Option Investor

Daily Newsletter, Monday, 11/16/2015

Table of Contents

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

Market Wrap

Global Market Proves Resilient

by Thomas Hughes

Click here to email Thomas Hughes
Global markets prove resilient in the wake of last week's Paris terror attacks.


The global markets proved resilient in the wake of last week's terror attacks. What might have become a global rout in other times turned into a rally which pushed US markets up more than 1%. Asian indices were the only to post real losses, greater than -1%, and these largely in knee-jerk reaction to the news. European indices fell at their open, then regained the losses and wavered just above break even for the rest of the day.

Early trading here at home was steady, there was no indication of the rally we would see later in the day. Futures indicated a mildly positive open for most of the morning but weakened after the Empire Manufacturing data. The survey shows manufacturing declined in the region along with some deterioration in labor. There was a little business news in the early hours but focus was firmly on events in Paris. One bit, Marriott's purchase of Starwood hotels, is noteworthy if only because many of the newly acquired hotels are in the EU.

Market Statistics

Our markets opened with small losses, in the range of -0.1%, and did not fall much further. Support was present just below the opening levels and began to lift the market within the first two minutes of trading. There was no surge of bullish behavior, just a steady stream of buying that kept the indices holding steady or slightly above last week's closing prices. This steady sideways action carried through into the lunch hour when something changed.

Starting about 11:45AM the market began to rally. All the major indices picked up a bid and began a steady march higher. The rally continued into the end of the day, leaving the indices at the days highest levels.

Economic Calendar

The Economy

Very little economic data today, one release, and it is not positive. The Empire State Survey Of Manufacturing came in at a disappointing -10.7. This is down from last month's -14 but slightly worse than the expected -9. Within the report new orders, shipping and labor all showed contraction, if at a slower pace than before. Labor remains the biggest concern, forward outlook is positive but tepid at best.

Moody's Survey Of Business Confidence fell again, making the 11th straight week of decline. The survey reading remains high by historical comparisons but it as at a new low relative to the recovery. The four week moving average is now at levels not seen since spring of 2014. According to Mark Zandi slowing global economies and volatility in the financial market is to blame.

According to Factset 463, 92.6%, of the S&P 500 has reported earnings so far this season. There are 16 scheduled for this week, 2 of which are Dow components. The blended rate for earnings growth is now -1.8%. This is an improvement of -0.1% from last week and -3.2% from the start of the season, driven by upside surprises in 8 of the 10 sectors. We may see the blended rate come up a little more over the next week or two but it will likely remain below 0% and probably below -1% for the quarter. This will make it the first back to back quarter of earnings decline since 2009.

Estimates for the 4th quarter have also risen since last week. The gain is small, from -3.8% to -3.7%, but a move in the right direction. So far 63 companies have issued negative guidance for the quarter. Full year 2015 earnings growth is projected to come in just below 0 at -0.3% but this will likely rise by the end of the year. We can expect 4th quarter earnings to come in near 0% by end of the season which will lift full year totals into growth, if barely. 2016 growth expectations remain strong at 8.2% but have fallen again.

Energy continues to be the laggard and doing the most damage to headline earnings growth. The energy sector is posting a decline near -57% for the 3rd quarter and is expected to post declines greater than -64% for the 4th quarter. On an ex-energy basis third quarter growth swings into positive territory, 4.37%, and in the 4th quarter, 1.6%.

There is a lot of data due out this week, the FOMC minutes perhaps the most heavily watched. Tomorrow look out for TIC flows, CPI, Industrial Production and the Home Builder Index. Wednesday is Housing Starts and Building Permits along with the FOMC minutes. Thursday is weekly jobless claims, Philly Fed and Leading Indicators. Friday there are no releases. I am expecting to see weakness in manufacturing and possibly in industrial production with signs of strength in the housing and labor data.

President Obama gave some remarks at a press conference while at the G20 meeting. He says ground US ground troops aren't the answer in Syria and stands firm on his policy in the region. France's president Hollande spoke before both houses of parliament stating France was at war and calling for tighter border control in the EU and a coalition to fight ISIS. France is already bombing ISIS targets in Syria which could easily lead to wider spread violence in the region. Hollande also asked parliament for more authority in order to pursue the war on terror.

The Oil Index

Oil prices got a pop from global tensions in respect to the Paris bombings. The flip side is that a more focused approach to ISIS could result in a calmer region, maybe, if ISIS can be contained. Price for WTI rose nearly 1% in early trading, fell back to break even, and then rallied back to the early high and higher, closing with a gain greater than 3.5%.

It's possible that short covering played a part in today's action. Risk has reentered the oil market and could prop up prices into the short term, giving plenty of reason to close out short positions. The caution is that supply/demand imbalance remains; when fear subsides, price will retreat back to fundamentals, whatever they are at the time. At that time a reexamination of supply and demand expectations will be warranted and could change outlook. If there is no sign of supply slackening, or demand picking up the shorts could come back in force. Until then I'm fundamentally bearish, watching the bounce to see what happens.

Energy was one of today's leading sectors. The Oil Index made a nice move up, about 2%, confirming support at 1,150. This level may prove strong enough to hold but that remains to be seen, the indicators are still bearish and have only begun to show signs of support. The indicators, along with the index failure to break above the short term moving average, suggest that today's rally may be short lived if it continues at all. A break above the moving average driven by rising oil prices, if only fear induced, could take it back to retest recent highs near 1,250. A fall below support at 1,150 has a first target near 1,120 and longer term target near 1,000.

The Gold Index

Gold prices held steady in today's action. Surprisingly, there was no mass flight to safety, perhaps because the fundamental picture is still leaning toward a stronger dollar. Gold gained about a tenth of a percent in the early hours of trading and only fell from there. Price slowly slipped throughout the day, leaving gold nearly unchanged from last week's close as trader try to decide what the bombings mean for economic growth and central bank policy. The consensus; Expectations for the ECB to increase QE have risen, the reason being they will need to combat perceived slowing due to the crisis. Expectations for the FOMC to raise rates have fallen, due to risk from the global economy, but only very slightly.

Looking past the bombings there is economic data on tap this week that could move the market as well, primarily the FOMC minutes and CPI data. The minutes are important in terms of outlook and how strongly the Fed thinks we need a rate hike, the CPI because it's inflation data and could force the Fed's hand. Support is now just below $1080 with resistance possible at $1100, a break either way could see prices move $30 - $50 in the near term.

The gold miners tried to rally today but the move fizzled along with gold prices. The Gold Miners ETF created a very small black candle, another spinning top, just above the long term low and last week's closing price. The indicators are bearish and showing weakness relative to the current low, although momentum is waning in the near term, so a test of the lows still looks likely. However, the ETF may continue to consolidate over the next few days provided there is no major movement in gold prices. Support is near $13.00, first target for resistance is the short term moving average.

In The News, Story Stocks and Earnings

Early news included the purchase of Starwood hotels by Marriott. The deal is worth more than $12 billion dollars and result in a hotel chain with more than 30 brands, 5,000 hotels and over 1.1 million rooms. Immediate concerns center on how heightened alert status in Europe will impact business where many of Starwood's properties are located. Shares of both companies fell, Marriott by as much as 3.5%, but Marriott at least was able to regain the losses and more.

Department store operator Dillard's reported earnings before the opening bell and did not please investors. The company beat on earnings but reported lower than expected revenue and -4% decline in comp store sales. Sales and profits are both down from the same period last year while margins are on the rise, calling the companies ability to compete into question. Shares of the stock fell sharply in early trading, more than -7.5%, and closed at a new 4 year low.

Urban Outfitters reported after the bell but that news was overshadowed by another announcement which came before the bell. Urban Outfitters is going to buy the Vetri Family of restaurants which includes Pizzeria Vetri. It's hard to see how but Urban Outfitters CEO sees synergy in the two businesses and that they strive to bring customer satisfaction. Shares of the stock responded by shedding more than -7% during the day, and then sold off another -5% when earnings were released.

The retailers have been getting hit pretty hard over the past week. The sector is reporting much weaker than expected earnings and casting a shadow on hopes of a consumer driven recovery. Last week the Retail Sector Spyder XRT fell to 4 year lows. Today, the sector was able to bounce back from those lows but set a new low in the process. The indicators are bearish so a test of the long term support is likely, near $41.75. A break below this level could take the ETF down as much as $5 in the near to short term.

The Indices

The market rallied today but not all sectors saw gains. The airlines for one were hard pressed by fears of global violence and helped to cut gains in the transportation index. The Dow Jones Transportation Index gained only 0.52% in today's action, less than half the other major indexes, and remains below the short term moving average. The index is ranging between 7,750 and 8,250 and looks like it might pull back to test support near the lower end of it. Both indicators are pointing lower although neither are showing much strength so any downside we see from here may be minimal.

The S&P 500 made the largest gains in today's session, just under 1.5%. The broad market created a strong white candle that closed at the high of the day. The move confirms support along the long term up trend line and my support line at the 2,020 level. The indicators remain bearish so support could be tested again but for now it appears to be fairly strong. If the bounce continues next resistance is near the 2,075 level with support along the trend line should the index fall back below the moving average.

The Dow Jones Industrial Average made the second largest gain in today's session, 1.38%. The blue chips also created a strong white candle with no upper shadow. Today's move confirms support at 17,200 and could result in further upside. The indicators remain bearish, consistent with a pull back to support, but are weak and and not indicative of a deeper correction so this could be the bottom. First upside target is 17,600 with next target 18,000 should the bounce continue without consolidation.

The NASDAQ Composite made the third largest gain in today's session, 1.15%. The tech heavy index is confirming support with a strong white candle but the move was halted at the short term moving average. The indicators are bearish and pointing lower so further testing of support is possible if not likely. The caveat for the bears out there is that downside momentum is very weak and more consistent with pull back than with correction. A break below support would be bearish and could take the index down as far 4,800 in the near term and 4,500 in the short.

It really is amazing the market did not sell off today. Today's action may show a resilience in the market, or the lack of sell-off could possibly be due to the fact we have just come out of a deep, Geo-politically driven, market correction.

The attacks in France are shocking in the least and could lead to widespread conflict at worst, two situations that have sparked deep sell-offs in the past so I do not think we are out of the woods just yet. In between those two extremes are repercussions to the EU and global economy that could affect central bank policy, GDP growth and corporate earnings.

It is unclear exactly what is going to happen with ISIS and Syria. France is already bombing targets and it is certain others will get involved. The question is who. Maybe Russia,maybe us, although Obama pledges no boots on the ground and it doesn't look likely NATO will get involved. What is certain is that this subject will dominate headlines for the foreseeable future and could drive day to day volatility.

There is also economic data to consider. There is a lot of key data this week; housing, manufacturing and labor, any of which could move the market. All of which will affect FOMC rate hike speculation. Good data is good for the economy, but bad in terms of rate hikes. Bad data is bad for the economy and good in terms of rate hikes.

Options expiration may play a part in this week's action as well. The market has made some impressive moves since last expiration day that could result in unwinding of positions and market volatility later in the week.

With all this going on it may be easy to lose sight of the long term outlook, which remains positive. The near term is hazy and that is not likely to change any time soon. Looking past the current geo-political and market turmoil earnings growth returns, as does more robust GDP growth. The thing to remember is that times of uncertainty and market pull back like this are usually buying opportunities and that is what this looks like to me. I remain a bull and looking to buy on the dips.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Defense Stocks March Higher

by James Brown

Click here to email James Brown


Huntington Ingalls Industries - HII - close: 131.45 change: +3.96

Stop Loss: 125.95
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 318 thousand
Entry on November -- at $---.--
Listed on November 16, 2015
Time Frame: Exit PRIOR to December option expiration
New Positions: Yes, see below

Company Description

Trade Description:
Defense stocks were in the spot light today. The tragic terrorist attack in Paris on Friday has changed the worldview for many governments. Most major world powers have vowed to intensify their efforts to destroy ISIS. That should mean additional defense spending.

HII is in the industrial goods sector but it's part of the defense industry. According to the company, "Huntington Ingalls Industries is America's largest military shipbuilding company and a provider of engineering, manufacturing and management services to the nuclear energy, oil and gas markets. For more than a century, HII's Newport News and Ingalls shipbuilding divisions in Virginia and Mississippi have built more ships in more ship classes than any other U.S. naval shipbuilder. Headquartered in Newport News, Virginia, HII employs approximately 37,000 people operating both domestically and internationally."

The earnings picture has been mixed for HII. The market was relatively forgiving with the company's most recent earnings report. HII announced its Q3 results on November 5th. Earnings were up +18.5% from a year ago to $1.98 a share. That actually missed Wall Street estimates by three cents. Revenues were up +4.8% to $1.8 billion, which was above expectations. HII said their total operating margin improved from 10.0% to 11.1%. Management also said their backlog grew about $800 million to $23.3 billion.

The stock reacted sharply with a surge to new multi-month highs. Since this earnings report HII has been digesting its gains in a sideways consolidation pattern. Friday's market decline pushed HII to short-term technical support at the 10-dma. Today shares bounced +3.1% to set a new six-month closing high. We think this rally continues. The point & figure chart is bullish and forecasting a long-term target of $179.00. (Our time frame is only a few weeks)

Tonight we are suggesting a trigger to buy calls at $131.75.

FYI: HII will begin trading ex-dividend on November 24, 2015. The quarterly cash dividend is $0.50.

Trigger @ $131.75

- Suggested Positions -

Buy the DEC $135 CALL (HII151218C135) current ask $2.85
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

Market Rebounds Following Last Week's Drop

by James Brown

Click here to email James Brown

Editor's Note:

Last night S&P futures were very negative suggesting a big drop at the open this morning. That sell-off didn't occur. The market managed a widespread rebound instead.

UA hit our entry trigger to buy calls.

Current Portfolio:

CALL Play Updates

Alkermes Plc - ALKS - close: 73.20 change: +1.13

Stop Loss: 69.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 699 thousand
Entry on November -- at $---.--
Listed on November 10, 2015
Time Frame: Exit PRIOR to December option expiration
New Positions: Yes, see below

11/16/15: ALKS found support near $70 again and shares bounced to a +1.5% gain. The stock looks ready to challenge resistance near $75 soon. Our suggested entry point is $75.25.

Trade Description: November 10, 2015:
The healthcare and biotech names have started to show life again. Biotechs have definitely shown some relative strength in late October and now this week.

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."

Recent earnings results have generally been better than expected. On July 30th ALKS reported its Q2 results with both earnings and revenues coming in above expectations. Management raised their fiscal 2015 guidance.

ALKS beat analysts' estimates again when they reported their Q3 results on October 29th. The company lost ($0.18) a share but that was better than the estimates for ($0.21). Revenues were down -4.6% to $152.7 million but that was better than expected.

In ALKS' Q3 press release they provided a breakdown of revenues:

Manufacturing and royalty revenues from RISPERDAL CONSTA and INVEGA SUSTENNA/XEPLION were $67.6 million, compared to $68.5 million for the same period in the prior year.

Net sales of VIVITROL were $37.9 million, compared to $25.8 million for the same period in the prior year, representing an increase of approximately 47%.

Manufacturing and royalty revenues from AMPYRA/FAMPYRA 1 were $22.1 million, compared to $16.5 million for the same period in the prior year.

Royalty revenue from BYDUREON was $13.0 million, compared to $10.3 million for the same period in the prior year.

A few weeks ago ALKS announced that the FDA had approved their ARISTADA treatment for schizophrenia. ALKS explained that schizophrenia is a chronic, severe and disabling brain disorder that affects millions of patients in the U.S.

In ALKS' Q3 press release the company also announced they were working toward key milestones for their ALKS 3831 treatment for schizophrenia, their ALKS 8700 treatment for multiple sclerosis, and their ALKS 5461 treatment for major depressive disorder. They expect more data on all three within the next six months.

Technically the stock has soared from the bottom of its major trading range near $55 toward the top of its trading range near $75.00. The current rally has produced a buy signal on the point & figure chart, which is also forecasting a long-term target of $108.00.

The key level to watch is resistance at $75.00. ALKS has been consolidating sideways in the $70-74 zone the last several days but shares are on the verge of a breakout. It would be tempting to buy calls on a rally above today's high ($74.11) but we are suggesting a trigger to buy calls at $75.25, which would be a new multi-year high and above resistance from early 2015.

Trigger @ $75.25

- Suggested Positions -

Buy the DEC $80 CALL (ALKS151218C80)

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

The Walt Disney Company - DIS - close: 115.92 change: +1.08

Stop Loss: 113.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 10.6 million
Entry on November -- at $---.--
Listed on November 12, 2015
Time Frame: Exit PRIOR to 2016 January option expiration
New Positions: Yes, see below

11/16/15: Shares of DIS were downgraded from a "buy" to a "neutral" this morning. That helped push shares lower at the open. The stock dipped to $113.34 and then rebounded to a +0.9% gain on the day. Our suggested entry trigger is $117.75.

Trade Description: November 12, 2015:
Star Wars fans are counting down the days until episode seven, The Force Awakens, hits theaters. 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 during that time frame. 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.

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. The company has a strong line up of movies in the pipeline and they all feed their massive merchandising machine.

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 in August 2015 was abrupt. DIS quickly fell from correction territory to bear-market territory in just a few days. Fortunately DIS produced a pretty good rebound.

Several days ago DIS reported their Q4 earnings on November 5th. Analysts were expecting a profit of $1.14 a share on revenues of $13.52 billion. DIS delivered $1.20 a share. Revenues were up +9% to $13.51 billion. The market is still worried about DIS' ESPN unit but these concerns were overshadowed by excitement over the new Star Wars franchise, which kicks off on December 18. That's just 34 days away. Shares of DIS could see a pre-movie rally as the hype builds up for the movie launch.

Technically shares of DIS are arguably overbought with a surge from $98 to $118 since its late September lows. One reality of the market is that overbought stocks can always get more overbought. The stock did see some volatility on November 4th in reaction to earnings from rival Time Warner. Today shares of DIS displayed some strength. The S&P 500 fell -1.39% yet DIS only dropped -0.26%. Another reason DIS could outperform between now and year end is mutual fund and hedge fund managers trying to boost their performance. It's been a tough year for money managers. Odds are they will be chasing performance in the market. A high-profile, big cap winner like DIS is a prime target for them.

The high this week was $117.58. Tonight we are suggesting a trigger to buy calls at $117.75.

Trigger @ $117.75

- Suggested Positions -

Buy the 2016 JAN $120 CALL (DIS160115C120)

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

Global Payments Inc. - GPN - close: 69.15 change: +0.12

Stop Loss: 66.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 718 thousand
Entry on November -- at $---.--
Listed on November 11, 2015
Time Frame: Exit PRIOR to December options expiration
New Positions: Yes, see below

11/16/15: GPN spent Monday's session consolidating sideways in the $68-70 zone. Our suggested entry point is $70.25.

Trade Description: November 11, 2015:
Consistently strong earnings growth can do wonders for your stock price. Just ask GPN. Shares are up +72% year to date. That compares to a +0.8% gain in the S&P 500 and a +7% rally in the NASDAQ this year. The rally in GPN started a couple of years ago and shares are up +218% from its $22 lows in 2013.

GPN is in the services sector. According to the company, "Global Payments Inc. (GPN) is a leading worldwide provider of payment technology services that delivers innovative solutions driven by customer needs globally. Our partnerships, technologies and employee expertise enable us to provide a broad range of products and services that allow our customers to accept all payment types across a variety of distribution channels in many markets around the world. Headquartered in Atlanta, Georgia with approximately 4,500 employees worldwide, Global Payments is a Fortune 1000 Company with merchants and partners in 29 countries throughout North America, Europe, the Asia-Pacific region and Brazil."

This company has beaten Wall Street's earnings estimates every quarter this year. Not only that but GPN has raised guidance the last four quarters in a row. GPN has delivered two years of consistent earnings growth and investors have noticed.

Last year (fiscal 2015) the company earned $4.12 a share. That was a +22% improvement from the prior year. This year analysts are expecting GPN's earnings to grow +39%.

GPN's most recent earnings report was October 7th. Earnings surged +37.5% from the prior year. GPN beat on both the top and bottom line. They raised their fiscal 2016 guidance above Wall Street estimates. Plus they announced a 2-for-1 stock split, which took place on November 2nd.

Jeff Sloan, CEO, commented on their quarter, "We are delighted with our outstanding first quarter results, which represent an excellent start to the 2016 fiscal year and a continuation of exceeding our expectations across our markets. This performance builds on the momentum we have generated as we continue to invest in our strategy to expand distribution and create competitive differentiation through technology by delivering innovative solutions globally."

You can see the surge in GPN's stock following its October 7th earnings report. Investors have been buying the dips. Today GPN is challenging round-number resistance at the $70.00 level. Tonight we are suggesting a trigger to buy calls at $70.25.

Trigger @ $70.25

- Suggested Positions -

Buy the DEC $70 CALL (GPN151218C70)

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

Lam Research Corp. - LRCX - close: 77.41 change: +1.84

Stop Loss: 73.85
Target(s): To Be Determined
Current Option Gain/Loss: -19.7%
Average Daily Volume = 2.5 million
Entry on October 30 at $76.25
Listed on October 28, 2015
Time Frame: 6 to 8 weeks
New Positions: see below

11/16/15: LRCX tagged round-number resistance at $75.00 and then surged to a +2.4% gain on Monday. Shares look poised to challenge short-term resistance near $78.00 soon.

A breakout past $78 could be used as a new bullish entry point.

Trade Description: October 28, 2015:
Wall Street loves mergers and this month LRCX has jumped into the 2015 buying spree. Semiconductor stocks had a rough summer with the SOX semiconductor index plunging from early June through late August. Fortunately the group appears to have bottomed. LRCX's recent earnings news and acquisition announcement has accelerated the stock's rebound.

LRCX is part of the technology sector. According to the company, "Lam Research Corp. (LRCX) is a trusted global supplier of innovative wafer fabrication equipment and services to the semiconductor industry. Lam's broad portfolio of market-leading deposition, etch, and clean solutions helps customers achieve success on the wafer by enabling device features that are 1,000 times smaller than a grain of sand, resulting in smaller, faster, more powerful, and more power-efficient chips. Through collaboration, continuous innovation, and delivering on commitments, Lam is transforming atomic-scale engineering and enabling its customers to shape the future of technology. Based in Fremont, Calif., Lam Research is a Nasdaq-100 Index and S&P 500 company whose common stock trades on the Nasdaq Global Select MarketSM under the symbol LRCX."

LRCX's most recent earnings report was October 21st. Analysts were expecting a profit of $1.72 per share on revenues of $1.6 billion. LRCX delivered earnings of $1.82 a share. Revenues were up +38.8% from a year ago to $1.6 billion. Management then raised their Q2 earnings guidance to $1.32-1.52 a share, which is significant above analysts' estimates.

The news didn't stop there. LRCX also announced they were buying KLA-Tencor (KLAC) for $10.6 billion. This new combined company will have $8.7 billion in revenues.

Here are a few highlights from the LRCX-KLAC merger deal:

Creates Premier Semiconductor Capital Equipment Company: Strengthened platform for continued outperformance, combining Lam's best-in-class capabilities in deposition, etch, and clean with KLA-Tencor's leadership in inspection and metrology

Accelerates Innovation: Increased opportunity and capability to address customers' escalating technical and economic challenges Broadens Market Relevance: Comprehensive and complementary presence across market segments provides diversity, scale and value creating innovation opportunities

Significant Cost and Revenue Synergies: Approximately $250 million in expected annual on-going pre-tax cost synergies within 18-24 months of closing the transaction, and $600 million in annual revenue synergies by 2020 Accretive Transaction: Increased non-GAAP EPS and free cash flow per share during the first 12 months post-closing

Strong Cash Flow: Complementary memory and logic customer base, operational strength, and meaningful installed base revenues strengthen cash generation capability Anstice concluded, "We have tremendous respect for the company KLA-Tencor employees have built over nearly 40 years - their culture, technology, and operating practices. I have no doubt that our combined values, focus on the customer, and complementary technologies will create a trusted leader in our industry, capable of creating significant opportunity for profitable growth and in turn delivering tremendous value to all of our stakeholders. This is the right time for the right combination in our industry." You can read more details about the merger here.

The combination of the earnings beat, raised guidance, and the merger news launched LRCX stock higher. Traders have been consistently buying the dips since then. Now shares of LRCX are poised to break through technical resistance at its 200-dma soon. Shares have been upgraded with a new price target of $85.00. Meanwhile the point & figure chart is bullish and forecasting at long-term target of $107.00.

LRCX looks like it could run towards the 2015 highs in the $84-85 region. Today's intraday high was $76.19. We are suggesting a trigger to buy calls at $76.25.

- Suggested Positions -

Long JAN $80 CALL (LRCX160115C80) entry $3.30

11/12/15 LRCX closes below short-term support at $76.00
11/03/15 new stop @ 73.85
10/30/15 triggered @ $76.25
Option Format: symbol-year-month-day-call-strike

Under Armour, Inc. - UA - close: 90.00 change: +2.57

Stop Loss: 84.90
Target(s): To Be Determined
Current Option Gain/Loss: +4.0%
Average Daily Volume = 3.0 million
Entry on November 16 at $88.75
Listed on November 14, 2015
Time Frame: 6 to 8 weeks
New Positions: see below

11/16/15: UA bounced right on cue after dipping to major support on Friday. Shares outperformed the broader market with a +2.9% gain on Monday. Our trigger to buy calls was hit at $88.75.

Trade Description: November 14, 2015:
The stock market's current pullback is an opportunity to snap up this footwear and athletic apparel brand on sale.

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 Fitness 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's actively fighting for market share and in 2015 UA 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 management expects sales grow +20% in 2015. 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. That trend of raising guidance has continued this year. UA has beaten Wall Street's bottom line and top line estimates every quarter this year. They have also raised estimates every quarter.

Athletic apparel and shoe companies have been some of the market's best performers in 2015. Odds are they will continue to shine in the fourth quarter and beyond.

Right now UA is correcting low. Shares are down about -17% from their 2015 (and all-time) highs. The stock should have support at the bottom of its long-term bullish channel (see weekly chart below). UA just tested technical support at its simple 200-dma on Friday as well. We see the sell-off as an overreaction as nervous traders lock in profits.

UA should bounce from current levels. Tonight we are suggesting a trigger to buy calls at $88.75, which is above some intraday resistance UA saw on Friday. We'll try and limit our risk with an initial stop loss at $84.90.

- Suggested Positions -

Long 2016 JAN $95 CALL (UA160115C95) entry $2.98

11/16/15 triggered @ $88.75
Option Format: symbol-year-month-day-call-strike

PUT Play Updates

Anthem, Inc. - ANTM - close: 135.06 change: +2.51

Stop Loss: 136.65
Target(s): To Be Determined
Current Option Gain/Loss: -20.5%
Average Daily Volume = 2.2 million
Entry on November 04 at $134.25
Listed on November 03, 2015
Time Frame: 6 to 8 weeks
New Positions: see below

11/16/15: The U.S. stock market produced a widespread bounce on Monday. ANTM not only participated but it outperformed the major indices with a +1.9% gain. As of Friday ANTM looked ready to breakdown to new lows. Now the picture is a little bit muddy. ANTM has short-term resistance near $136.00. A breakout there could spark a bigger oversold bounce.

No new positions at this time. Tonight we are moving our stop loss down to $136.65.

Trade Description: November 3, 2015:
The big healthcare stocks used to be unstoppable. The group delivered huge gains in 2013 and 2014. Unfortunately the rally has peaked in 2015 and now the major names are retreating, in spite of increased M&A in the industry.

ANTM is in the healthcare sector. According to the company, "Anthem is working to transform health care with trusted and caring solutions. Our health plan companies deliver quality products and services that give their members access to the care they need. With over 72 million people served by its affiliated companies, including more than 38 million enrolled in its family of health plans, Anthem is one of the nation's leading health benefits companies."

The big story for healthcare has been consolidation. The handful of major insurers are getting bigger as they gobble each other up. Last July ANTM announced they were buying smaller rival Cigna (CI) for $54 billion. ANTM is holding a special shareholder meeting on December 3rd to approve the issuance of more stock to help pay for the merger. The deal is not expected to close until the second half of 2016. When it does CI should add to ANTM's earnings.

Speaking of earnings, ANTM is still growing. They reported their Q3 earnings on October 28th. Wall Street expected a profit of $2.32 a share on revenues of $19.65 billion. ANTM beat both estimates with a profit of $2.73 a share. Revenues were up +7.6% to $19.77 billion.

Investors seemed disappointed with ANTM's rising costs. Their benefit expense ratio rose 110 basis points to 83.6%. Furthermore ANTM raised their fiscal year 2015 guidance to $10.10-10.20 a share but that was seen as anemic. Wall Street estimates were already at $10.22 a share.

The IBD recently noted that all five of the big health insurers saw ObamaCare exchange enrollments fall in the third quarter. The average decline was -8.3%. That could be significant. The Affordable Care Act (ObamaCare) has driven a lot of growth for the big insurers over the last few years. Unfortunately the ACA has been plagued with problems and rising costs.

A couple of weeks ago a Credit Suisse analyst downgraded the healthcare sector over high valuations. The sector has been underperforming. Furthermore analysts earnings revisions have been slowing. Essentially Wall Street thinks growth is slowing for the group. ANTM has seen analysts lowering their price targets on the stock.

Technically the healthcare sector and shares of ANTM peaked this past summer. Currently ANTM is flirting with a breakdown into bear market territory with a -19.8% drop from its June closing high. The point & figure chart is already bearish and forecasting at $122 target. A decline under $134.00 would reaffirm the sell signal. ANTM does have significant support in the $134.50-135.00 zone. We want to be ready when it does break down. Tonight we are suggesting a trigger to buy puts at $134.25.

- Suggested Positions -

Long 2016 JAN $130 PUT (ANTM160115P130) entry $5.60

11/16/15 new stop @ 136.65
11/04/15 triggered @ $134.25
Option Format: symbol-year-month-day-call-strike