Option Investor

Daily Newsletter, Tuesday, 11/17/2015

Table of Contents

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

Market Wrap

Home Depot Soars

by Jim Brown

Click here to email Jim Brown

Retailers held up the market thanks to Dow components Home Depot and Walmart. The continued short squeeze from Monday began to fade at noon and the S&P fell back into negative territory after a +13 point intraday gain.

Market Statistics

Home Depot (HD) spiked +$5.34 to add about 40 Dow points. The index was helped by a $2 gain in Walmart and another +15 Dow points. Despite those 55 points of Dow gains, the index closed up only +6. Intraday the Dow peaked at +116 but news of Germany evacuating a soccer stadium because of a terrorist threat knocked the buyers out of the market.

Another weight on the Dow was heavy selling in GE at the close ahead of their stock swap for Synchrony Financial. GE completed its spinoff of Synchrony by giving 1.0505 shares of Synchrony (SYF) for every GE share owned. GE said only about 31% of GE shares had been tendered for the swap. Because the offer was oversubscribed, GE is only accepting a portion of the shares tendered. The final ratio will be announced on Nov 20th. The swap will reduce the number of GE shares outstanding by about 6.6%. That is equivalent to a $20 billion share buyback. There were 25 million shares of GE for sale at the close as a sell the news trade after riding the stock to a six-year high.

There was also a little bit of good news on the economic front. The Consumer Price Index for October rose +0.2% after falling a total of -0.3% in the prior two months. Energy prices actually rose +0.3% to lift the index after a -4.7% decline in September. That little bump in crude prices to $50 in early October lifted the CPI but with crude now near $40 it will be a drag on the CPI for November.

The core CPI, ex food and energy also rose +0.2% with the services component up +0.3%. On a trailing 12 month basis the headline CPI is up only +0.1% while the core CPI us up +1.9% with most of that gain from a +2.8% rise in services.

The strength in the dollar, the implosion in commodity prices and oil will keep inflation low in the months ahead but the Fed will likely ignore the number because of "transitory" impacts, to use their phrase.

Industrial production for October declined -0.2% after the same decline in September. The warmer than normal September and October caused a -2.5% decline in utility output and mining/energy declined -1.5%. The report was ignored since utility output is not a market moving metric.

On the negative side the NAHB Housing Market Index for November declined from 65 to 62 as current and future sales declined. Analysts expected a reading of 64. The buyer traffic component did increase slightly from 47 to 48 and closer to neutral at 50. Even with the -3 point decline the index is still near the highs for the year at 65.

There were $33.6 billion in net cash inflows into the U.S. in September. The majority came from private foreign investors. However, Belgium bought $25.1 billion in treasuries, Singapore $6.8 billion and Luxembourg $6.2 billion. Large sellers of U.S. debt were Japan $19.9 billion, China $12.5 billion and the U.K. $8.9 billion.

Internet E-Commerce sales rose to $87.5 billion in Q3 from $84.0 billion in Q2. Sales are on track to significantly exceed 2014-Q4 of $77.6 billion. If the current trend holds, we could see nearly $90 billion in sales in Q4. To put that in perspective the entire retail sector does about $630 billion in Q4. Internet sales have risen for 27 consecutive quarters.

The important events for Wednesday are led by the FOMC minutes at 2:PM. This normally produces some volatility and this is the last communication from the Fed before the December meeting where they are expected to hike rates. How they phrase their intent in the minutes will be of specific interest.

The new residential construction numbers for October will be released at 8:30. Estimates are for a decline from 1.206 million to 1.162 million. The market will ignore it because starts always decline in the fall.

Home Depot (HD) was the star of the day. The company reported earnings of $1.35, which beat estimates by 3 cents and was 20 cents above the $1.15 earned in the year ago quarter. Revenue increased +6.4% to $21.8 billion and matching estimates. Same store sales rose a spectacular +7.3% in the USA.

The CEO said, "During the quarter, we saw broad-based growth across our geographies and product categories, led by growth in transactions from both our DIY and Pro customers." HD expects full year 2015 sales growth of +5.7% with comps of +4.9%. The company guided for earnings per share at $5.36 and the upper end of its prior guidance. Home Depot has returned $35 billion to shareholders through dividends over the last five years. In Q4, they are planning on buying back another $2 billion in shares to bring the 2015 total to $7 billion.

I would be a buyer of Home Depot on any pullback. The stock is on the verge of a breakout to a new high and I would hope to see some post earnings depression over the next couple of days to give us an entry point. I sure wish I had bought it on Friday.

Walmart (WMT) posted earnings of $1.03 that beat estimates by a penny but warned that Q4 would be competitive and sales growth would only be about +1% after a +1.5% rise in U.S. comp store sales in Q3. Overall, global revenue declined -1.3% to $117.4 billion due to dollar headwinds and economic declines in China and Brazil. Traffic was up +1.7%.

The company blamed the lackluster sales on the tech industry saying there had not been many new and exciting products over the last couple of years. Innovation has been relatively dormant. Weak tech sales also impacted Sam's Club, which sells a lot of TVs and electronics. Walmart is expecting a surge in Star Wars related products that will help boost the overall revenue. With Walmart's push into organic products they are hurting stores like Kroger and Whole Foods and that is attracting cost conscious consumers looking for healthy food.

Shares rallied +$2 but that was after a $1 drop from the intraday highs. This looks like a good opportunity for a short entry.

Dicks Sporting Goods (DKS) reported earnings of 45 cents and missing estimates for 47 cents. Revenue increased +7.6% to $1.6 billion but that also missed estimates for $1.64 billion. Same store sales of +0.4% missed estimates for +1.9% by a wide margin. The company blamed it on warmer weather that kept people from buying winter apparel. Dicks warned that Q4 would be "highly promotional" and the effort would be to actively manage inventory levels and not be left with large amounts of back stock at the end of December.

Dicks shares declined -9.43% on the news and I would not be bargain hunting at this level. The long-term trend is down and the lack of execution suggests Q4 will not be positive.

The Dicks earnings miss was a blow to Under Armour (UA). The athletic wear company gets 14% of its sales from Dicks while Nike only gets 2% from the retailer. Dicks said inventory levels rose +13% in Q3 and they were working with vendors to reduce its exposure to slow selling merchandise by returning the product, cancelling orders and securing markdown allowances. Under Armour shares declined -6% on the news.

After the bell, Jack in the Box, parent of Qdoba Mexican Grill (JACK) reported earnings of 62 cents compared to estimates for 65 cents. Revenue of $354 million missed estimates for $358 million. Same store sales rose +6.2% and was the highlight of the report. Qdoba Mexican Grill same store sales rose +6.6%. Shares rose +$2.50 in afterhours.

Staples, Target, Lowe's, Green Mountain Coffee and SalesForce.com are the highlights on the earnings calendar for Wednesday.

Early this morning the Justice Dept and Federal Trade Commission (FTC) said they would release the information on their long awaited investigation into vitamins and supplements and reveal both criminal and civil charges. The shares of GNC Holdings (GNC), Herbalife (HLF) and Vitamin Shoppe (VSI) plunged intraday on the potential for a negative headline. GNC fell from $31.50 to $22.64 or roughly -26% before the news was even released.

The actual event was anticlimatic since no public companies were charged or even mentioned. USPlabs, seller of Jack3d and six executives face criminal charges for the unlawful sale of nutritional supplements. The Justice Dept claimed USPlabs used a synthetic stimulant made in China to make Jack3d and OxyElite Pro but told retailers the supplements were manufactured from plant extracts. The indictment claimed numerous users suffered liver damage with some receiving liver transplants as a result of the supplements.

The Justice Dept said it also filed civil cases against five companies for similar reasons. The companies included Clifford Woods, which sold Taheebo Life Tea and Life Grow Plus. Viruxo, which sold a product of the same name used to rtreat herpes. Optimum Health, which sold DMSO Cream for a variety of conditions. The FTC filed lawsuits against Sunrise Nutraceuticals LLC, Health Nutrition Products and NPB Advertising alleging they sold or advertised deceptive or unproven workout or weight loss supplements.

Shares or GNC rebounded to close just under $30 in afterhours. Options volume in GNC was 35,000 contracts or 8 times normal. One trader bought 2,700 weekly calls at $30 that expire Friday. VSI and HLF both closed down for the day but should recover tomorrow since the press conference was not held until just before the market closed.

Copper, oil and all commodities continued their plunge on falling demand and the strong dollar. Copper closed at $2.10 per pound and the lowest level since 2009. The entire commodity complex is about to set a 40 year low as referenced by the $CRB. It closed today at 185.42. You have to go back to 2002 for a lower close at 183.52 and then 1999 at 182.95. Then you have to go way back to 1975 for a lower close at 175.90.

We only have to drop -2 points to be at 40-year lows and the majority of analysts are still recommending shorting commodities. I do not know how the Fed is going to rationalize raising rates in this environment. The dollar will surge and commodities will move even lower and further reducing inflation as they decline.

Crude oil declined to $40.79 with the loss of $1 ahead of Wednesday's inventory report. Oil is up slightly tonight after the API Inventory report after the close showed a surprising decline of -482,000 barrels. However, the API report rarely agrees with the EIA report due out in the morning. There can be millions of barrels difference between the two reports. Even if there is a decline, it is only temporary with nearly 40 tankers now waiting offshore in Houston for fog to clear so they can unload.


The rally turned short squeeze rolled for 43 points before it was turned back at resistance at 2,066. Analysts claimed the decline was due to the evacuation of a German soccer stadium after a bomb threat but I suspect it had more to do with the short squeeze running its course.

The headlines flowing constantly out of Europe are poisoning sentiment and the FOMC minutes on Wednesday are likely to spell out in no uncertain terms that a rate hike will occur in December.

The positive earnings from Home Depot and Walmart impacted the market because they are both Dow components. That early morning spike in the Dow helped to continue the squeeze from Monday. When Walmart began rolling over and GE came under pressure the rally began to fade. The German headline was just the straw that broke the rally's back.

At Monday's close 193 S&P stocks or 38.2% were down more than 20%. A total of 253 or 50.1% were down more than 15% and a whopping 68.5% were down more than 10%. That is hardly a bullish scenario. We are not going to make new highs with those internals.

The S&P has significant resistance at 2,085 and strong support at 2,023. That gives it a roughly 60-point range to wander for the rest of the week. At this point, I am leaning bearish because of the lack of positive catalysts and the constant stream of terrorism headlines. I hope I am wrong.

There were only three Dow gainers that counted. The rest of the index was negative or only fractionally positive. I mentioned in the weekend commentary that it would take a good short squeeze to rescue the Dow 30 from the funk it was in on Friday. That short squeeze came right when needed and caused a +230 point rally on Monday. However, even a 9-point gain in the top three stocks representing about +65 Dow points failed to get it much off zero on Tuesday. That is not very encouraging. Unless some other Dow stocks repeat that win on Wednesday, the outlook is questionable.

Resistance is 17,600 and support 17,200.

The Nasdaq tried to punch through resistance at 5,008 but failed at the close as the market faded. The index dipped to strong support on Monday just over 4,900 and rebounded on the short squeeze. Today's +1.39 gain was lethargic at best. There were no outstanding headlines on tech stocks to power the index higher with most of the names on the winners list making a rare appearance on that list. Netflix was the exception with another outstanding gain of +$6.30 after a +7.70 gain on Monday. I am strongly hostile at Netflix today after I was stopped out in Ultimate Investor on Friday's drop only to see a $14 rebound to a two month high.

I am neutral on the Nasdaq because the big caps helped power the early November high but they are noticeably absent so far this week, with the exception of Netflix.

Support remains 4888-4925 and resistance 5008-5022.

The Russell 2000 gave back -13 points from its intraday high at 1,166 to close at 1,153. That is significantly below last week's high at 1,200 and solid resistance. Small caps are supposed to be in favor at this point in November and they were the biggest loser today. This is not good for market sentiment. The 1,166 level is now critical resistance on any rebound and the 1,140 support from Monday is also critical. That is a 26-point range so breaking out on either side would be a directional commitment.

Historically this is supposed to be a bullish week along with next week. However, the constant terrorist headlines and the impending rate hike are probably going to play havoc with seasonal patterns. The market is starting to feel heavy after Monday's short squeeze was unable to ignite a fire under equities. The kindling burned out and there was no follow through. Volume was moderate at 7.45 billion shares so it looked like another distribution day. I am not recommending a dip buy at this point. If we did retest 2,023 on the S&P it may not hold next time.

Enter passively, exit aggressively!

Jim Brown

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New Option Plays

Bearish Momentum Is Gaining Steam

by James Brown

Click here to email James Brown


Cummins Inc. - CMI - close: 97.90 change: -1.23

Stop Loss: 101.55
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.0 million
Entry on November -- at $---.--
Listed on November 17, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: Yes, see below

Company Description

Trade Description:
Shares of CMI are in a bear market. The current down trend shows no signs of slowing. The stock is down -32% year to date.

CMI is in the industrial goods sector. According to the company, "Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service diesel and natural gas engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, (USA) Cummins currently employs approximately 54,600 people worldwide and serves customers in approximately 190 countries and territories through a network of approximately 600 company-owned and independent distributor locations and approximately 7,200 dealer locations. Cummins earned $1.65 billion on sales of $19.2 billion in 2014."

CMI reported its Q2 results on July 28th. The company beat estimates on both the top and bottom line. Yet the post-earnings rally quickly faded. Shares were already in a down trend and investors used the rally to sell. Unfortunately, the earnings picture has taken a dramatic turn for the worse.

Business conditions deteriorated in the third quarter. Wall Street was expecting CMI to report earnings of $2.59 a share on revenues of $4.92 billion. The company delivered earnings of $2.14 a share. Revenues fell -5.5% to $4.62 billion. Management lowered their 2015 guidance and said they would start laying off up to 2,000 people.

The stock crashed to new multi-year lows the next day (see chart). A bearish note from Morgan Stanley didn't help either. A team of analysts at Morgan Stanley cut their rating on CMI to a "sell" and slashed their price target down to $79. Here is an excerpt from the Morgan Stanley note:

We believe CMI is facing three major headwinds that will drive share price underperformance: 1) The secular growth story within the Components business is dissipating - as developed markets shift regulatory focus from emissions to fuel economy, we expect CMI's Emissions Solutions revenue growth to converge with production; this represents a $0.35 EPS headwind. 2) The NAFTA Engine business is likely to suffer from market share erosion - as per our analysis on pages 4-6, we calculate $0.40-0.60 EPS risk associated with incremental Ford, Freightliner, and PACCAR vertical integration. 3) Consensus forecasts do not yet reflect the full impact of a NAFTA truck industry downturn - based on ACT's outlook, we see $0.40-0.65 EPS risk associated with cyclical decline in the NA truck market. While the negative reaction to today's 3Q miss and 2015e guide-down implies increasing awareness of cyclical risk, our bearish call focuses more on the impediments to secular growth and market share. (source)
A couple of weeks later, on November 10th, CMI held their analyst day. The Board of Directors approved another $1 billion stock buyback program to replace the previous $1 billion buyback they announced in July 2014. This news didn't help the stock. That is probably because CMI warned that they expect 2016 revenues to be -5% below 2015 (or worse).

I will point out that some investors see CMI as a dividend trade. The stock's decline has boosted the dividend yield on CMI's stock to nearly 4%. We should keep in mind that if the Fed starts raising rates it will put pressure on high-dividend names. Speaking of dividends, shares of CMI should begin trading ex-dividend on November 18th or 20th (I saw two different dates). The quarterly dividend is 97.5 cents a share.

The last few days have seen CMI breakdown below round-number, psychological resistance at the $100.00 level. The oversold bounce has failed to lift CMI back above this key level. We think CMI accelerates lower from here. Last Friday's low was $97.41. Tonight we are suggesting a trigger to buy puts at $97.30.

Trigger @ $97.30

- Suggested Positions -

Buy the 2016 JAN $95 PUT (CMI160115P95) current ask $3.60
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

Nervous Investors Erase Tuesday's Gains

by James Brown

Click here to email James Brown

Editor's Note:

Stocks initially rallied this morning. Unfortunately the rally peaked midday and gains began to fade. Then new stories about a potential terrorist threat in Germany sparked some selling this afternoon. Weakness in crude oil didn't help the bulls.

UA and ANTM hit our stop losses.

ALKS, GPN, and HII all hit our bullish entry triggers.

Current Portfolio:

CALL Play Updates

Alkermes Plc - ALKS - close: 74.28 change: +1.08

Stop Loss: 69.75
Target(s): To Be Determined
Current Option Gain/Loss: -40.8%
Average Daily Volume = 699 thousand
Entry on November 17 at $75.25
Listed on November 10, 2015
Time Frame: Exit PRIOR to December option expiration
New Positions: see below

11/17/15: The bounce in ALKS continued on Tuesday. Shares rallied to a new multi-year high above significant resistance at the $75.00 level. ALKS hit our suggested entry point at $75.25. Unfortunately the market's afternoon pullback weighed on ALKS' rally and shares retreated back below the $75.00 level.

Our trade is open but I would wait for a new rally above $75 before considering new positions.

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.

- Suggested Positions -

Long DEC $80 CALL (ALKS151218C80) entry $2.45

11/17/15 triggered @ $75.25
Option Format: symbol-year-month-day-call-strike

The Walt Disney Company - DIS - close: 116.13 change: +0.21

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

11/17/15: DIS rallied up to its November highs but the rebound failed near short-term resistance in the $117.50 area. I don't see any changes from my recent comments. 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: 70.08 change: +0.93

Stop Loss: 66.75
Target(s): To Be Determined
Current Option Gain/Loss: -17.8%
Average Daily Volume = 718 thousand
Entry on November 17 at $70.25
Listed on November 11, 2015
Time Frame: Exit PRIOR to December options expiration
New Positions: see below

11/17/15: Our GPN trade is now open. The stock displayed relative strength with a +1.3% rally on Tuesday. GPN managed to breakout past round-number resistance at $70.00 and hit our entry trigger at $70.25. If you are looking for an entry point now I would wait for a rise above $70.35 to initiate positions.

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.

- Suggested Positions -

Long DEC $70 CALL (GPN151218C70) entry $2.25

11/17/15 triggered @ $70.25
Option Format: symbol-year-month-day-call-strike

Huntington Ingalls Industries - HII - close: 131.75 change: +0.30

Stop Loss: 125.95
Target(s): To Be Determined
Current Option Gain/Loss: -19.3%
Average Daily Volume = 318 thousand
Entry on November 17 at $132.05
Listed on November 16, 2015
Time Frame: Exit PRIOR to December option expiration
New Positions: see below

11/17/15: Our brand new bullish trade on HII is open. The stock continued to rally right on cue. Our suggested entry point was $131.75 but our play was triggered on the gap higher at $132.05 this morning. HII traded up to $133.86, a new six-month high, before fading back toward its opening print.

The afternoon slide from its intraday highs is a bit concerning. Readers may want to wait for a new rise above $132.25 before initiating new positions.

Trade Description: November 16, 2015:
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.

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.

- Suggested Positions -

Long DEC $135 CALL (HII151218C135) entry $2.83

11/17/15 triggered on gap higher at $132.05, trigger was $131.75
Option Format: symbol-year-month-day-call-strike

Lam Research Corp. - LRCX - close: 77.76 change: +0.35

Stop Loss: 73.85
Target(s): To Be Determined
Current Option Gain/Loss: -12.1%
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

11/17/15: LRCX displayed some strength today. Shares spent about half of the day trading above short-term resistance at $78.00. The stock market's retreat this afternoon pulled LRCX back below this resistance level. Shares still outperformed the market with a +0.45% gain.

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

PUT Play Updates

Currently we do not have any active put trades.


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

Stop Loss: 84.90
Target(s): To Be Determined
Current Option Gain/Loss: -43.3%
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

11/17/15: The trading action in shares of UA was incredibly disappointing today. Before the opening bell Dick's Sporting Goods (DKS) reported earnings. Not only did DKS missed estimates on both the top and bottom line but they lowered their Q4 guidance. DKS blamed warm weather on slower sales. This news weighed heavily on shares of UA.

UA's stock gapped down at $87.49 and then plunged to a -5.5% decline. Shares have broken below their long-term up trend line of support and below their 200-dma. Our stop loss was hit at $84.90.

- Suggested Positions -

2016 JAN $95 CALL (UA160115C95) entry $2.98 exit $1.69 (-43.3%)

11/17/15 stopped out @ 84.90, DKS missed earnings and lowered guidance
11/16/15 triggered @ $88.75
Option Format: symbol-year-month-day-call-strike



Anthem, Inc. - ANTM - close: 136.25 change: +1.19

Stop Loss: 136.65
Target(s): To Be Determined
Current Option Gain/Loss: -32.1%
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

11/17/15: ANTM was not cooperating yesterday. Last night we decided to tighten our stop loss just in case ANTM rallied through short-term resistance. That's exactly what happened today with ANTM traded up toward its 20-dma before paring its gains. Shares outperformed the broader market with a +0.88% gain. Our new stop loss was hit at $136.65.

- Suggested Positions -

2016 JAN $130 PUT (ANTM160115P130) entry $5.60 exit $3.80 (-32.1%)

11/17/15 stopped out
11/16/15 new stop @ 136.65
11/04/15 triggered @ $134.25
Option Format: symbol-year-month-day-call-strike