Option Investor

Daily Newsletter, Tuesday, 3/17/2015

Table of Contents

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

Market Wrap

Fed Losing Patience

by Jim Brown

Click here to email Jim Brown

The Fed is likely to remove the word patient from its post meeting statement but then try to convince investors that it will remain patient for months to come and there are no rate hikes on the horizon. The Fed will stress its data dependence as that economic data is weakening as each day passes.

Market Statistics

The Fed talked itself into a box with the "considerable period" phrase and then replaced it with the "FOMC can remain patient" phrase. This gave the markets something to key on in the language of the Fed statement rather than the economic reality. On Wednesday the Fed will try to extract itself from the terminology box and stress data dependence but that will only shift the focus to specific data points and create an entirely new set of worries for the Fed.

You may remember they originally said they would not raise rates as long as the unemployment rate remained above 6.5%. When the rate plunged below that level they had to change the guidance because the rate fell for the wrong reason. People were leaving the workforce at an accelerated rate and the falling Labor Force Participation Rate was forcing the unemployment rate lower.

Having endured countless questions and been forced to change three focus points in the statement over the last 18 months they will be trying to craft a new statement that soothes fears about an imminent rate hike but does not contain any specific terminology that could force another statement change in the future. At the same time they want to introduce some volatility into the treasury market and have no written barriers to a rate hike at any point in the future.

This is going to be a challenge for a Fed that has tried to be more than open about its goals and guidance. It will be interesting to see how they say "rate hikes are coming but not any time soon."

The markets were confused over how they should be reacting ahead of Wednesday's statement given the continued economic disappointments. The economic data over the last six weeks has been the worst in terms of missed estimates since 2009. Today was no different. The Dow declined nearly -200 points after the Housing Starts missed estimates by a mile.

New housing starts for February declined from 1,081,000 to 897,000 or a drop of -17%. Single family starts declined -15% from 697,000 to 593,000. That is roughly only two-thirds the normal pace. Of course everyone was quick to blame the winter weather in February. I guess it has never snowed before in February.

Housing starts in the Northeast declined -56%, Midwest -37%, West -18% and South -2.5%. Clearly the weather did impact the Northeast and Midwest but they only provide about 10% of starts in a typical February and 20% of the starts nationwide in June. Yes, the weather had an impact but starts still declined in the West and South where weather was not an issue.

On the bright side overall permits, an indicator of future starts, rose slightly from 1.06 million to 1.092 million. However, it was heavily weighted to multi-family units with a +18.3% jump. Single-family permits declined -6.2% from 661,000 to 620,000.

Analysts are confused given the demand for new homes as to why the builders are not in any hurry to accelerate construction. Some believe the builders were burned so badly in the Great Recession that they are holding back and building at a much slower pace so they can better manage cash flow, raise prices, increase profits and reduce debt. Others believe we are nearing another recessionary cycle after a six-year expansion. The builders don't want to end up with a lot of inventory if the economy pulls back again. With more than 90% of the economic reports over the last six-weeks either declining or missing estimates there is a decent risk that we could see some weakness ahead.

Housing completions declined sharply at -13% from 986,000 to 850,000. With the pace of starts and permits declining along with completions we can bet that housing prices are going higher. Coupled with the difficulty of normal people getting a home loan this may be only what the rate of home builders can bear. Anecdotal reports claim more than 50% of new home purchasers are declined for their loans. That is a serious headwind for builders and the pace of building is reflecting that problem.

The State and Regional Employment report for January showed that jobs increased in 39 states, fell in 10 states and was unchanged in North Carolina. California, Michigan and Ohio had the largest increases and 24 states reported lower unemployment. This covered the January period and was ignored.

The big event on the calendar for Wednesday is of course the FOMC announcement and probably more important is the Yellen press conference. She will have to explain whatever new language they put in the FOMC statement. Analysts will be trying to determine what the next key phrase is going to be.

The FedEx earnings will also be watched closely for signs of economic weakness and lower shipments.

Another pothole for the week could be the Greek debt payment due on Friday. Greece can't access any additional funds from the 240 billion euro bailout program until certain conditions are met and that is not going to happen in the near future. The government is grabbing cash from every source possible including trying to plunder private retirement accounts held at the Bank of Greece. They are also transferring 556 million euros from a bank recapitulation fund to the state coffers. Unfortunately there is no plan B or for that matter no plan A either. The original plan was not to pay or get the Troika to postpone the debt payments. Greece is going to try and auction $1 billion euros in short term notes on Wednesday. With Greece about to default on the Troika payments the auction may not go well. Currently the yield on the 2yr notes is 20.22%. There are frantic phone calls in progress and there is an EU summit on Thursday to discuss Greek finances.

In a survey of economists 41% believe Greece will eventually leave the eurozone within 3 years. Another 25% believe Greece will remain in the EU but will be forced to implement capital controls to prevent capital from leaving Greece. The Grexit problem is not as bad as it would have been three years ago because eurozone banks no longer hold a lot of Greek debt. Recent comments from Greek officials include "The EU finance ministers know we can never repay our debt" and "The EU got themselves into this mess because they knew Greece was bankrupt." Those are odd comments from a country that is still dependent on future handouts from those ministers. It would not encourage me as a finance minister to give them billions in additional loans.

In stock news Alibaba (BABA) received an upgrade from hold to buy from Stifel Nicholas with a price target of $99. This is unusual timing given the lockup expiration of 437 million shares on Wednesday, which is more than the 330 million currently available to trade. Just over 100 million of those belong to employees and will still have some trading restrictions until after the company reports earnings in May. The analyst said negative concerns are overblown and the company has an 80% market share in China with a relatively low PE of 25.

Short interest in BABA shares has risen to 57 million as of February 27th. Put option volume dominates the option volume on BABA as investors protect their positions and speculators bet on a decline. The $80 puts were the most actively traded. However, there is only a 50:50 chance of a BABA decline after the expiration. In the hundreds of lockup expirations since 2000 it turned into a coin toss for direction. The lockups are so well publicized that the bad news is already priced in for many of the lockups. I also believe that most BABA investors believe the stock is going higher so the rush to sell may be over hyped. However, the expiration of another 1.2 billion shares in September is going to be a problem.

GM shares declined on Tuesday one day after announcing a $5 billion buyback program and raising their dividend. News broke that 4,342 families had filed claims associated with the faulty ignition switch problem. So far there have been 475 death claims, 289 disastrous injury claims and 3,578 less serious injuries that required hospitalization. So far GM has only approved 67 death claims, 11 severe injuries and claims for 102 other injuries. Previously GM had said there were only 67 death claims.

Pushing GM lower were claims by two lawyers that recent proof had surfaced that showed GM tried to cover up the problem switches. If they can prove their case that puts the potential payouts into an entirely new range and they will not be cheap. Just yesterday one family settled a suit for $5 million. GM claims the slow reaction to the problem was just incompetence rather than an attempt to cover it up. The lawyers said the evidence of the cover up will come out when the first class action suit begins in January 2016. Attorneys are in the midst of discovery and exchanging documents. They are currently deposing current and former GM engineers and executives.

Shares only declined -29 cents on the news but analysts are turning cautious on the car company.

Vivint Solar (VSLR) was upgraded to outperform at Credit Suisse with a $22 price target. The stock is currently $12 even after a +12% gain today. The CEO was bullish on Friday saying 2015 was going to be a banner year. When the company reported earnings on March 4th revenue rose +248%. The company's cost per watt has fallen from $4.25 at the beginning of 2014 to $2.96 at the end of December. They expect it to decline to as low as $2.80 in the months ahead.

Facebook (FB) made news today with a blog post saying it is rolling out a payment process as part of the Messenger app. Last year Facebook hired former Paypal president David Marcus to run the Messenger division. Astute investors realized there was probably a payment system in Facebook's future.

Facebook said the Messenger app will allow users to send and receive money from other Facebook users. Marcus wrote in the post, "Excited to start rolling out person-to-person payments in Messenger! It’s an easy, secure, truly frictionless, and almost magical experience that happens in-line with existing conversations where all of your friends and family already are."

To send money on Facebook users will have to add a Visa or MasterCard debit card issued by a U.S. bank to their Facebook account. Once they start a message with a friend they tap a money sign, enter the amount they want to send and tap pay to send the money. Facebook said the card information will be encrypted and stored behind software and hardware firewalls and will be very secure. Users can add a unique PIN number when they add their debit card for an extra level of protection. You can watch a video HERE on how it works.

After the bell Adobe (ADBE) reported adjusted earnings of 44 cents compared to analyst estimates for 39 cents. Revenue of $1.11 billion also beat estimates of $1.09 billion. However, they guided to a range of 41-47 cents for the current quarter and analysts were expecting 48 cents. They generated 517,000 Creative Cloud subscriptions for the quarter and analysts were expecting 573,000. Shares declined -$3 in afterhours to $76.75.

Oracle (ORCL) reported adjusted earnings of 68 cents that was in line with estimates. Revenue of $9.33 billion fell short of estimates at $9.46 billion. They said dollar strength cost them earnings growth. The company said cloud revenues rose +30% to $372 million. The company said it was poised for a significant increase in its cloud business in 2015 and it was growing a lot faster than Salesforce.com and they were taking market share from their competitor. They expect to sell more than $1 billion in cloud products in 2015 and surpass Salesforce. They also raised their dividend +25% to 15 cents. Shares traded in a $6 range after the report but settled with only a 60 cent gain at $43.50.

Crude oil declined to $42.50 after the close and a new 6-year low. Today was expiration day for crude options and that could have influenced the regular session trading. There was no news that would have impacted crude prices other than expectations for another large build in inventories with they are reported on Wednesday. The shrinking storage capacity problem continues to make headlines as well as the end of the refiner strike. Crude demand in the U.S. is going to pickup once the refineries finish their maintenance cycle and begin producing summer blend gasoline. Right now we are importing gasoline and distillates from places as far away as Saudi Arabia, South Korea and Brazil. Once refiners return to normal operating status the crude oil inventories will begin to decline. That normally begins in late April and early May as shown in the EIA inventory chart below. The gray area is the five-year average range and the blue line is the current inventory level.


It was another triple digit reversal for the Dow. Over the last nine trading days the Dow has traded in a triple digit range 8 times with four days up and four days down. The ninth day was also down but it was not a triple digit day. The key here is that Q1 earnings estimates are falling and the dollar is rising. As each day passes the earnings estimates become more depressed because of the dollar's impact. The Dow stocks are all international companies and they are the most impacted by the dollar so they are the most volatile.

Of the Dow stocks there is also a group that is at or approaching 52-week lows for various reasons. This is a continued drag on the index. Some of those stocks include PG, IBM, GE, JNJ, VZ, T, CAT, KO, XOM, CVX, MSFT and AXP. It is hard for the Dow to maintain positive momentum when one-third of the index is at or near their 52-week lows. At the same time more than half of the S&P-500 stocks are also in a negative trend.

The S&P also declined sharply at the open but recovered somewhat to close down only -7 points and retain most of Monday's gain. Only 45% of the S&P derive a substantial portion of their revenue from overseas. Resistance at 2080 remained firm and that will be the challenge once the Fed news passes. We still have the same range I mentioned last week between 2040-2080 and until that is broken we are just passing time waiting for the next headline.

The S&P did honor its 100-day average at 2042 when it was tested last week. That average has risen to 2048 at today's close so that is the initial support point on any further declines. If the 2040 level is broken on a future decline the 150-day average, currently 2021, becomes support.

American Airlines (AAL) will be added to the S&P-500 after the market close on Friday. American will replace Allergan (AGN) that is being acquired by Actavis.

The Dow will undergo a significant transformation at Wednesday's close. Apple will replace AT&T (T) and Visa (V) will split its stock 4:1. Visa currently carries the heaviest weighting in the Dow and was responsible for about -30 points of the Dow's decline on Tuesday. After the split it will only carry about a 4% weighting. This will reduce the Dow volatility significantly. The swings on a $265 stocks are much larger than an $85 stock and price movement is what it is all about. After Wednesday's close a $1 move in any Dow stock will be worth about 6.75 Dow points.

Today the Dow declined -192 points just after the open and struggled to move off of those lows even though the Nasdaq turned positive in mid-afternoon. A downgrade on Dupont and the pre-split decline in Visa shares were the biggest drag. The rebound could not quite make it to the resistance at 18,000 on Monday and it could not get back to 17,900 on Tuesday. The 17,800 level was intraday support and the index was barely able to recover 50 points from that level to close at 17,847 and a loss of -128 points.

The international blue chips are simply carrying the weight of the strong dollar on their shoulders. Levels to watch on Wednesday are 17,800 and 18,000 with real support at 17,640 and the lows from last week.

The Nasdaq is coming back to life after the battle at 5000 and the fall from grace all the way back to 4845. The index declined only about -20 points at the open and dip buyers appeared at 11:AM and it gained steadily the rest of the day. With the close just under 4940 the next material resistance is 4950 and then on to 5000.

The biotechs were the leaders once again. Apple shares gained on news of a new streaming TV service and the stock rose +$2.33 but that only garnered it the 25th spot on the Nasdaq gainers list. It was enough to help power the Nasdaq back into the green for the day.

Initial support is 4912 followed by 4845. Resistance 4950 and 5000.

The Russell 2000 small caps also managed a gain to close at 1241.71. That is less than a point below their historic high close at 1242.61. The small caps have very little exposure to the strong dollar and this has become the investment bunker for those investors looking for a place to hide from the currency wars. Assuming the Fed does nothing stupid I would expect the Russell to make a new high at some point this week. We considered a long position in the Russell IWM ETF tonight but passed because of the unknowns about the post Fed market and the potential for a weak market after option expiration.

Typically on Fed announcement days there is a period of volatility after the news and then a minimal move of .3% to .6% depending on the news. It is the day after the Fed statement that we typically see a strong directional move. However, Friday is quadruple witching and that could foul up the historical trends. This is also the end of the quarter and conventional wisdom suggests portfolio managers will be taking profits and setting up their portfolios for the summer doldrums. With the economic news weakening every day this will put even more importance on how the Fed changes their statement and how fund managers setup for the summer months.

If crude oil were to find a bottom here around $40 I am sure a lot of that excess cash would be headed for energy stocks. Most managers I have heard are still scared of energy stocks until that bottom appears.

We are also approaching tax day and traders will be taking funds out of the market to pay their tax bill. Some years experience more selling than others depending on the gains from the prior year. Given the volatility in the market since October there may have been enough losses to offset gains and maybe we won't see any major tax selling in early April.

In an interesting news headline today the Secret Service wants to build a duplicate of the White House about 20 miles away in Beltsville Maryland at a cost of about $8 million. This would be on a 500 acre Secret Service training site and the replica would allow agents to train better to protect the occupants of the real White House. Right now they train on a parking lot where they have marked off the ranges of fences, trees, bushes, fountains, etc. The service said the addition of a more realistic environment would go a long way towards allowing the agents and tactical teams real life training to repel attacks. Recent breaches of the White House grounds suggest agents need additional training.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email



New Option Plays

Serving Up Relative Strength

by James Brown

Click here to email James Brown


Cracker Barrel - CBRL - close: 154.20 change: +0.61

Stop Loss: 149.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 320 thousand
Entry on March -- at $---.--
Listed on March 17, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Looking at the big picture for retail we have not seen any significant evidence that lower gasoline prices has boosted consumer spending. The one exception might be restaurant sales and CBRL is definitely near the top of the list. It is probably no coincidence that a big number of CBRL's locations are located near the interstate highway (and likely near a gas station).

The company describes itself as "Cracker Barrel Old Country Store, Inc. provides a friendly home-away-from-home in its old country stores and restaurants. Guests are cared for like family while relaxing and enjoying real home-style food and shopping that’s surprisingly unique, genuinely fun and reminiscent of America's country heritage…all at a fair price. The restaurant serves up delicious, home-style country food such as meatloaf and homemade chicken n' dumplins as well as its made-from-scratch biscuits using an old family recipe. The authentic old country retail store is fun to shop and offers unique gifts and self-indulgences. Cracker Barrel Old Country Store, Inc. (CBRL) was established in 1969 in Lebanon, Tenn. and operates 634 company-owned locations in 42 states."

CBRL has beaten Wall Street's earnings estimates the last three quarters in a row. Their most recent report was their Q2 on February 24th. Analysts were looking for a profit of $1.62 a share on revenues of $734 million. CBRL crushed the numbers with a profit of $1.93 a share, which is a +24% improvement from a year ago. Revenues were up +8.2% to $756 million. Management said comparable store restaurant sales were up +7.9%. Their average check was up +3.2%.

CBRL raised their 2015 guidance from $5.95-6.10 to $6.40-6.50. Consensus was only $6.13. They raised their revenue forecast from $2.8 billion to $2.8-2.85 billion. Wall Street was forecasting $2.82 billion. Following CBRL's better than expected results and bullish forecast the stock received a couple of upgrades with price targets in the $165-170 range.

A few days after their earnings report the company announced a $1.00 dividend payable on May 5th to shareholders on record as of April 17th, 2015. The stock's current dividend yield is 2.5%, above the 2.0% yield of the 10-year bond.

The stock exploded higher following its earnings results in February. That's probably thanks to some short covering. The most recent data listed short interest at almost 14% of the very small 18.9 million share float. The stock's big rally also produced a buy signal on the point & figure chart that is now forecasting a long-term target of $220.

Tonight we are suggesting a trigger to buy calls at $155.55.

Trigger @ $155.55

- Suggested Positions -

Buy the JUN $160 CALL (CBRL150619C160) current ask $4.60

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

Daily Chart:

In Play Updates and Reviews

Traders Indecisive In Front Of The Fed

by James Brown

Click here to email James Brown

Editor's Note:

Traders were in an indecisive mood on Tuesday ahead of tomorrow's Fed statement and Yellen's press conference. The U.S. market has been unable to post back-to-back gains in the month of March.

CRM and UA hit our entry triggers. DD and GPRO hit our stop losses.

Tomorrow afternoon could be volatile as the market reacts to the FOMC statement.

Tonight we have updated a few stop losses to try and reduce our risk.

Current Portfolio:

CALL Play Updates

Aetna Inc. - AET - close: 105.40 change: -0.67

Stop Loss: 102.85
Target(s): To Be Determined
Current Option Gain/Loss: +89.7%
Average Daily Volume = 2.2 million
Entry on March 04 at $101.15
Listed on March 02, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

03/17/15: AET followed the market lower this morning but traders bought the dip midday. AET pared its loss to just -0.6%. I'm not suggesting new positions at this time.

Trade Description: March 2, 2015:
Healthcare stocks have been extremely strong performers from the market's mid October 2014 lows. Investors have continued to buy the dips and that's especially true in shares of AET. This stock has been outperforming the market in 2015 and currently up +12.0% for the year.

Who is AET? According to the company, "Aetna is one of the nation's leading diversified health care benefits companies, serving an estimated 46 million people with information and resources to help them make better informed decisions about their health care. Aetna offers a broad range of traditional, voluntary and consumer-directed health insurance products and related services, including medical, pharmacy, dental, behavioral health, group life and disability plans, and medical management capabilities, Medicaid health care management services, workers' compensation administrative services and health information technology products and services. Aetna's customers include employer groups, individuals, college students, part-time and hourly workers, health plans, health care providers, governmental units, government-sponsored plans, labor groups and expatriates."

Investors have been bullish on big healthcare names because of the Affordable Care Act (a.k.a. Obamacare). Initially this industry was resistant to the deal. Obamacare did get off to a rocky start. Yet now a couple of years after its launch most of the wrinkles have been ironed out. Obamacare has generated millions of new health insurance customers for the industry.

Earnings have been strong. AET's most recent earnings report was February 3rd. The company delivered a Q4 profit of $1.22 a share. That was in-line with estimates. Revenues were up +12.5% to $14.77 billion, which was above expectations. More importantly AET raised their 2015 guidance from $6.90 a share to $7.00. That's actually below Wall Street's estimate but it's moving the right direction. Multiple analysts raised their price target on AET following the Q4 report. Meanwhile the point & figure chart is bullish and forecasting at $119 target.

The healthcare providers got another boost last week on February 23rd after the government issued new proposals to raise the rate they pay insurers for Medicare/Medicaid. Shares of AET have not seen that much profit taking from its February high and traders are already buying the dip.

We want to jump on board if this rally continues. Tonight we're suggesting a trigger to buy calls at $101.15. We'll try and limit our risk with an initial stop loss at $98.85.

- Suggested Positions -

Long Apr $105 CALL (AET150417C105) entry $1.36

03/16/15 new stop @ 102.85
Our option has more than doubled. Traders might want to take some money off the table here.
03/04/15 triggered @ 101.15
Option Format: symbol-year-month-day-call-strike

Cavium, Inc. - CAVM - close: 69.80 change: -1.23

Stop Loss: 68.45
Target(s): To Be Determined
Current Option Gain/Loss: -13.2%
Average Daily Volume = 737 thousand
Entry on February 27 at $68.75
Listed on February 26, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

03/17/15: Hmm... is our CAVM trade in trouble? The stock underperformed the market today with a -1.7% decline. We will try and reduce our risk by moving the stop up to $68.45. I am not suggesting new positions at this time.

Earlier Comments: February 26, 2015:
Semiconductor stocks have been showing relative strength this year. The SOX semiconductor index is already up +4.3%. CAVM is outperforming its peers with a +10.6% gain.

If you're not familiar with CAVM, Investors.com described the company as "a specialty niche designer of network security processors 14 years ago" that has grown into "a mainstream player challenging the likes of Intel, Broadcom, and Freescale Semiconductor."

The company describes itself as "Cavium is a leading provider of highly integrated semiconductor products that enable intelligent processing in enterprise, data center, cloud and wired and wireless service provider applications. Cavium offers a broad portfolio of integrated, software-compatible processors ranging in performance from 100 Mbps to 100 Gbps that enable secure, intelligent functionality in enterprise, data-center, broadband/consumer and access and service provider equipment. Cavium's processors are supported by ecosystem partners that provide operating systems, tool support, reference designs and other services. Cavium's principal office is in San Jose, CA with design team locations in California, Massachusetts, India and China."

The last four quarterly earnings reports have been better than expected. CAVM has consistently beat analysts' estimates on both the top and bottom line. Revenue growth has slowly accelerated from +19.7% in Q1 2014, +22.2% in Q2, +23.6% in Q3, and +25% in Q4 2014.

CAVM's CEO Syed Ali is optimistic on 2015 saying, "This will be the single biggest year of new product introductions in our history."

Meanwhile analyst Christopher Rolland, with FBR Capital Markets, commented on the company, saying, "innovative design team, solid pipeline of new products and ability to increasingly tap into a fast-growing hyperscale customer base should provide a solid backdrop of growth for the next few years."

Wall Street expects CAVM revenue growth of +20% in 2015 and earnings growth of +26%. The point & figure chart is very bullish and forecasting a long-term target of $96.00. Technically shares spent the last few days consolidating sideways but today's display of relative strength is a bullish breakout. We are suggesting a trigger to buy calls at $68.75. (FYI: April and May options are not available yet so we chose June)

- Suggested Positions -

Long JUN $75 CALL (CAVM150619C75) entry $3.80

03/17/15 new stop @ 68.45
03/07/15 new stop @ 67.65
02/27/15 triggered @ $68.75
Option Format: symbol-year-month-day-call-strike

Salesforce.com, Inc. - CRM - close: 67.55 change: +1.12

Stop Loss: 62.75
Target(s): To Be Determined
Current Option Gain/Loss: +11.3%
Average Daily Volume = 4.5 million
Entry on March 17 at $66.75
Listed on March 16, 2015
Time Frame: Exit prior to May option expiration
New Positions: see below

03/17/15: Our new play on CRM is off to a strong start. Shares surged another +1.6%. The stock is up three out of the last four days. Our trigger to launch bullish positions was hit at $66.75 today.

Trade Description: March 16, 2015:
This year could be a good one for shares of CRM. The stock spent most of last year churning sideways in the $50-65 range. CRM managed to end 2014 with a +7.4% gain, which underperformed the major indices. Today CRM is up +12% in 2015 and that's after a correction from its post-earnings highs in February.

Marc Benioff is CRM's CEO and Chairman. After CRM's recent Q4 earnings report Benioff said, "Salesforce reached $5 billion in annual revenue faster than any other enterprise software company and now it's our goal to be the fastest to reach $10 billion."

If you're not familiar with CRM the company describes itself as "Salesforce.com is the world's largest provider of customer relationship management (CRM) software. Our industry-leading CRM platform has become the world's leading enterprise cloud ecosystem. Industries and companies of all sizes can connect to their customers in a whole new way using the latest innovations in mobile, social, and cloud technology to sell, service, market, and succeed like never before. Salesforce has headquarters in San Francisco, with offices in Europe and Asia."

Their most recent earnings report was February 25th, after the closing bell. CRM's Q4 2015 earnings and revenues were both in-line with estimates at $0.14 a share on sales of $1.44 for the fourth quarter. Revenues were up +26% in the fourth quarter and up +32% for the full year. They were up +29% in the fourth quarter if you account for currency headwinds.

Almost 93% of CRM's sales are their subscription software business. In the fourth quarter their subscription software service was up +25% and their professional services subscription was up +41%. Back in fiscal year 2014 CRM signed 100 big deals in the seven-to-eight figure range. This past year the number of big deals surged to 550. Analysts were happy to see CRM's deferred revenues grow, which jumped +32% in the fourth quarter, up from +28% in the third quarter.

Benioff commented on their results, "Salesforce delivered yet another year of exceptional growth, with revenue, deferred revenue and operating cash flow all growing more than 30%, while exceeding our expectations in non-GAAP operating margin improvement."

CRM guided for +21% sales growth in 2016 (up to $6.52 billion). This was just above their prior guidance and in-line with Wall Street estimates. The company now expects their 2016 earnings in the $0.67-0.69 range compared to analysts' estimates of $0.69. Consensus estimates are for $6.5 billion in sales. Wall Street analysts praised CRM's results. There was a parade of price target upgrades. Most of the new price targets are in the $79-80 range.

Shares have filled the gap from its post-earnings pop and investors have stepped in to buy shares at new support (prior resistance). Today's rally looks like an opportunity. We are suggesting a trigger to buy calls at $66.75.

- Suggested Positions -

Long MAY $70 CALL (CRM150515C70) entry $1.95

03/17/15 triggered @ 66.75
Option Format: symbol-year-month-day-call-strike

Mallinckrodt - MNK - close: 131.26 change: +4.83

Stop Loss: 125.25
Target(s): To Be Determined
Current Option Gain/Loss: +42.7%
Average Daily Volume = 1.3 million
Entry on March 16 at $125.29
Listed on March 14, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

03/17/15: MNK's rally is accelerating. Shares surged +3.8% to mark its fourth up day in a row. We are raising the stop loss up to $125.25. No new positions at this time.

Trade Description: March 14, 2015:
The relative strength in healthcare stocks continues. Healthcare and biotech stocks were big performers last year and that outperformance appears to be continuing into 2015. One stock that is really outperforming its peers is MNK. Shares delivered a +89% gain in 2014 and they're already up +25% in 2015.

MNK describes itself as "Mallinckrodt is a global specialty biopharmaceutical and medical imaging business that develops, manufactures, markets and distributes specialty pharmaceutical products and medical imaging agents. Areas of focus include therapeutic drugs for autoimmune and rare disease specialty areas like neurology, rheumatology, nephrology and pulmonology along with analgesics and central nervous system drugs for prescribing by office- and hospital-based physicians. The company's core strengths include the acquisition and management of highly regulated raw materials; deep regulatory expertise; and specialized chemistry, formulation and manufacturing capabilities. The company's Specialty Brands segment includes branded medicines such as OFIRMEV and Acthar; its Specialty Generics segment includes specialty generic drugs, active pharmaceutical ingredients and external manufacturing; and the Global Medical Imaging segment includes contrast media and nuclear imaging agents. Mallinckrodt has approximately 5,500 employees worldwide and a commercial presence in roughly 65 countries. The company's fiscal 2014 revenue totaled $2.54 billion."

MNK's global medical imaging business has fallen from about one third of the company's sales to about a quarter as the specialty pharmaceuticals business continues to grow. One reason for the growth is MNK's acquisition strategy. Last year they purchased Cadence Pharmaceuticals for $1.3 billion, which added Ofirmev to MNK's stable of therapies. MNK also spent $5.6 billion to acquire Questcor Pharmaceuticals. This added Questcor's Acthar gel to MNK's drug business.

MNK has been really delivering on the earnings front. Last August they reported their Q3 2014 numbers with revenues up +14.6% and earnings of $1.20, which was $0.35 above expectations. Management also raised their 2014 guidance. In October 2014 they raised their 2015 guidance. Then in November MNK announced their Q4 2014 results with revenues up +44.8%, above expectations, and earnings of $1.68 per share, which was $0.27 higher than estimated.

The revenue and earnings parade continued when MNK reported their Q1 2015 numbers on February 3rd. The company's profit more than doubled with earnings up +109% to $1.84 per share. That beat Wall Street's estimate by 26 cents. Revenues accelerated as well with +60% improvement to $866.3 million. However, this time analysts had ratcheted up their estimates to $885 million. MNK said their gross profit margin improved to 50.6% from 47.3% a year ago. MNK is currently forecasting 2015 numbers of $6.70-7.20 a share on revenues in the $3.65-3.75 billion range.

Mark Trudeau, Chief Executive Officer and President of Mallinckrodt, commented on their recent results,

"Mallinckrodt is off to a good start in fiscal 2015 driven by strong performance across all of our businesses. We achieved meaningful top- and bottom-line growth particularly in the Specialty Brands and Specialty Generics segments, increasing the proportion of total company net sales from specialty pharmaceuticals to over 75% in the quarter. The strategies we have pursued have gone far toward transforming us into a leading specialty biopharmaceutical company, and we are highly focused on maintaining momentum and expanding our portfolio to provide durable, sustained growth."
Investors appear to believe in MNK's growth story. The stock has a steady trend of higher lows and higher highs. MNK popped on March 5th thanks to M&A news. Wall Street seems to approve. Normally shares of the acquired company go up and the acquirer go down but investors bought MNK too. MNK is spending $2.3 billion to buy privately held Ikaria. This company makes INOmax, which is an inhaled nitric oxide used to treat babies with respiratory issues. The acquisition will boost MNK's earnings by 25 cents a share in 2015.

Following the acquisition news multiple analysts have raised their price targets on MNK. The nearly all the new targets are about $140 a share. Today MNK is sitting just below what looks like round-number, psychological resistance at the $125.00 mark. We are suggesting a trigger to buy calls at $125.15.

I'd rather buy May or June options but they're not available yet. We'll use the Julys.

- Suggested Positions -

Long JUL $130 CALL (MNK150717C130) entry $7.50

03/17/15 new stop @ 125.25
03/16/15 new stop @ 121.85
03/16/15 triggered on gap open at $125.29, suggested trigger was $125.15
Option Format: symbol-year-month-day-call-strike

NXP Semiconductors - NXPI - close: 103.83 change: -0.54

Stop Loss: 101.65
Target(s): To Be Determined
Current Option Gain/Loss: +489.0%
Average Daily Volume = 3.7 million
Entry on February 12 at $84.15
Listed on February 11, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

03/17/15: NXPI encountered a little bit of profit taking. Looking at the intraday chart we can see that traders bought the dip, twice, near $102.90. This might be new short-term support.

I'm not suggesting new positions at this time.

Earlier Comments: February 11, 2015:
According to Apple Inc. CEO Tim Cook 2015 will be the year of Apple Pay. That's good news for NXPI. Apple launched its Apple Pay mobile payment system last September. In just the last four months it has taken off. About 8% of retailers already support it and estimates suggest that 38% of retailers will support Apple Pay by year end.

Tim Cook discussed the growth of Apple Pay in his company's recent conference call. Every $3 spent using mobile payments with Visa, Mastercard, and American Express, about $2 of that is used through Apple Pay. Panera Bread said that 80% of its mobile payment usage is through Apple Pay. Whole Foods noted that customers using mobile payments surged +400% once Apple Pay started.

All of this is good news for NXPI because they make the key chips necessary for Apple Pay to work.

The company describes itself as "NXP Semiconductors N.V. (NXPI) creates solutions that enable secure connections for a smarter world. Building on its expertise in High Performance Mixed Signal electronics, NXP is driving innovation in the automotive, identification and mobile industries, and in application areas including wireless infrastructure, lighting, healthcare, industrial, consumer tech and computing. NXP has operations in more than 25 countries, and posted revenue of $4.82 billion in 2013."

Earnings have been good. NXPI managed to beat Wall Street's estimates on both the top and bottom line the last five quarters in a row. Back in July NXPI raised their guidance. Influential hedge fund manager David Tepper, who runs Appaloosa Management, launched a new position in NXPI back in the third quarter of 2014. In early December shares of NXPI were upgraded with a $100 price target by Oppenheimer.

NXPI's most recent earnings report as February 5th. Revenues surged +18.9%. Management delivered bullish earnings guidance for the first quarter. Since this report at least four analyst firms have raised their price targets on NXPI (most of them into the mid $90s).

Today NXPI just hit all-time highs. The stock had been consolidating sideways in at $75-82.50 trading range. This breakout looks like an entry point. I'm suggesting a trigger at $84.15 to buy calls.

- Suggested Positions -

Long Apr $90 CALL (NXPI150417C90) entry $2.36

03/16/15 new stop @ 101.65
03/13/15 NXPI soars on a "strong buy" rating and $140 price target
03/04/15 new stop @ 96.25
03/02/15 new stop @ 94.85, NXPI soars after announcing acquisition of FSL
02/21/15 new stop @ 83.25
02/17/15 new stop @ 80.35
02/12/15 triggered @ 84.15
Option Format: symbol-year-month-day-call-strike

Under Armour, Inc. - UA - close: 78.81 change: +1.52

Stop Loss: 75.95
Target(s): To Be Determined
Current Option Gain/Loss: +10.0%
Average Daily Volume = 2.1 million
Entry on March 17 at $77.60
Listed on March 12, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

03/17/15: In the news today UA announced it had signed a multi-year sponsorship deal with Brazilian soccer club Sao Paulo. There is also speculation that UA and Nike (NKE) could duel over an NBA sponsorship since Adidas has chosen to discontinue its sponsorship of the National Basketball Association. Adidas spent $400 million for an eleven year deal (2006-2017) that expires in 2017. Odds are that a new NBA uniform contract will now be significantly higher. Nike just spent $300 million for a ten-year deal with one player - Kevin Durant.

In other news shares of UA were upgraded again, this time with an $86 price target. Shares of UA broke out to new highs and hit our entry trigger at $77.60. We are raising the stop loss to $75.95.

Trade Description: March 12, 2015:
The NPD Group reports that Americans spent $323 billion on apparel, footwear, and related accessories last year. That's only a +1% improvement from the prior year but all of the growth was due to athletic footwear and apparel. There is a new trend in fashion and it's called "athleisure". Marshal Cohen, chief industry analyst at the NPD Group, said, "This is no longer a trend - it is now a lifestyle that is too comfortable, for consumers of all ages, for it to go away anytime soon."

UA is in the consumer goods sector. They make shoes and athletic wear. According to the company, "Under Armour (UA), the originator of performance footwear, apparel and equipment, revolutionized how athletes across the world dress. Designed to make all athletes better, the brand's innovative products are sold worldwide to athletes at all levels. The Under Armour Connected Fitnessâ„¢ platform powers the world's largest digital health and fitness community through a suite of applications: UA Record, MapMyFitness, Endomondo and MyFitnessPal."

The athletic shoe and athletic apparel business is very competitive. Nike (NKE) has dominated the space for years. UA is about 10% the size of NKE but it is actively fighting for market share and recently overtook Adidas as the second biggest athletic wear brand inside the United States. Nike had sales of $27.8 billion in 2014. UA is a fraction of that with 2014 sales of $3.08 billion but they saw growth of +32%.

UA isn't stopping with just apparel and footwear. They recently spent $710 million to buy the MapMyFitness, MyFitnessPal, and Endomondo apps. This has boosted UA's digital consumer audience to 130 million. UA management believes that more and more we will see technology and software move from our smartphone into a merger between apps and clothing.

UA has been firing on all cylinders with its earnings results. Most of last year saw the company not only beating Wall Street's estimates but also raising guidance. UA's most recent earnings report was February 4th. The company reported a profit of $0.40 a share with revenues climbing +31% to $895 million, which was above estimates for $849 million. UA's CEO Kevin Plank, in a recent interview, said his company will grow at 20%-plus in 2015. The company's current estimates are $3.76 billion in sales for the year.

You might notice that shares of UA held up pretty well during the market's recent sell-off. Shares only dipped toward support in the $74-75 area. During today's market rebound shares of UA outperformed with a +2.7% gain. More aggressive traders could buy calls now. I am suggesting a trigger to buy calls at $77.60.

- Suggested Positions -

Long JUL $80 CALL (UA150717C80) entry $4.09

03/17/15 new stop @ 75.95
03/17/15 triggered @ 77.60
Option Format: symbol-year-month-day-call-strike

PUT Play Updates

Bunge Limited - BG - close: 78.96 change: -0.57

Stop Loss: 81.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.0 million
Entry on March -- at $---.--
Listed on March 11, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

03/17/15: BG continues to sink and shares tagged new lows this morning. Yet the intraday low was only $78.49. Our suggested entry point is $78.45. Odds are good we will see BG hit our entry trigger tomorrow.

Trade Description: March 11, 2015:
It only takes one earnings report to alter a stock's trajectory if the news is big enough. For BG it was the company's Q4 report announced in February.

BG is in the consumer goods sector. According to the company, "Bunge Limited (www.bunge.com, NYSE: BG) is a leading global agribusiness and food company operating in over 40 countries with approximately 35,000 employees. Bunge buys, sells, stores and transports oilseeds and grains to serve customers worldwide; processes oilseeds to make protein meal for animal feed and edible oil products for commercial customers and consumers; produces sugar and ethanol from sugarcane; mills wheat, corn and rice to make ingredients used by food companies; and sells fertilizer in South America. Founded in 1818, the company is headquartered in White Plains, New York."

The middle of 2014 the outlook for BG was a lot more enthusiastic. BG's Q2 earnings report (on July 31st) was better than expected and the company beat estimates on both the top and bottom line. Unfortunately the next two quarters were tough. BG's Q3 results were released on October and the company's profit of $1.31 a share was 59 cents worse than expected. Revenues were down -7.0% from a year ago.

That slowdown in earnings and revenues accelerated in the fourth quarter. BG reported its Q4 results on February 12th. Wall Street was expecting a profit of $2.52 a share on revenues of $16.5 billion. BG delivered $1.20 a share with revenues down -15% to $13.9 billion. That's a HUGE miss on both the top and bottom line.

The Wall Street Journal summed up the quarter this way, "upheavals in the commodity trading firm's oilseed businesses outweighed benefits from bumper U.S. corn and soybean crops." BG suffered terrible margins on their soybean crushing business in China and saw a slowdown in Europe. Their main agribusiness division reported net sales fell -20%.

Naturally investors reacted negatively. The stock plunged to support near $80.00. The initial oversold bounce stalled near $83.00. Now, about four weeks later, shares of BG are breaking down below key support at $80.00. The next support level appears to be the $73.50 area. The point & figure chart is forecasting at $67.00 target.

Tonight we are suggesting a trigger to buy puts at $78.45.

Trigger @ $78.45

- Suggested Positions -

Buy the APR $80 PUT (BG150417P80)

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

Deckers Outdoor - DECK - close: 70.35 change: -0.77

Stop Loss: 73.05
Target(s): To Be Determined
Current Option Gain/Loss: -10.4%
Average Daily Volume = 922 thousand
Entry on March 10 at $71.46
Listed on March 09, 2015
Time Frame: Exit prior to April option expiration
New Positions: see below

03/17/15: DECK underperformed the market today with a -1.0% decline. Shares are flirting with support near $70.00 and look poised to break down.

Trade Description: March 9, 2015:
Consumers can be a fickle lot. When one brand falls out of favor the drop off in sales can be earth shaking for the manufacturer. One company that appears to be seeing some trouble is DECK.

According to the company's marketing material, "Deckers Brands is a global leader in designing, marketing and distributing innovative footwear, apparel and accessories developed for both everyday casual lifestyle use and high performance activities. The company's portfolio of brands includes UGG®, I HEART UGG®, Teva®, Sanuk®, Ahnu® and HOKA ONE ONE®. Deckers Brands products are sold in more than 50 countries and territories through select department and specialty stores, 138 Company-owned and operated retail stores, and select online stores, including Company-owned websites. Deckers Brands has a 40-year history of building niche footwear brands into lifestyle market leaders attracting millions of loyal consumers globally."

DECK started seeing trouble last year. Back in July they reported earnings that beat expectations but management lowered guidance. They did it again in October with DECK delivering results above estimates but lowering guidance. Their most recent report was January 29th where DECK delivered their December quarter. Earnings were up +11% from a year ago to $4.50 a share. That actually missed Wall Street's estimate. Revenues rose +6.6% to $784.7 million. This too missed analysts' expectations of $812.5 million.

If that wasn't bad enough the company lowered their Q4 and 2015 guidance. They downgraded their 2015 revenue growth from +15% down to +13.5% largely due to slowing sales of their UGG brand. That's definitely a warning signal since UGG accounts for more than 80% of DECK's sales.

The stock crashed -19.5% the next day on its disappointing earnings results and lowered guidance. The following two weeks saw an oversold bounce but that bounce is over. Shares are starting to breakdown again. A Morgan Stanley analysts was not enthusiastic on DECK and said they don't see any catalyst between now and the next holiday shopping season to drive the stock higher.

DECK was definitely showing relative weakness today and broke below short-term support near $72.50. Tonight I'm suggesting a trigger to buy puts at $71.65.

- Suggested Positions -

Long APR $70 PUT (DECK150417P70) entry $2.40

03/16/15 new stop @ 73.05
03/10/15 triggered on gap down at $71.46
Option Format: symbol-year-month-day-call-strike

Michael Kors - KORS - close: 64.81 change: +0.28

Stop Loss: 66.35
Target(s): To Be Determined
Current Option Gain/Loss: +35.7%
Average Daily Volume = 3.9 million
Entry on February 26 at $67.90
Listed on February 25, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

03/17/15: An analyst with Oppenheimer issued a bearish note on KORS today. They're concerned that KORS' reliance on outlet stores to boost sales could hurt its status as a "luxury" brand. KORS gets almost 25% of its sales from its outlet stores. The note today failed to stop shares from bouncing and KORS gained +0.4%.

Earlier Comments: February 25, 2015:
Luxury retail brand names like KORS and Coach (COH) have seen their stocks get crushed over the last several months. Shares of KORS were big performers for the bulls the first two plus years from its late 2011 IPO. Unfortunately the stock peaked in 2014. Investors worried about over exposure and slowing growth.

According to the company, "Michael Kors is a world-renowned, award-winning designer of luxury accessories and ready-to-wear. His namesake company, established in 1981, currently produces a range of products through his Michael Kors and MICHAEL Michael Kors labels, including accessories, footwear, watches, jewelry, men’s and women’s ready-to-wear and a full line of fragrance products."

Make no mistake, KORS is still growing. Last August they reported a strong earnings report that beat on both the top and bottom line. While management guided lower short-term they raised guidance for 2015. A few months later when KORS reports earnings in November 2014 they beat estimates again with revenues soaring +42% and KORS announced a $1 billion stock buyback program. However, their outlook on 2015 had tarnished a bit and they lowered comparable store sales growth from the high teens to mid teens.

KORS most recent earnings report was February 5th. Earnings per share grew +32%. Their results of $1.48 per share beat estimates by 15 cents. Revenues grew +30.9% to $1.26 billion but that actually missed Wall Street estimates thanks to foreign currency issues.

What troubles investors is the slowdown in KORS' growth. Globally their comparable store sales grew +8.6%. Most companies would probably be excited for that number. Yet analysts were expecting +12.6%. The slowdown appeared to accelerate in North America. Same-store sales plunged from +24% growth to +6.8%. KORS is also facing margin pressure with both gross margin and its operating profit sliding.

KORS management will tell you that the company is doing great and just reported its 35th quarter in a row of same-store sales growth. However, the number crunchers on Wall Street will point out that it was the first time in five years that same-store sales growth did not rise by double-digit percentages.

A big concern among analysts is that KORS could be losing its appeal because it's growing so fast. Last year they added 114 new stores and ended 2014 with 509 retail locations. They're starting to become too common. KORS is losing its cachet.

Management also lowered their guidance for Q4 (current quarter) to $0.89-0.92 a share versus estimates of $0.94. They also see revenues below expectations.

This concern over slowing growth has produced a bear market in the stock. KORS is definitely not participating in the market's rally. Tonight we are suggesting a trigger to open bearish positions at $67.90.

- Suggested Positions -

Long May $65 PUT (KORS150515P65) entry $2.10

03/16/15 new stop @ 66.35
02/26/15 triggered @ $67.90
Option Format: symbol-year-month-day-call-strike


E.I.du Pont de Nemours and Company - DD - close: 74.68 change: -2.39

Stop Loss: 76.85
Target(s): To Be Determined
Current Option Gain/Loss: -41.8%
Average Daily Volume = 3.9 million
Entry on March 11 at $79.05
Listed on March 10, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

03/17/15: The reversal in shares of DD continued on Tuesday. Shares lost another -3.1% on top of yesterday's -4.2% plunge. It seems that DD's refusal to cooperate with activist investor Nelson Peltz on board seats was the signal to sell. Shares of DD gapped open lower this morning at $76.06, which was below our stop loss at $76.85. DD has now erased about five weeks of gains in just two days.

- Suggested Positions -

JUL $80 CALL (DD150717C80) entry $2.61 exit $1.52 (-41.8%)

03/17/15 stopped out on gap down at $76.06
03/16/15 new stop @ 76.85, shares were downgraded today
03/11/15 triggered @ $79.05
Option Format: symbol-year-month-day-call-strike



GoPro, Inc. - GPRO - close: 40.25 change: +0.88

Stop Loss: 40.85
Target(s): To Be Determined
Current Option Gain/Loss: -40.0%
Average Daily Volume = 8.0 million
Entry on March 09 at $39.40
Listed on March 07, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

03/17/15: It looks like a few nervous bears decided to cover their shorts after GPRO issued a little bit of good news today. The company said their GoPro channel app has been downloaded one million times on Microsoft's Xbox consoles. The channel lets users watch and upload GoPro videos, plus users can buy GoPro cameras and merchandise on the channel. GoPro said that users spend an average of 25 minutes per viewing session but they didn't say how many sessions a consumer might view.

Seeing the stock pop on this news is a bit frustrating if you're a bear. GoPro does not make any money on these channels (well they might make a little money from ads on the channel) but nothing significant that would move the needle for GoPro's revenues.

This stock is going lower but unfortunately today's spike hit our new stop loss at $40.85.

- Suggested Positions -

APR $38 PUT (GPRO150417P38) entry $2.30 exit $1.38 (-40.0%)

03/17/15 stopped out
03/16/15 new stop @ 40.85
03/09/15 triggered @ $39.40
Option Format: symbol-year-month-day-call-strike