Option Investor

Daily Newsletter, Tuesday, 10/13/2015

Table of Contents

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

Market Wrap

Earnings Expectations Weigh on Markets

by Jim Brown

Click here to email Jim Brown

Worries over potentially weak Q3 earnings weighed on the market ahead of reports from Intel and JP Morgan after the bell. The opening dip was bought but resistance held and sellers appeared almost immediately.

Market Statistics

The largest acquisition in 2015 could not hold up the markets at the open. Anheuser Busch InBev (BUD) finally convinced SABmiller to merge. The acquisition is valued at $106 billion and will merge the two largest beer brands in the world. Having Budweiser and Miller under the same roof may not happen. Analysts believe the companies will have to divest the Miller brand and Molson Coors (TAP) will be the beneficiary of that divestment. BUD shares only rose +2% on the news but Molson Coors shares spiked +10% on the potential to acquire the Miller brand.

There were no economic reports to move the market at the open. Wednesday will be different with the Fed Beige Book, Retail Sales and the Producer Price Index. The Beige Book is likely to show that the economy is still growing at a "moderate pace" in the 12 Fed regions. This is probably not going to be a market mover unless it is significantly more negative than in the past.

Dow component Johnson & Johnson (JNJ) reported adjusted earnings of $1.49 compared to estimates for $1.44. Revenue of $17.1 billion missed estimates for $17.41 billion. The company blamed the strong dollar for knocking -16% off international revenues. Drug sales declined -7.4% to $7.7 billion after sales of Hep-C drug Olysio declined -90%. Sales of Motrin and Zyrtec declined -7.7% to $3.3 billion. Sales of medical devices declined -7.3% to $6.1 billion.

JNJ announced a $10 billion stock buyback program and that probably helped shares avoid a sharper decline.

After the bell, Intel (INTC) reported earnings of 64 cents that beat estimates for 59 cents. Revenue of $14.47 billion beat estimates of $14.22 billion. Shares spiked on the initial news but then declined after the company guided mostly in line with analyst estimates for Q4. They guided to revenue of $14.3-$15.3 billion with analysts expecting $14.83 billion. Analysts believe Intel is going to face some competition from Qualcomm, which just announced a "datacenter on a chip" for enterprise servers. Qualcomm is thought to be targeting massive server users including Facebook, Google, Amazon and Alibaba. Shares of Intel dropped more than $1 in afterhours.

JP Morgan (JPM) reported earnings of $1.32 compared to estimates for $1.37. Revenue of $23.54 billion missed estimates for $23.69 billion. The bank is struggling to cut costs as much as possible with the employee count down more than -10,000 year-to-date. The CFO said the summer conditions were "generally quite challenging" and led to a decline in trading revenue. Lower commodity prices forced the bank to raise loan loss reserves to cover loans to oil and gas companies. Shares declined more than $1 in afterhours.

CSX Corp (CSX) reported earnings of 52 cents that beat estimates for 50 cents. Revenue of $2.94 billion missed estimates for $3.04 billion. The railroad said low commodity prices were the biggest challenge causing fewer shipments. Coal demand continues to decline as coal fired plants are closed because of the new EPA rules. Shipments declined -10% in 2015 and are expected to continue declining in 2016. The company also reported significant declines in fertilizers, industrial metals and housing construction materials. Shares of CSX rose fractionally after the report.

Earnings for Wednesday are highlighted by Netflix, Wells Fargo and Bank of America. The banking trend continues on Thursday with Citigroup, Goldman Sachs, US Bank and Schwab.

Twitter (TWTR) shares rose sharply at the open to $30.68 after the company said it planned on cutting 8% of its workforce in order to become more streamlined. That equates to about 336 workers and the news had been leaked. The late afternoon Nasdaq decline pulled shares back to $29.

The company also said it saw revenue in Q3 at the high end of prior guidance of $545-$560 million. Analysts were expecting $559.46 million.

After the bell, Bloomberg reported that SanDisk (SNDK) had hired bankers to explore a potential sale after it received interest from Micron (MU) and Western Digital (WDC). Since SanDisk shares manufacturing plants with Toshiba it would need Toshiba's approval to enter into an acquisition. Micron is a current competitor to SanDisk flash technology. Western Digital may want to add flash memory to its disk drives to speed up access. Shares rallied about 10% on the news.

Crude prices continued to decline even though Tuesday is normally a short covering day ahead of inventories on Wednesday. However, that report has been delayed until Thursday by the holiday. Driving them lower was the fading headlines from Syria and news that the IEA has lowered its demand growth forecast again. The IEA said demand growth will slow from its five-year high of 1.8 million barrels a day (MBPD) in 2015 to 1.2 mbpd in 2016. The agency said long-term price support was likely to fade in 2016 despite a drop of -500,000 bpd in non-OPEC supply. At the same time OPEC supply is expected to grow by 1.0 mbpd as Iranian sanctions are removed. Global supply was 96.6 mbpd in September.


With the democratic debates tonight there is a good chance Hillary will again repeat her plan to have the government control drug prices. That worry caused the biotech sector to crash again with a -3.1% decline ahead of the debate. That decline tanked the Nasdaq and pulled the Russell and S&P lower.

The Nasdaq lost nearly -1% or -42 points to close at a three-day low thanks to the biotech decline. However, there is significant worry over the Netflix earnings due out after the close on Wednesday. The market will likely follow whatever happens to Netflix shares post earnings as that will be a sentiment indicator.

The Nasdaq chart did not change much despite the drop. The mid morning recovery spiked the index to a three week high but resistance held and the decline began at 11:AM. Support remains 4,740 and 4,715.

The S&P tried to break through resistance at 2,020 this morning but despite a +2 point move over that level it was only a temporary gain. The selling began at 11:AM and we closed right at the low of the day and right back at prior resistance. We should see that 1990-2005 level now serve as support but a decline under 1,990 could set off some chain reaction selling.

The Dow tried to extend its gains this morning but the seven-day streak ended with a minor -49 point loss. With JNJ, INTC and JPM expected to open lower on Wednesday the Dow will start off in a decline. Depending on comments in the debate tonight, the healthcare sector could also be a drag on Wednesday. Lower drug prices would be positive for them but there may also be comments about lowering insurance premiums as well.

The Dow closed well over 17,000 and above what should be support at 17,050. The low for the day came at the open at 17,034 and it was quickly bought. Let's hope the same is true on Wednesday.

The Dow Transports ($TRAN) collapsed with a -2.2% decline after Ryder Systems (R) posted a big earnings warning on Monday evening. The transports fell back below their long-term downtrend resistance despite falling oil prices for the last two days. This is a negative sentiment indicator for the market if the sector does not improve.

The Russell 2000 small cap index gave back -1.4% and the third largest index decline after the Biotech and Transport indexes. Resistance at 1,165 held firm and the index closed under prior support at 1,150. This was most likely related to the crash in the biotechs because the Russell has a significant number of biotech components.

Is there a Black Swan event in our near future? Option traders definitely expect something in the next 30 days. The CBOE Skew Index ($SKEW) measures far out of the money options on the S&P-500. The concept is to watch the tail risk from heavy buying of options well out of the money in order to determine market sentiment and the likelihood of a major market move.

The Skew Index has risen 30% just in October and spiked +10% on Monday alone. The index closed at 148.92 on Monday and that is the highest level since the index was created in 1990.

That is higher than the run-up to the 2008 financial crisis, higher than the Ebola crisis, higher than the budget crisis in 2011 and higher than the 1998 Long Term Capital Management crisis that nearly crashed the financial system.

Currently the Skew Index is pricing in a 15% chance of a two standard deviation move in the S&P over the next 30 days. Using the SPY as a proxy for the S&P a 2SD move would be roughly -20 to -23 points. The S&P closed at 200 today so that suggests a potential drop to 177-180.

This corresponds to the massive put buying in the S&P that I wrote about a couple weeks ago. At the time, the trade discussed was the purchase of 90,000 June $184 puts for roughly $1,100 per contract. I checked again today and now there are many more at various June strikes.

180 = 21,000
182 = 46,000
184 = 92,000
185 = 56,000
190 = 29,000
195 = 13,000
200 = 16,000

There are similar quantities in the March and January strikes with a huge increase in the December strikes with some having well over 100,000 in open interest. The December $185 put has nearly 150,000 active contracts.

As I discussed in my prior commentary I thought the large put buys in June were portfolio insurance against a Q4 decline. Premiums would not decline rapidly in case of a rally and portfolio managers could exit with minimum expense.

The large open interest in the December strikes is likely more of the same but with a lot of speculation buys from traders who expected a new market low in October. Remember, just two weeks ago on September 29th the indexes were trading back at their August lows and the sentiment was very bearish.

Planning for a black swan event would be the equivalent of betting on a specific number on the roulette table. Your chances of success would be exceedingly low. The definition of a black swan event is something "unexpected or unpredictable" that rocks the markets. To claim those large put positions were predicting a black swan event would mean it was expected. Obviously, traders and portfolio managers can expect a market decline without it being a black swan event. Markets decline for dozens of reasons and buying a lot of puts does not mean Russia is about to launch an attack on the USA.

While we cannot rule out an "unpredictable" market event over the next couple of months, I think we need to assume the majority of those high open interest puts on the S&P are simply hedges as a form of portfolio insurance.

The market is facing a lot of weakness in the upcoming earnings reports. Intel and JP Morgan both traded lower tonight but not that much lower. In both cases, the damage was limited to about $1. If that continues to be the trend, the earnings cycle will turn out ok and investors could but the dip. However, in both of those reports the bad news was expected and priced into the stocks.

We may find out that most of the negative earnings are already priced in and/or the bad news may not be as bad as analysts expect.

I am in the buy the dip camp until proven wrong. If the S&P does dip back below 1,990 I would probably refrain from an instant buy and wait to see what the market gives us. There are two weeks left for fund managers to window dress their portfolios for the end of their fiscal year. They "should" be buying performance in hopes of adding a few dollars to their gains before the end of October. Time will tell if that is going to happen this year.

Sometimes the best trade is the one you do not make.

Enter passively, exit aggressively!

Jim Brown

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New Option Plays

Crumbling Sales Fuel Stock Decline

by James Brown

Click here to email James Brown


B/E Aerospace Inc. - BEAV - close: 46.04 change: -0.70

Stop Loss: 48.20
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.3 million
Entry on October -- at $---.--
Listed on October 13, 2015
Time Frame: Exit PRIOR to earnings on October 27th
New Positions: Yes, see below

Company Description

Trade Description:
The business jet market is tough these days. Falling demand from foreign customers and companies cutting their capex budgets has hurt sales. Shares of BEAV have suffered due to the bearish outlook.

BEAV is in the industrial goods sector. According to the company, "B/E Aerospace is the world's leading manufacturer of aircraft cabin interior products. B/E Aerospace designs, develops and manufactures a broad range of products for both commercial aircraft and business jets. B/E Aerospace manufactured products include aircraft cabin seating, lighting systems, oxygen systems, food and beverage preparation and storage equipment, galley systems, and modular lavatory systems. B/E Aerospace also provides cabin interior reconfiguration, program management and certification services. B/E Aerospace sells and supports its products through its own global direct sales and product support organization."

BEAV has missed Wall Street revenue estimates two quarters in a row. The most recent report (July 22nd) saw revenues crumble -35%. Management has also lowered their guidance two quarters in a row.

Last month BEAV announced they were cutting 450 jobs as they shuttered some facilities and eliminated some product lines. The company said they're trying to reduce expenses due to slowing revenues expected in 2015 and 2016.

Technically the stock is bearish. Shares are in a bearish trend of lower highs and lower lows. The oversold bounce in October has failed at the trend of lower highs (resistance). The point & figure chart is bearish and forecasting at $41.00 target. Today saw BEAV's attempt at a bounce fail and shares underperformed the market with a -1.49% decline. We suspect BEAV will continue to drop into its earnings report as investors fear the worst.

Use a trigger to launch bearish positions at $45.75. Plan on exiting prior to BEAV's earnings report on October 27th.

Trigger @ $45.75

- Suggested Positions -

Buy the NOV $45 PUT (BEAV151120P45) current ask $1.60
option price is a current quote and not a suggested entry price.

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Disappointing News Sparks Widespread Decline

by James Brown

Click here to email James Brown

Editor's Note:

Stocks turned lower around the globe with most of Asia, Europe, and the U.S. all posting losses. Disappointing economic data out of China and disappointing earnings reports from American companies sapped investor enthusiasm for stocks.

CVS hit our bullish entry trigger today.

We want to exit our ALKS trade tomorrow morning.

Current Portfolio:

CALL Play Updates

Alkermes Plc - ALKS - close: 57.89 change: -1.18

Stop Loss: 54.25
Target(s): To Be Determined
Current Option Gain/Loss: -60.0%
Average Daily Volume = 1.0 million
Entry on October 05 at $61.17
Listed on October 03, 2015
Time Frame: Exit PRIOR to earnings in late October
New Positions: see below

10/13/15: Biotech stocks have been chopping sideways the last several days. Today the group took a turn lower. Late this afternoon market pundits were speculating that traders were selling biotechs ahead of the Democratic presidential debate tonight. If you recall it was a tweet from Hillary Clinton about price controls for drugs that sparked a serious sell-off in biotech stocks a few weeks ago.

ALKS underperformed the broader market for a second day in a row with Tuesday's -1.99% decline. We are suggesting an immediate exit tomorrow morning.

Trade Description: October 3, 2015:
The U.S. market delivered an impressive bounce the last few days. If this rebound continues the beaten-down biotech stocks could easily outperform. ALKS looks like a good candidate to capture the bounce.

ALKS is in the healthcare sector. According to the company, "Alkermes plc is a fully integrated, global biopharmaceutical company developing innovative medicines for the treatment of central nervous system (CNS) diseases. The company has a diversified commercial product portfolio and a substantial clinical pipeline of product candidates for chronic diseases that include schizophrenia, depression, addiction and multiple sclerosis. Headquartered in Dublin, Ireland, Alkermes plc has an R&D center in Waltham, Massachusetts; a research and manufacturing facility in Athlone, Ireland; and a manufacturing facility in Wilmington, Ohio."

The earnings picture for ALKS seems to be improving. Looking at the last few earnings reports ALKS has beaten Wall Street expectations on both the top and bottom line the last three quarters in a row. Their most recent report, on July 30th, was follow up with management raising their 2015 guidance above analysts estimates.

While the earnings picture is supportive for a bullish bias, today's trade is more of a technical one. The biotechs have been crushed lately (Thanks, Hillary Clinton!) and shares of ALKS plunged from resistance near $73.00 to support near $54.00. Now it's starting to rebound. This is not the first time ALKS has bounced from this area.

Tonight we are suggesting a trigger to buy calls at $60.75. Our target is $71.50. Plan on exiting prior to ALKS' earnings report in late October. Please note that I consider this a more aggressive trade because the option spreads on ALKS' November options are a little bit wide (and because ALKS is a biotech stock and biotech stocks tend to be more volatile anyway but regular readers already know that).

- Suggested Positions -

Long NOV $65 CALL (ALKS151120C65) entry $3.50

10/13/15 prepare to exit tomorrow morning
10/06/15 a very volatile day with ALKS down -11% from its intraday highs. Shares close down -2%.
10/05/15 triggered on gap open at $61.17, suggested entry was $60.75
Option Format: symbol-year-month-day-call-strike

Costco Wholesale Corp. - COST - close: 152.28 change: -1.35

Stop Loss: 147.45
Target(s): To Be Determined
Current Option Gain/Loss: +117.5%
Average Daily Volume = 1.9 million
Entry on October 05 at $146.25
Listed on October 03, 2015
Time Frame: Exit PRIOR to November option expiration
New Positions: see below

10/13/15: I cautioned readers that COST was likely due for a dip. Shares slipped -0.88% today. The stock could find short-term support at the $150.00 level.

No new positions at this time.

Trade Description: October 3, 2015:
Thus far 2015 has been a frustrating year for COST bulls. After years of steady stock price appreciation (2009-2014) the rally peaked in the first quarter of 2015. Shares spent months correcting lower but it looks like the worst may be behind it for COST.

If you're not familiar with COST they are in the services sector. The company runs a membership warehouse business that competes with the likes of Sam's Club (a division of Wal-Mart). According to the company, "Costco currently operates 686 warehouses, including 480 in the United States and Puerto Rico, 89 in Canada, 36 in Mexico, 27 in the United Kingdom, 23 in Japan, 12 in Korea, 11 in Taiwan, seven in Australia and one in Spain. The Company plans to open up to an additional 16 new warehouses (including one relocation to a larger and better-located facility) prior to the end of its fiscal year on August 30, 2015. Costco also operates electronic commerce web sites in the U.S., Canada, the United Kingdom and Mexico."

Revenue growth has been lackluster this year. COST has managed to beat Wall Street estimates on the bottom line but the revenue number has been soft. Their most recent quarterly report was announced on September 29th. Earnings were up +10% from a year ago to $1.73 a share. That beat estimates. Yet COST said their Q4 revenues were virtually flat (+0.7%) to $35.78 billion. That missed expectations. Comparable store sales were up +2% in the U.S. but down -10% in Canada.

A lot of COST's revenue troubles have come from lower oil, which has pushed gas prices lower. The big drop in gas prices cuts their revenue growth. Plus the stronger dollar hurts their foreign sales. The company continues to expand its presence in the U.S. and overseas. Management plans to launch 12 new warehouses this quarter. Overall COST plans to build 32 new stores in the next 12 months, including its first store in France.

The stock looks poised to breakout past its July, August, and September highs and make a run at its 2015 highs. We suspect COST is going to grab more investor attention as we approach the holiday shopping season. The stock tends to see a rally from September into Black Friday (the day after Thanksgiving).

Tonight we are suggesting a trigger to buy calls at $146.25. More conservative traders may want to wait for a rally past the September peak ($146.90) or even past short-term resistance $147.00. We want to jump in a little early as COST could surge wants it clears $147.00.

- Suggested Positions -

Long NOV $150 CALL (COST151120C150) entry $2.00

10/10/15 new stop @ 147.45
10/08/15 COST rises on better than expected September same-store sales
10/07/15 COST could see a short-term dip here.
10/05/15 triggered @ $146.25
Option Format: symbol-year-month-day-call-strike

Salesforce.com, Inc. - CRM - close: 76.63 change: +0.75

Stop Loss: 72.95
Target(s): To Be Determined
Current Option Gain/Loss: +8.2%
Average Daily Volume = 3.6 million
Entry on October 12 at $76.25
Listed on October 07, 2015
Time Frame: Exit PRIOR to earnings in November
New Positions: see below

10/13/15: If you were waiting for CRM to close above $76.00 resistance as your entry point then you got it today. The stock soared at the open and hit $78.30 before paring its gains. The spike this morning may have been due to another round of rumors that CRM is an acquisition target.

Trade Description: October 7, 2015:
Cloud computing and software giant CRM has been churning sideways for almost seven months. In spite of this lack of upward movement CRM is still outperforming the broader market. The NASDAQ composite is up +1.2% year to date. CRM is up +26%. The good news is that CRM looks poised to breakout past major resistance and begin its next leg higher.

CRM is part of the technology sector. According to the company, "Salesforce is the world's #1 CRM company. Our industry-leading Customer Success 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 cloud, social, mobile and data science technologies with the Customer Success Platform."

CRM's revenues have been consistently growing in the mid +20% range the last few quarters. Their Q4 revenues were up +26%. Q1 revenues were +23%. The company's most recent quarter was announced August 20th. Analysts were expecting Q2 results of $0.17 a share on revenues of $1.6 billion. CRM beat both estimates with a profit of $0.19 as revenues grew +23.5% to $1.63 billion. Management raised their Q3 and full year 2016 revenue guidance.

Technically the stock is in a long-term up trend and the point & figure chart is forecasting an $85.00 target. The $75.00-76.00 area is major resistance with CRM failing in this region multiple times. The recent rally has boosted CRM back to this level and the stock looks poised to breakout soon.

(Side note - CRM did hit an intraday high of $78.46 on April 29th thanks to M&A rumors. The company is still considered a potential acquisition target by larger rivals.)

We like CRM's relative strength and consistently strong earnings and revenue growth. A breakout here could spark a run that lasts until the company's earnings report in November. Tonight we are suggesting a trigger to buy calls if CRM trades at $76.25 (or higher).

- Suggested Positions -

Long DEC $80 CALL (CRM151218C80) entry $3.05

10/12/15 triggered @ $76.25
Option Format: symbol-year-month-day-call-strike

CVS Health Corp. - CVS - close: 102.05 change: -1.02

Stop Loss: 99.40
Target(s): To Be Determined
Current Option Gain/Loss: -35.7%
Average Daily Volume = 4.7 million
Entry on October 13 at $103.75
Listed on October 12, 2015
Time Frame: Exit PRIOR to earnings on October 30th
New Positions: see below

10/13/15: I am worried about CVS' performance today. The stock rallied to a new four-week high midday only to reverse sharply lower. The stock tagged our suggested entry point at $103.75, which was almost the high of the day. CVS underperformed the major indices with a -0.98% decline on the session (down -1.6% from its intraday high).

At this time I would wait for CVS to trade above $103.00 again before considering new bullish positions.

Trade Description: October 12, 2015:
Healthcare stocks have outperformed the broader market over the last few years. The country's adjustment to the Affordable Care Act (Obamacare) is one reason. There are huge demographic shifts occurring as well. Currently the U.S. sees 10,000 Baby Boomers hit 65 years old every single day. This is a trend that will last for years and highlights the aging population in the U.S. Older consumers have higher healthcare costs and they will likely try to save money by using companies like CVS.

CVS is in the healthcare sector. According to the company, "CVS Health (CVS) is a pharmacy innovation company helping people on their path to better health. Through its more than 7,800 retail drugstores, nearly 1,000 walk-in medical clinics, a leading pharmacy benefits manager with more than 70 million plan members, and expanding specialty pharmacy services, the Company enables people, businesses and communities to manage health in more affordable, effective ways. This unique integrated model increases access to quality care, delivers better health outcomes and lowers overall health care costs."

CVS has been making some key acquisitions lately. They spent $1.9 billion to buy all of Target's (TGT) 1,660 pharmacies across 47 states. CVS will operate them as a store-within-a-store format. CVS also acquired Omnicare for almost $13 billion. Omnicare is the biggest provider of pharmacy services to nursing homes, assisted living facilities, and other healthcare providers. This is a key acquisition to capitalize on the aging of America.

CVS has been consistently beating Wall Street's bottom line earnings estimates. Their most recent report was August 4th. CVS said their Q2 earnings were $1.19 a share, above estimates. Revenues rose +7.4% to $37.17 billion, which was in-line with expectations. Management offered slightly bullish guidance, above analysts' estimates.

Technically healthcare stocks peaked this past summer and began to correct lower in August. CVS was no exception. The trading on August 24th, the market's August-correction low, was more than a little crazy in shares of CVS. If we ignore that one day, then CVS has corrected from $113.45 down to $96.35 by late September. That was a -15% pullback. Fortunately investors finally stepped in to buy the decline and CVS has produced a bullish reversal higher.

The last few days have seen CVS' stock rally through resistance at $100. Today's rally (+1.0%) was significant because CVS closed above technical resistance at both its 50-dma and its 200-dma. The intraday high today was $103.52. I am suggesting a trigger to buy calls at $103.75. We will plan on exiting this trade prior to CVS' earnings report on October 30th.

- Suggested Positions -

Long NOV $105 CALL (CVS151120C105) entry $2.07

10/13/15 triggered @ $103.75
Option Format: symbol-year-month-day-call-strike

The Walt Disney Company - DIS - close: 106.59 change: +0.24

Stop Loss: 99.75
Target(s): To Be Determined
Current Option Gain/Loss: -5.4%
Average Daily Volume = 9.9 million
Entry on October 12 at $106.50
Listed on October 10, 2015
Time Frame: Exit PRIOR to earnings in early November
New Positions: see below

10/13/15: Shares of DIS gapped lower at the open. The stock traded down to $105.31 before bouncing. When it bounced the stock surged to a new six-week high at $107.39. Eventually gains faded and DIS settled up +0.22%.

More conservative traders may want to consider a higher stop loss.

Trade Description: October 10, 2015:
The Force is strong with this one. DIS is poised to reap a galaxy of profits as the company re-launches the Star Wars franchise.

DIS has been a big cap superstar with strong, steady gains off its 2011 lows. That changed in August this year. Shares of DIS plunged into a very sharp and painful correction. The catalyst for the drop was the company's earnings report. Disney reported earnings on August 4th and beat the street with earnings of $1.45 compared to estimates for $1.42. The very next day shares fell -$11.00 to $110. The sell-off accelerated in August thanks to the global market meltdown. Since then shares have recovered.

Disney posted $13.1 billion in revenue compared to estimates for $13.2 billion. That minor miss was not the reason for the huge decline in the stock. Disney said revenues in its cable products rose +5% BUT they had seen some pressure from online streaming. Subscription growth to the ESPN cable bundle had slowed, not declined, just slowed.

There are multiple reasons. There were no major sporting events this summer like the World Cup, Olympics, etc. Some consumers are cutting the cord to cable because they are now getting their TV programming from Netflix, Hulu, etc. Cable is expensive compared to the streaming options. The drop off in ESPN growth is not related specifically to Disney. CEO Bob Iger said subscriptions would pick back up in 2016 and expand sharply in 2017 thanks to a flood of sporting events due to come online next year.

Disney has already purchased the rights to nearly every sporting event available in the next five years but the old contracts with the prior rights holders have yet to expire. As those contracts expire and the new Disney contracts begin the content on ESPN will surge.

(sidenote - The advertising environment for television should also improve in 2016 thanks to the U.S. presidential election.)

This slowdown in ESPN growth should be ignored. This is just a small part of the Disney empire and everything else is growing like crazy. Parks and resorts revenue rose +4%. Consumer products revenue rose +6% thanks to Frozen, Avengers and Star Wars merchandise. The only weak spot was interactive gaming, which declined -$58 million to $208 million. Disney expects that to rebound in Q4 as new games are released and holiday shopping begins.

The real key here is the theme parks, cruises and most of all the movie franchises. They have five Star Wars movies in the pipeline and the one opening this December is expected to gross $2.2 billion and provide Disney with more than $1 billion in profits. This is just one of the blockbusters they have scheduled.

Analysts are claiming Disney shares could add 25% before the end of December because of their strong movie schedule and coming attractions. The Avengers movie in April was a hit and added greatly to their Q2 earnings. However, that will just be a drop in the bucket compared to the money they are going to make on the Star Wars reboot in December. That is the first of five Star Wars movies on the calendar. Remember, Disney now has Marvel, Pixar and Star Wars (Lucasfilm) all under the same roof.

Disney Movie Schedule (partial list)

Dec. 18, 2015 - "Star Wars: Episode VII - The Force Awakens"
2016 - "The Incredibles 2"
2016 - "Frozen" sequel
April 2016 - "Captain America: Civil War"
June 2016 - "Finding Dory"
Dec. 2016 - "Star Wars Anthology: Rogue One"
May 2017 - "Star Wars: Episode VIII"
June 2017 - "Toy Story 4"
Late 2017 - "Thor: Ragnarok"
May 2018 - "Avengers: Infinity War - Part I"
2018 - "Untitled Star Wars Anthology Project"
May 2019 - "Avengers: Infinity War - Part II"
2019 - "Star Wars: Episode IX"

Content is still king and DIS rules. They're going to make a hoard of money off their Star Wars movies but that's just the tip of the iceberg. There will be tons of money made on merchandising from toys, clothing, video games, and just about everything else under the sun they can slap a Star Wars logo on.

The stock's correction from $121 to $90 was abrupt. DIS quickly fell from correction territory to bear-market territory in just a few days. Fortunately DIS produced a pretty good rebound. Yet the oversold bounce stalled under resistance near $105 and its 200-dma.

The breakdown under round-number support at $100 in late September looked ugly but there was no follow through lower. Since the late September low shares have rallied and Friday, October 9th, saw DIS close above resistance at its 50-dma and above resistance at $105.00. Now it just needs to clear technical resistance at the 200-dma currently at $106.21. We are suggesting a trigger to buy calls at $106.50.

We will plan on exiting prior to DIS' earnings report in early November. More aggressive investors might want to hold over the report (if that's you I suggest considering the January 2016 calls).

- Suggested Positions -

Long NOV $110 CALL (DIS151120C110) entry $1.66

10/12/15 triggered @ $106.50
Option Format: symbol-year-month-day-call-strike

The Home Depot, Inc. - HD - close: 121.61 change: -0.29

Stop Loss: 117.45
Target(s): To Be Determined
Current Option Gain/Loss: -1.4%
Average Daily Volume = 5.3 million
Entry on October 08 at $120.25
Listed on October 05, 2015
Time Frame: Exit PRIOR to earnings on November 17th
New Positions: see below

10/13/15: It was another quiet day for shares of HD. The stock fell -0.2%. If the market continues to dip tomorrow we could see HD test the $120.00 level, which should be new support.

Trade Description: October 5, 2015:
Home Depot's stock has outperformed the broader market in spite of the fact shares have been stuck in a trading range for the last seven months. That could be about to change.

The big surge in the U.S. housing market this year has been a bullish tailwind for HD's business. The home remodeling and repair industry and consumer spending in this category is expected to hit levels not seen since before the "Great Recession" in 2008-2009. HD is poised to reap the benefits.

HD is in the services sector. According to the company, "The Home Depot is the world's largest home improvement specialty retailer, with 2,270 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico. In fiscal 2014, The Home Depot had sales of $83.2 billion and earnings of $6.3 billion. The Company employs more than 370,000 associates. The Home Depot's stock is traded on the New York Stock Exchange (HD) and is included in the Dow Jones industrial average and Standard & Poor's 500 index."

HD has been showing steady earnings and revenue growth. The company has beaten Wall Street estimates on both the top and bottom line the last three quarters in a row. Management has also raised their guidance the last three quarters in a row.

Their most recent report was August 18th. HD announced its Q2 earnings were up +14% from a year ago to $1.71 per share. Revenues were up +4.3% to $24.83 billion. Comparable store sales came in better than expected with a +4.2% improvement.

Wall Street analysts seem bullish with firms like Deutsche Bank and UBS recently raising their price targets on HD. Currently the point & figure chart is bearish but a rally past $120.00 would generate a brand new buy signal.

Earlier I mentioned that HD has been stuck in a long trading range or consolidation for most of 2015. With the exception of a few days, shares of HD have been churning sideways in the $110-120 range. Today HD looks poised to breakout from this channel. The $120.00 level is round-number resistance. Tonight we are suggesting a trigger to buy calls at $120.25. Plan on exiting prior to HD's earnings report in mid November.

- Suggested Positions -

Long NOV $125 CALL (HD151120C125) entry $1.43

10/10/15 new stop @ 117.45
10/08/15 triggered @ $120.25
Option Format: symbol-year-month-day-call-strike

Ingredion Inc. - INGR - close: 91.21 change: -0.35

Stop Loss: 87.75
Target(s): To Be Determined
Current Option Gain/Loss: -28.6%
Average Daily Volume = 458 thousand
Entry on October 12 at $91.05
Listed on October 08, 2015
Time Frame: Exit PRIOR to earnings on October 29th
New Positions: see below

10/13/15: INGR hit a new multi-week high above $92.00 before succumbing to the market's widespread decline. Watch for short-term support at the $90.00 level. A bounce near $90 could be used as a new entry point.

Trade Description: October 8, 2015:
The rally continues for INGR. The stock is up +400% from the 2008-2009 bear-market lows. Shares are only up +6.3% in 2015 but that's better than the S&P 500's -2.2% decline this year.

INGR is in the consumer goods sector. According to the company, "Ingredion Incorporated (INGR) is a leading global ingredients solutions provider specializing in nature-based sweeteners, starches and nutrition ingredients and biomaterial solutions. With customers in more than 100 countries, Ingredion serves approximately 60 diverse sectors in food, beverage, brewing, pharmaceuticals and other industries."

Looking at the last couple of quarters INGR has beaten Wall Street's bottom line earnings estimates both times. Revenues have slipped -2.0% in Q1 and -2.3% in Q2 but that is a reflection of bearish foreign currency exchange rates. Their Q2 earnings were up +13.3% from a year ago.

Technically shares are in a long-term up trend. They're also seeing strength on a short-term basis with traders buying the dips. The $90.00-91.00 area has been short-term resistance. Tonight we are suggesting a trigger to buy calls at $91.05. Plan on exiting prior to INGR's earnings report on October 29th.

- Suggested Positions -

Long NOV $95 CALL (INGR151120C95) entry $1.75

10/12/15 triggered @ $91.05
Option Format: symbol-year-month-day-call-strike

NIKE, Inc. - NKE - close: 125.81 change: -0.62

Stop Loss: 119.75
Target(s): To Be Determined
Current Option Gain/Loss: -7.4%
Average Daily Volume = 3.8 million
Entry on October 12 at $126.15
Listed on October 08, 2015
Time Frame: Exit PRIOR to earnings in December
New Positions: see below

10/13/15: NKE delivered a very mild session with shares drifting sideways inside a $1.00 range. Wall Street is probably waiting to hear what NKE will say at the company's investor day event tomorrow (October 14th).

I would be tempted to buy calls at current levels but readers may want to wait for a new rally above $126.50 as an alternative entry point.

Trade Description: October 8, 2015:
Nike is named after the Greek goddess of victory. The stock has definitely been winning this year. NKE's stock is up +30% in 2015 and looks poised to keep running.

In the athletic footwear and apparel industry Nike is the 800-pound gorilla with annual sales of more than $30 billion. According to the company, "NIKE, Inc., based near Beaverton, Oregon, is the world's leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. Wholly-owned NIKE, Inc. subsidiaries include Converse Inc., which designs, markets and distributes athletic lifestyle footwear, apparel and accessories, and Hurley International LLC, which designs, markets and distributes surf and youth lifestyle footwear, apparel and accessories."

NKE has reported strong earnings all year long. You could probably sum up NKE's year with growth in every geography and every key category and improving gross margins. Their Q3 2015 earnings in March beat estimates with earnings up +16% from a year ago and revenues up +7% in spite of negative currency headwinds (would have been +13%).

NKE's Q4 2015 earnings were 15 cents better than expected at $0.98 a share. Revenues were up +4.8% (+13% on a currency neutral basis). Future orders were above expectations. Their 2016 Q1 results just came out a few weeks ago on September 24th. Earnings of $1.34 a share beat estimates by 15 cents. Revenues were up +5.4% to $8.41 billion, above expectations. Their future orders were up +9% compared to estimates for low single digits. On a constant currency basis their future orders are up +17%. Their China business was a bright spot with very strong growth.

Shares of NKE vaulted higher on their Q1 results and closed at all-time highs near $125 a share. The stock has spent the last two weeks consolidating gains in a sideways range. We want to hop on board the NKE bandwagon if shares rally to new highs. NKE's intraday high is currently $126.49. Tonight we are suggesting a trigger just below this level at $126.15. The plan is for this to be a multi-week trade and we'll exit prior to earnings in December.

- Suggested Positions -

Long 2016 JAN $130 CALL (NKE160115C130) entry $4.05

10/12/15 triggered @ $126.15
Option Format: symbol-year-month-day-call-strike

PUT Play Updates

The Cooper Companies Inc. - COO - close: 139.44 change: +0.25

Stop Loss: 143.60
Target(s): To Be Determined
Current Option Gain/Loss: +12.2%
Average Daily Volume = 469 thousand
Entry on October 08 at $141.75
Listed on October 06, 2015
Time Frame: Exit PRIOR to November options expiration
New Positions: see below

10/13/15: COO produced a brief rally above resistance at $140.00 but the rebound quickly ran out of strength. I don't see any changes from my recent comments. Although readers may want to consider adjusting their stop loss lower.

No new positions at this time.

Trade Description: October 6, 2015:
Healthcare stocks have been strong market performers for years. The group seems to be struggling with healthcare down -11% in the third quarter. Shares of COO are also underperforming the broader market. COO is down -10.7% year to date but it's down -23.4% from its 2015 highs. That means shares are in a bear market.

If you're not familiar with the company, here's a brief description: "The Cooper Companies, Inc. is a global medical device company publicly traded on the NYSE Euronext (COO). Cooper is dedicated to being A Quality of Life Company(TM) with a focus on delivering shareholder value. Cooper operates through two business units, CooperVision and CooperSurgical. CooperVision brings a refreshing perspective on vision care with a commitment to developing a wide range of high-quality products for contact lens wearers and providing focused practitioner support. CooperSurgical focuses on supplying women's health clinicians with market leading products and treatment options to improve the delivery of healthcare to women. Headquartered in Pleasanton, CA, Cooper has close to 10,000 employees with products sold in over 100 countries."

Earnings results have been mixed but there has been one constant over the last three quarters. COO has missed Wall Street's revenue estimate the last three quarters in a row. Plus, COO management has lowered their revenue guidance three quarters in a row.

The company's most recent earnings report was its Q3 results, announced on September 3rd. Earnings were $1.97 per share. That beat estimates by two cents but represents a -2% drop from a year ago. Revenues were down -6.8% to $461.7 million.

Shares of COO plunged on its revenue miss and lowered revenue guidance. The oversold bounce in September has failed. Now shares are poised to breakdown down to new 2015 lows and could begin its next major leg lower. The stock found support near $142.00 last month. Tonight we are suggesting a trigger to buy puts at $141.75. Plan on exiting prior to November options expiration. Investors may want to limit their position size to reduce risk because COO's option spreads are a little bit wide.

- Suggested Positions -

Long NOV $140 PUT (COO151120P140) entry $4.10

10/10/15 new stop @ 143.60
10/08/15 triggered @ $141.75
Option Format: symbol-year-month-day-call-strike