caterpillar (Reentry Bear Call Spread)

XOP - Oil Exploration ETF (Bear Call Spread)

OUTR - Outerwall (Bear Call Spread)

AMBA - Ambarella (Put Spread)

LEN - Lennar (Put Spread)

ADI - Analog Devices (Put 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.

For trades with an opening qualification the prices quoted will be the bid/ask at the time the qualification was met.

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.