Option Investor

Daily Newsletter, Wednesday, 7/9/2014

Table of Contents

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

Market Wrap

The Fed Minutes

by Thomas Hughes

Click here to email Thomas Hughes
The Fed reveals that all is as expected.


Better than expected earnings from Alcoa lifted the markets early but failed to spark a major bounce. The FOMC minutes were in the market's sights and held trading in check until after their release at 2PM. Early trading was muted and saw the US indices post mild gains after yesterday's sell off. The weakness yesterday was not unexpected as we are on the brink of what could be a very important earnings season. The S&P is expected to post earnings growth of over 6% this quarter and if Alcoa is still the indicator it once was could be pointing to even better results than that. Alcoa's reported adjusted earnings are 50% better than expected and came with reaffirmed full year guidance and a promising outlook. On top of that economic conditions are still in question even though last week's jobs numbers were much better than expected.

Early futures trading had the indices down a few points but by 9AM were in the green. The SPX and other major indices made a rebound at that lasted for all of about 5 minutes before trading settled down to a calm level for the rest of the day, up until 2PM at which time the FOMC minutes took over. Other news affecting early trading is a growing round of violence in the mid East between Israel and Hammas militants. Israel has fired missles and made airstrikes into Gaza in an attempt to stave off a new round of attacks from the group. So far no accord has been reached. Also in the news was a warning from the Container Store. The company reported a wider than expected loss and lowered its full year guidance due to weak sales.

Once the minutes were released the bulls made a little head fake toward support that quickly reversed, sending the indices to new intraday highs. The minutes were largely as expected and did not indicate anything other than what we already knew, or though we knew. The economy is growing, the taper is going to end, most likely in October with the last $15 billion, interest rates are going to rise next year and it's all based on the data. Maybe now earnings can start to take over. Friday Wells Fargo reports before the bell.

One Minute Chart

The Economy

Contrary to what the media may have you thinking the FOMC minutes were not the only piece of data released today. The mortgage index was also released today and came out better than expected. The Mortgage Brokers adjusted index of mortgage application activity rose by 1.9% this week after several weeks of declines. On a non adjusted basis applications rose by just over 4%. The Fed Minutes revealed that members were generally in favor of ending the taper in October with a final $15 billion reduction. This was contingent on the data supporting, as it has been, their expected improvement in the labor market. They were surprised at the rate of decline in the 1st quarter but see rebound in the 2nd quarter and growth moving forward. On the interest rate front there was little conviction among members to increase rates sooner than expected with the current target of mid 2015 still standing.

The trend in jobs has been up in recent months. The NFP and ADP have both been strong with the last round very strong. Yesterday the JOLT's numbers revealed that job openings have increased in June more than expected which also supports that trend. Tomorrow the jobless claims, expected to show a mild drop from last week, will be watched for additional sign of improvements. The next FOMC meeting is at the end of the month, July 29 and 30th.

The Oil Index

Not everything was affected by Fed Watch. The price of oil fell sharply today with WTI losing more than 1%. Brent was not far behind with a -0.75% drop followed by a -0.25 fall in natural gas. This is due in part to a reduction in fear of supply disruption in Iraq but more specifically with another positive report from Libya. Not only are the two main oil ports close to opening the largest oil field, Sharara, is close to resuming production as well. For now this is just a headline but if/when either of these two facilities come online for certain there could be another dip in oil prices.

The Oil Index fell today as well, but only by about a tenth of a percent, before picking back up in the afternoon portion of the session. Oil prices were at premium levels for all of the calendar 2nd quarter which has led the market to expect good earnings this season. However, now that oil prices are falling the hopes of future earnings growth may be dimming. This is perhaps why the industry has begun to receive some down grades. Today BP was downgraded to hold from buy at Deutsche Bank today, another in a series of downgrades for the company since the beginning of last month. The index is still supported by the short term moving average and long term resistance turned support just above 1,650. Bearish momentum is growing so I would expect the index to at least continue to test that support. If support holds until the big oil companies can report earnings and give us a peak at the future the long term up trend could resume. Until then a break down of support could bring it down to 1625 or 1600 in the near term and still leave the long term trend intact.

Gold Pops On Fed Minutes

Gold rallied on the Fed minutes and the view that rates would rise later rather than sooner. Current consensus has it around the end of the 2nd quarter 2015. Some speculation had rates going up as early as the end of the first quarter and I think I may still lean toward that camp. Data is improving steadily and if/when the sectors of the economy start to move in synch with each other there could be real jump in GDP output. Of course there could not be as well. I'm still on the fence with gold and the Gold Index and fear this could be a bull trap.

The Gold Index responded appropriately and moved higher as well. The index climbed close to three percent but is still showing some serious divergence. I'm willing to concede that gold is moving higher and the gold index with it, obviously, but the index is still within a longer term down trend pattern so I'm not getting too bullish yet.


Just to touch base with Alcoa. The aluminum producer produced golden earnings based largely on value added products. I can believe it...I don't think they make bikes but the one I just bought, made from aluminum, was not inexpensive and I can only imagine what the costs are for the high quality widgets being used by and for the growing number of adult millenials there are in America today. Shares of Alcoa surged 2% in the after hours sessions and continued its climb today. The stock broke out to new highs on strong volume accompanied by trend following stochastic and MACD signals. This may be a good one to get into on a consolidation or dip.

In The News

Sofware maker Gigamon lowered its revenue outlook for the 2nd quarter based on problems with closing deals in the pipeline. The lowered revenue guidance puts the firms at the lower end of the expected range and has caused several down grades. One analyst said the downgraded status was due to lack of confidence in the companies management. Shares of the stock fell 32% today are down close to 60% for the past 12 months.

Today's hot sector was consumer discretionary. The Consumer Discretionary Spyder (XLY) gained more than one percent today after falling from a new high earlier in the week. The ETF has been moving higher over the short term but is capped by resistance at this time. The indicators are bullish but weak and consistent with a potential range. If resistance is broken the ETF could carry as high as $72.50 or $75.00. Earnings for the big names in the fund don't begin to come out for about two weeks and stretch until the end of the season. Data, particularly earnings data such as tomorrows jobless claims, could help keep the ETF testing resistance until then provided it supports improvement.

The Indices

The Nasdaq Composite led the major indices in their bounce higher today. The tech heavy index climbed more than a half percent following the release of the Fed minutes. The index is above support but weak indicators suggest that support may be tested in the coming days. Momentum has turned bearish in the near term but longer term analysis shows that the trend is still up. Stochastic is pointing down but in light of the underlying up trend in stocks this is more of a chance for the index to cool down some rather than an indication of reversal. The index may experience more weakness until traders grab onto a reason to start buying again. This could be data or earnings. If earnings and data fail to support the trends and the index breaks near term support at 4400 longer term support exists around 4300, 4200 and 4100 with the long term trend line just below that around 4,000. While a long term correction is always possible I'm not seeing it in the charts right now.

The Transports were also favored today. The Dow Jones Transportation Average climbed about 0.54% in today's session. The index is bouncing after a mild correction that seems to be finding at least near term support above the short term moving average. It also appears as if the index is confirming the break above a bull flag pattern that could take it higher by 250 points or more. Tempering this assessment are weak indicators that have yet to confirm the move. The upcoming earnings season and next weeks round of macro economic data could be the catalyst.

The Dow Jones Industrial Average edged out the S&P 500 by a tenth today. The Blue Chips gained 0.47%, climbing from the short term 30 day moving average. The index is sitting near the all time high with indicators that may be more accurately describing the current market sentiment. Neutral. MACD momentum has been at or just above the zero line for several days with a stochastic that is trending firmly through the middle of the range. This I think shows a market waiting for the next sign of what to do. At the current high level it would be easy to run for cover and take money off the table but at the same time what's going to happen with the market and the economy in the next month and quarter if economic trends continue the way they are?

The broad market was the laggard today. The S&P 500 climbed 0.46% today flirting with near term resistance at 1975. Despite today's gain the indicators remain bearish with momentum on the rise, if still weak, and stochastic crossing under the upper signal line. Although the trend is up there is room for the index to come down and the indicators support the possibility. There may at least be a little more sideways trading and consolidation until the earnings trend is set. Near term support today kicked in around 1965, if that does not hold next support is around 1950 with the trend line not far below that around 1925.

It all comes down to earnings now. And data. And the Fed. Well, earnings first. Tomorrow earnings season really gets started with Wells Fargo. Other than there is not much on the calendar until Monday and Citigroup, then Tuesday with JPMorgan and a few other of the major bankers. Once the earnings trends are set, and there is wide expectation for earnings growth the time around, the next thing in focus will be the data. Next week is pretty big for data as it is the mid point of the month and includes several key points of housing information. Following that another big week of earnings and then the next week an FOMC meeting.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Over 11 Years Old

by James Brown

Click here to email James Brown


Advance Auto Parts Inc. - AAP - close: 133.58 change: +1.31

Stop Loss: 129.40
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
The average car on the road in the U.S. today is over 11 years old. Even though the pace of new car sales has been strong in 2014 there are large chunks of the consumer that are still struggling. Older cars mean higher demand for auto parts.

AAP is in the services sector. The company is one of the largest auto parts retailers in the nation. They recently bought General Parts International for $2.08 billion in a cash deal that closed early this year. That added 1,233 Carquest stores and 103 Worldpac branches.

AAP believes they will be able to achieve about $190 million in synergies over the next three years. Analysts believe that AAP, now even bigger, will be able to negotiate better prices with wholesalers and rev up its supply-chain efficiencies.

The company delivered strong gains in the first quarter in spite of the lousy weather. That's a feat many retailers failed to accomplish with same-store sales up +4%. The company is also seeing improvement in its gross margins.

While the U.S. economy is slowly improving we are not seeing significant wage inflation. Consumers are still looking for bargains. That means more older cars on the road and more consumers buying auto parts to keep their older cars running.

IHS Automotive said the average age of light vehicles is currently 11.4 years. This includes cars, SUVs and light trucks. That's the average. This is expected to rise to 11.5 years by 2015 and 11.7 years by 2019. Older cars require more maintenance and more replacement parts. This is a strong tailwind for AAP.

AAP's recent breakout past resistance at $130.00 is bullish. The recent pullback looks like a buying opportunity. However, I'd like to see some follow through on today's bounce. Yesterday's intraday high was $133.99. I am suggesting a trigger to buy calls at $134.25.

FYI: We are not setting an exit target tonight but the Point & Figure chart for AAP is bullish with a $154.00 target.

Trigger @ $134.25

- Suggested Positions -

Buy the Sep $140 call (AAP140920C140) current ask $3.60

Option Format: symbol-year-month-day-call-strike

Annotated Chart:

Weekly Chart:

Entry on July -- at $---.--
Average Daily Volume = 818 thousand
Listed on July 09, 2014

In Play Updates and Reviews

Stocks Bounce But Small Caps Lag

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market delivered a widespread bounce on Wednesday but the small caps continued to lag behind.

Current Portfolio:

CALL Play Updates

Apple Inc. - AAPL - close: 95.39 change: +0.04

Stop Loss: 88.80
Target(s): To Be Determined
Current Option Gain/Loss: +22.1%
Time Frame: 8 to 12 weeks
New Positions: see below

07/09/14: Wednesday was a relatively quiet session for AAPL. Shares did drop about 2:00 p.m. but AAPL recovered to close virtually unchanged.

I am not suggesting new positions at this time. Investors need to decide. Will you exit your calls as AAPL near resistance at the $100.00 mark? Or will you hold on as until we get closer to the expected iPhone 6 product launch in September.

Earlier Comments: June 28, 2014:
You don't get any more high-profile than Apple Inc. (AAPL). Many consider AAPL a technology company but they are known for their consumer electronics. Their ecosystem continues to grow with iPods, iPads, iPhones, Macintosh computers, Apple TV, and soon Beats music headphones and possibly an iWatch.

Right now the market is focused on Apple's upcoming launch of its next iPhone, rumored to be the iPhone 6. It's also rumored to be coming out on September 19th. Everything seems to be a rumor these days when it comes to Apple's next product. Right now the big rumor is that Apple might introduce two different iPhone 6s. One with a 4.7 inch display and one with a 5.5 inch display.

It really doesn't matter what the display size is. There is a legion of loyal iPhone customers that will jump at the chance to upgrade. One analyst firm is estimating that iPhone 6 sales could hit a record-breaking 80 million units in 2014 alone. That's amazing if the phone doesn't come out until mid September.

Why do we care about Apple's next iPhone launch? We care because the stock tends to see a pre-launch rally in its stock price. Now that shares have split 7-for-1 just a few weeks ago we can actually trade it. AAPL stock rallied seven out of eight weeks in a row until it peaked at round-number resistance near $95.00 on June 10th. The stock split was June 6th.

Since peaking at $95.00 AAPL has slowly consolidated sideways. I heard a lot of traders on CNBC saying they wanted to buy it at $85.00. It looks like that may not happen. Investors have jumped in to buy the dip at $90.00. The point & figure chart is bullish and forecasting at $131.00 target. I think AAPL can rally toward $100 before its iPhone launch in mid September as long as the broader market cooperates.

Be careful when choosing an option strike. There are a lot of weird strikes due to AAPL's 7:1 split. We are listing the October $95.00 call. (FYI: Look for the Oct. $95 call with more than 22,000 in open interest)

- Suggested Positions -

Long Oct $95 call (AAPL141018C95) entry $3.93

06/30/14 triggered @ 92.75
Option Format: symbol-year-month-day-call-strike

Entry on June 30 at $92.75
Average Daily Volume = 38 million
Listed on June 28, 2014

Ameriprise Financial - AMP - close: 121.16 change: +0.06

Stop Loss: 114.40
Target(s): To Be Determined
Current Option Gain/Loss: +25.0%
Time Frame: 8 to 12 weeks
New Positions: see below

07/09/14: AMP also delivered a quiet session. Shares slowly dipped to short-term technical support at its 10-dma and then bounced back to virtually unchanged.

I am not suggesting new positions at this time. Readers may want to raise their stop loss.

Earlier Comments: June 18, 2014:
AMP is in the financial sector. The company, and its subsidiaries, provides a range of financial products including advice and wealth management. The company had a record year in 2013 and it looks like the momentum has continued into 2014. The company' last earnings report was its Q1 results, reported on April 28th. Wall Street was expecting a profit of $1.88 per share on revenues of $2.84 billion. AMP delivered $2.04 with revenues rising +11% to $3 billion.

AMP's Q1 results were a +19% improvement from a year ago. Furthermore both revenues and margins are improving. AMP raised its dividend 12 percent to 58 cents (currently at a 2.0% yield) and announced a $2.5 billion stock buy back program.

Technically shares of AMP are in a long-term up trend and just recently broke out from a five-month consolidation. Traders have already jumped in to buy the dip at prior resistance near $115.00.

- Suggested Positions -

Long Sep $120 call (AMP140920c120) entry $3.60

06/20/14 triggered @ 118.80
Option Format: symbol-year-month-day-call-strike

Entry on June 20 at $118.80
Average Daily Volume = 823 thousand
Listed on June 18, 2014

Anadarko Petroleum - APC - close: 107.50 change: +0.01

Stop Loss: 105.85
Target(s): To Be Determined
Current Option Gain/Loss: + 36.4%
Time Frame: 8 to 12 weeks
New Positions: see below

07/09/14: APC bounced off its simple 30-dma again but the rebound didn't get very far. Shares closed almost unchanged on the day.

I am not suggesting new positions at this time.

Earlier Comments: June 10, 2014:
APC is in the basic materials sector. The company is a very active oil and natural gas producer. They have assets in the Rocky Mountains, the Southern U.S., the Gulf of Mexico, and Alaska. Plus, APC is active internationally with assets in Algeria, Brazil, China, Colombia, Ghana, Liberia, Mozambique, New Zealand, Sierra Leone, and South Africa. Altogether APC has a strong onshore and off-shore portfolio.

The company's latest earnings report on May 5th was better than expected. Wall Street was expecting $1.14 per share. APC delivered $1.26. APC said they set record volumes in the quarter at 819,000 barrels of oil equivalent (BOE) per day. Management went on to raise their full-year sales-volume. A week later they increased their dividend by 50% from 18 cents to 27 cents per share.

APC could end up a big liquefied natural gas (LNG) producer with their assets in Mozambique (Southeast Africa). Last year APC drilled two natural gas off-shore wells. This year they could drill up to eight new wells. The company recently upgraded their view on how much recoverable gas in their northern Mozambique assets to 50 trillion to 70 trillion cubic feet. APC is developing an LNG project and plan to deliver their first LNG cargo in 2018.

One of the biggest headlines for APC has been its settlement over the TROX litigation. This refers to a large lawsuit over the bankrupt Tronox company, which was spun-off from APC's Kerr-McGee division. Previously the estimated penalty range for this TROX lawsuit was in the $5.15 billion to $14.17 billion with many analysts estimating the final results would probably be around $10 billion. On April 3rd this year APC reported they would settle this for $5.15 billion, the very low end of the range and the stock exploded higher. Getting past this TROX liability has removed a very dark cloud for the company and the stock price.

It is worth noting that APC still has potential legal risk from the April 2010 Macondo well blow out. BP Plc was the operator and majority owner of the well but APC did own 25% of it. The U.S. judges are arguing that APC will be held responsible for its 25% of the penalties. The final numbers could be huge. The U.S. Clean Water Act allows the government to fine the companies $1,100 per barrel of oil spilled into the Gulf. Plus, they could add another $4,300 penalty per barrel for gross negligence. Right now BP is arguing with the courts over how much oil was spilled. The U.S. is claiming 4.2 million barrels of oil escaped into the Gulf of Mexico. BP estimates only 2.45 million barrels. APC management has suggested they may not be fined for any gross negligence penalties since they did not have any direct operational involvement. The penalty phase for this lawsuit is scheduled for January 2015. This issue is clearly not stopping the rally in shares of APC today.

Technically shares of APC have been consolidating sideways under resistance near $105 with a bullish trend of higher lows. Now the stock is on the verge of breaking out.

- Suggested Positions -

Long NOV $110 call (APC141122C110) entry $4.80*

07/05/14 new stop @ 105.85
06/28/14 new stop @ 102.40
06/11/14 APC hit our trigger at $105.25
rumors this morning that XOM might buy APC.
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Entry on June 11 at $105.25
Average Daily Volume = 2.8 million
Listed on June 10, 2014

Cheniere Energy, Inc. - LNG - close: 72.30 change: +1.54

Stop Loss: 64.90
Target(s): To Be Determined
Current Option Gain/Loss: + 2.8%
Time Frame: 8 to 12 weeks
New Positions: see below

07/09/14: Yesterday's low was $70.44. Today LNG hit $70.40 this morning and bounced. Shares managed to outpace the rest of the market with a +2.1% gain.

Today's rebound could be used as a new entry point.

Earlier Comments: June 28, 2014:
According to LNG's website, Cheniere Energy, Inc. is a Houston-based energy company primarily engaged in LNG-related businesses, and owns and operates the Sabine Pass LNG terminal and Creole Trail Pipeline in Louisiana. Cheniere is pursuing related business opportunities both upstream and downstream of the Sabine Pass LNG terminal. Through its subsidiary, Cheniere Energy Partners, L.P., Cheniere is developing a liquefaction project at the Sabine Pass LNG terminal adjacent to the existing regasification facilities for up to six LNG trains, each of which will have a design production capacity of approximately 4.5 mtpa ("Sabine Pass Liquefaction Project"). Cheniere has also initiated a project to develop liquefaction facilities near Corpus Christi, Texas. The Corpus Christi Liquefaction Project is being designed and permitted for up to three LNG trains, with aggregate design production capacity of up to 13.5 mtpa of LNG and which would include three LNG storage tanks with capacity of approximately 10.1 Bcfe and two berths.

Why is Cheniere's ability to turn natural gas into liquefied natural gas (LNG) important? Natural gas has to be turned into LNG to be transported. The oil and natural gas boom in the United States thanks to technology and hydraulic fracturing rigs that access tight oil in shale rock formations has generated a huge supply. Right now the price of natural gas in the U.S. is less than $5.00 per million British thermal units (BTUs) or mmbtu. In Europe the cost per mmbtu is over $10.00 and in Japan the cost is almost $16 per mmbtu. There is a huge opportunity if producers can export natural gas to these markets. Unfortunately, building an LNG terminal that can export natural gas is a massive undertaking. It takes years to build them and there is a very long permit process from the government. Cheniere is quickly becoming the major player in this space in the U.S.

Cheniere recently moved one step closer to a FERC approval on the Corpus Christi LNG facility. The Federal Energy Regulatory Commission draft review said the project will result in the permanent loss of more than 25 acres of wetlands, but measures Cheniere plans to take will minimize any further disturbance. FERC will take public comments until August 4th and then issue a final review by Oct 8th.

They are building the largest LNG facility in the U.S. and it takes time. They are building six trains with annual production of 4.5 million tons per annum each (MTPA). Trains 1&2 began in August 2012 and are 63% complete. First production is expected in late 2015. Trains 3&4 began construction in May 2013 and are 27% complete. First production is expected in late 2016, early 2017. Purchase orders for 7.7 MTPA have been received for trains 1&2 and another 8.3 MTPA for trains 3&4. Trains 5&6 are still in permit mode with 3.75 MTPA of purchase agreements already being approved to Free Trade Agreement (FTA) countries and the non FTA authorization is pending. Trains 1-4 already have that authorization.

The three trains to be constructed in Corpus Christi for 13.5 MTPA are nearing the end of the permit approval process. Full approvals are expected not later than January 6th 2015. Purchase agreements for 5.53 MTPA have already been signed and the DOE has approved 767 Bcf per year for export to FTA countries with the authorization for non FTA countries still pending.

You might be wondering, "what is an LNG train?" According to Cheinere, The LNG industry has adopted the analogy of a "train" meaning the series of processes and equipment units that individually remove elements from raw inlet natural gas that would otherwise plug or freeze the small passages in the downstream heat exchangers that in a cascade fashion reduces the temperature from ambient to -260 F. Each of these processes and equipment units are sequentially arranged, similar to cars of a railroad train.

Just a couple of days ago the House of representatives voted to fast track more LNG export projects, which if signed into law, should be beneficial for Cheniere's current projects under review.

Technically shares of LNG have been consolidating sideways the last few weeks after the sharp end of May rally. That big pop at the end of May was market reaction to news that the U.S. Department of Energy proposed new rules to streamline their approval process and focus on projects with the best chance of actually getting built. That was good news for LNG and the company is on track to be the first to export LNG produced in the U.S.

- Suggested Positions -

Long Sep $75 call (LNG140920C75) entry $3.45

06/30/14 triggered @ 70.25
Option Format: symbol-year-month-day-call-strike

Entry on June 30 at $70.25
Average Daily Volume = 3.0 million
Listed on June 28, 2014

Starbucks Corp. - SBUX - close: 79.45 change: +0.89

Stop Loss: 74.75
Target(s): To Be Determined
Current Option Gain/Loss: +65.0%
Time Frame: 8 to 12 weeks
New Positions: see below

07/09/14: SBUX started Wednesday's session on a strong note and continued to melt up the rest of the session. This stock is nearing what could be overhead resistance at the $80.00 mark. The November 2013 highs near $82.50 could also be overhead resistance.

I am not suggesting new positions at the moment.

Earlier Comments: June 14, 2014:
The twin-tailed siren of Stabucks could be ready to sing for investors again. The company is named after the first mate in Herman Melville's Moby Dick. According to company literature their mission is "to inspire and nurture the human spirit - one person, one cup and one neighborhood at a time."

Notice it didn't say one cup of coffee at a time. Make no mistake. Coffee is big business. According to Business Insider coffee is worth about $100 billion globally and planet earth drinks about 500 billion cups of coffee every year. Quite a few of those cups are consumed at Starbucks' ubiquitous coffee chain, which now has over 10,000 company-run stores and over 9,500 licensed stores.

Believe it or not but tea is a bigger market. Tea producers churn out more than 4 billion kilograms of tea every year. Tea is the second-most consumed beverage behind water. Several months ago SBUX purchased the Teavana chain for $620 million. Now they're planning to update and expand the brand into 1,000 tea bars in the next five years.

SBUX recently said that food remains a big opportunity and currently food sales are only 22% of its U.S. business. SBUX purchased the French bakery chain "La Boulange" in 2012 and they've started distributing some of the bakery's products in more than 6,000 Starbucks stores. These should reach all of their coffee stores by the end of this year. They're also testing lunch items and testing alcohol sales in certain states. That means Malbec wines and bacon-wrapped dates could be available at a Starbucks store near you soon. The company said that adding food items has increased purchases and boosting ticket growth.

This past week SBUX said they're going to roll out wireless charging mats for smartphones in some of their stores soon.

Put it altogether and the company has big plans. Their latest earnings report in late April was mixed. Profits were in-line with estimates but revenues were a miss although same-store sales came in above expectations. SBUX management raised their Q4 guidance and 2014 guidance following its results.

- Suggested Positions -

Long OCT $80 call (SBUX141018c80) entry $1.66

07/05/14 new stop @ 74.75
06/28/14 new stop @ 73.40
06/17/14: triggered @ 75.65
Option Format: symbol-year-month-day-call-strike

Entry on June 17 at $75.65
Average Daily Volume = 3.5 million
Listed on June 14, 2014

U.S. Silica Holdings - SLCA - close: 55.81 change: +1.31

Stop Loss: 49.25
Target(s): To Be Determined
Current Option Gain/Loss: +30.1%
Time Frame: 8 to 12 weeks
New Positions: see below

07/09/14: SLCA bulldozed its way higher today and outperformed the major indices with a +2.4% gain. The stock is testing its recent highs in the $56.50-57.00 zone.

If this trend continues we could see SLCA challenging $60.00 before they report earnings on July 29th.

Earlier Comments: June 14, 2014:
There is a new gold rush going on for sand! America's shale oil and gas boom has created another boom for sand producers. Energy companies use hydraulic fracking to mine oil and gas out of tight shale formations. This fracking technique blasts millions of gallons of water at high pressure into shale rock where the oil and gas is trapped. These wells can cost between $4 million and $12 million each. In order to maximize their returns drillers use proppants to help "prop" open these minute cracks in the shale rock to help the oil and gas escape to the surface.

The cheapest and one of the most effective proppants has been fine sand. SLCA has been providing sand for industrial use for over 100 years. The company currently has 297 million tons in reserve. Oil and gas industry demand for proppants is expected to rise +30% between 2013 and 2016. That might be underestimated. The energy industry consumed 56.3 billion pounds of sand for fracking in 2013. That's up 25% from 2011.

According to SLCA they saw a +45% increase in demand for their sand. SLCA's CEO reported that some hydraulic fracking wells have doubled their use of sand from 2,500 tons per well to 5,000 tons. There are some wells using up to 8,000 tons.

Demand has been so strong that SLCA is actually sold out of some grades of sand and they're raising prices (about +20%) on non-contracted silica. SLCA believes demand for their products will rise another 25% this year alone.

Wall Street has taken notice of the dynamics of the sand industry and shares of SLCA have soared from their February 2014 lows. It may not be a coincidence that the stock was added to the S&P 600 smallcap index in February this year.

We are not setting an exit target tonight but Point & Figure chart for SLCA is bullish with a $69 target.

- Suggested Positions -

Long Sep $55 call (SLCA140920C55) entry $3.15*

07/01/14 new stop @ 49.25
06/17/14 triggered @ 52.15
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Entry on June 17 at $52.15
Average Daily Volume = 1.2 million
Listed on June 14, 2014

Energy SPDR ETF - XLE - close: 100.12 change: +0.66

Stop Loss: 97.95
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

07/09/14: Energy stocks continue to hold up well even though oil and natural gas prices have been drifting lower the last couple of weeks. The XLE bounced back above $100 and looks like it could hit our suggested entry point at $100.75 soon.

Earlier Comments: July 5, 2014:
Energy stocks are some of the stock market's best performers this year. The S&P 500 index is up +7.4% year to date. The XLE is up +13.4%. Earlier in the year a harsh winter helped drive demand for heating fuels. Now the industry is boosted by rising geopolitical events between Ukraine & Russia and more recently a Sunni jihadist uprising that is pushing Iraq toward a civil war.

Iraq is the third largest oil producer in the Organization of Petroleum Exporting Countries (OPEC). The country produces about three million barrels of oil a day. Iraq also accounted for over half of OPEC's recent production growth. Today the world is concerned that a civil war between hard-line Sunni Muslims in the north and northwest of Iraq and the Shia Muslim government in the south and southeast could damage or severely handicap Iraq's oil production. Meanwhile the Kurds will carve out their own independent nation at the very northern tip of Iraq.

Why should we care about a civil war in Iraq and its three million barrels of oil production a day? We should care because the difference between global oil demand and global oil supply is very tight. The U.S. Energy Information Administration (EIA) estimates that global oil demand will be in the 92 and 93 million barrels a day (mb/d) range in 2014-2015. Furthermore demand will rise 1.2 mb/d both in 2014 and 2015. The Paris-based International Energy Agency (IEA), from the latest data in June 2014, estimates global demand will rise 1.3 mb/d in 2014 to a total of 92.8 mb/d. Yet global supplies are only at 92.6 mb/d.

The world is already falling behind on oil supplies. People often forget that once you drill an oil well production is always declining as there is less and less oil in that well. Eventually wells run dry. Globally this lost production is between -3% and -5% a year. Not only do we need to discover, drill, and produce another +1.3 mb/d to meet growing demand we also have to replace the -3.6 mb/d we're losing every year due to maturing wells. That's almost 5 million barrels of oil a day!

You can see now why Iraq's 3 mb/d production is a focus for the equity markets. We've been lucky so far that nearly all of the fighting in Iraq has been in the northern half while most of the country's oil production and infrastructure is in the southern half. Thus far Iraq's production has not been seriously damaged. There is no guarantee the fighting will stay contained to the north. What happens if Baghdad falls or if the country is permanently divided? Terrorist could target Iraq's production facilities and pipelines.

Fortunately oil production in the U.S. is booming. America just hit 11 million barrels a day. That makes the U.S. the biggest single producer in the world. Current forecast put U.S. production hitting a peak of 13.1 mb/d in 2019. Unfortunately global demand might rise by another 5 or 6 mb/d by then (let's not forget the lost production from declining wells).

Oil prices will most likely remain elevated for an extended period of time. That should mean good news for all the energy companies, up stream, down stream, and everyone in between. A good way to play this strength in energy demand is the XLE, the Energy Select SPDR Exchange Trade Fund (ETF).

The XLE is a basket of over 40 of the biggest names in the energy space from production, to drilling, oil services, and refining. The XLE's top ten components are:

Exxon Mobil (XOM)
Chevron Corp. (CVX)
Schlumberger Ltd. (SLB)
ConocoPhillips (COP)
EOG Resources (EOG)
Pioneer Natural Resources (PXD)
Halliburton Co (HAL)
Occidental Petroleum (OXY)
Anadarko Petroleum (APC)
The Williams Companies Inc. (WMB)

As the violence in Iraq worsened last month we saw the XLE sprint higher in the first three weeks of June. When the stock market experienced some widespread profit taking on June 24th traders rushed into to lock in profits on the XLE. Since then the ETF has been slowly drifting higher.

We believe the up trend continues. The July 1st high was $100.66. Tonight we're suggesting a trigger to buy calls at $100.75. We'll start this trade with a stop loss at $97.95.

Trigger @ $100.75

- Suggested Positions -

Buy the Oct $105 call (XLE141018C105)

Option Format: symbol-year-month-day-call-strike

Entry on July -- at $---.--
Average Daily Volume = 8.8 million
Listed on July 05, 2014

PUT Play Updates

Tractor Supply Co. - TSCO - close: 61.38 change: +0.59

Stop Loss: 62.65
Target(s): To Be Determined
Current Option Gain/Loss: - 4.0%
Time Frame: 8 to 12 weeks
New Positions: see below

07/09/14: During the regular session TSCO was bouncing and managed to recover a good chunk of yesterday's losses with a +0.97% gain today. After the bell it's a different story with TSCO trading down around $58.00 thanks to an earnings warning.

TSCO lowered its Q2 guidance. Wall Street was expecting a profit of $1.02 a share. TSCO expects Q2 earnings will be closer to $0.95. Same store sales are up +1.9% versus +7.2% gains the same time last year.

I am not suggesting new positions at this time.

Earlier Comments: June 24, 2014:
TSCO has everything from cowboy boots to chicken coops and everything you might possibly need on the farm. The company has over 1,300 stores in 48 states. This specialty retailer is focused on the "lifestyle needs of recreational farmers and ranchers and others who enjoy the rural lifestyle, as well as tradesmen and small businesses."

A lot of things are on the rise for TSCO. They have rising sales, a rising dividend, rising stock buyback program. What is not rising is their stock price. Shares peaked in January this year after surging to all-time highs in 2013. The company has been raising its dividend, now up to 16 cents a share. They also recently announced another $1 billion to their stock buyback program. Unfortunately these do not seem to be helping the share price.

Their last earnings report was April 23rd. TSCO reported Q1 earnings of 35 cents a share on revenues of $1.18 billion. That missed estimates of 37 cents on revenues of $1.21 billion. To be fair the terrible weather in the first quarter really did affect their sales, given their farm and rancher focus. Management believes these sales will return as the weather improves. TSCO reaffirmed their 2014 sales guidance of $5.62 billion to $5.7 billion and same-store sales of 2.5% to 4%. The company plans to open over 100 new stores this year.

Not everyone on Wall Street believes TSCO is a buy. The company was recently downgraded thanks to its high valuation (over 26 times its 2014 earnings estimates) and weaker gross margins. TSCO also seems to be suffering from slowing same-store sales. Last year their average same-store sales growth was +4.8%. The fourth quarter's was +3.5%. The first quarter of 2014 it was down to +2.2%. Again, you could blame that on the weather but it's not a good trend.

We are not setting an exit target tonight. It is worth noting that the point & figure chart is bearish and suggesting a $46 target.

- Suggested Positions -

Long Oct $60 PUT (TSCO141018P60) entry $2.45

07/09/14 after the closing bell TSCO issued a Q2 earnings warning
07/01/14 new stop @ 62.65
06/26/14 triggered
Option Format: symbol-year-month-day-call-strike

Entry on June 26 at $61.90
Average Daily Volume = 871 thousand
Listed on June 24, 2014