Option Investor

Daily Newsletter, Monday, 5/15/2017

Table of Contents

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

Market Wrap

Political Drama, Who Cares?

by Thomas Hughes

Click here to email Thomas Hughes


The political sideshow rages on and the market set a new all-time high. Either the market is not taking politics seriously enough or it just doesn't care anymore. I lean toward the latter. Not to say that it doesn't matter because it does, it just doesn't matter too much until something fundamental actually changes and so far it hasn't.

Before Trump the economy and earnings were on track for slow, steady continued growth, after Trump nothing changed to alter that outlook negatively. . . and there is still the possibility he could effect positive reform to the system. If nothing gets changes he is, at the very least, pro-growth and pro-business. All attitudes which have helped to brighten sentiment, spur activity and reassure the market.

International indices were optimistic but cautious. Stocks mostly gained ground on a surge in oil prices despite escalating threats from North Korea. In Asia the Nikkei lagged with a loss of -0.07% while the Hang Send led with a gain near 0.90%. European indices were more more uniformly positive with gains in the range of 0.25% to 0.5%. Earlier weakness in the European markets was reversed on bullish activity in the US and sent the DAX up to set a new all-time high.

Market Statistics

Futures trading indicated a positive open all morning with some strength showing as we approached the opening bell. The indices opened with small gains and then quietly marched higher to set new highs, all-time highs in some cases, which were held into the close of the day.

Economic Calendar

The Economy

Two pieces of the economic puzzle were released today, one before the opening bell and one after. The Empire State Manufacturing Survey was released before the open and showed the first contraction in growth since last October. The headline figure fell -6 points to -1 and just below stable levels. Within the report New Order fell to -4.4 while shipments fell to 10.6, both showing a slowdown in activity. On the plus side both employment levels and hours worked were positive and show continued expansion on the front. Employment edged down to 11.9, hours worked held steady at 7.5.

The NAHB Home Builders Index shows sentiment among the builders is improving. The index gained 2 points to hit 70, the second highest level in the past 12 months and up 12 points from this same month last year. Sales of single family homes rose by 2 points to 76 and the highest level in over 12 months. The 6 month outlook gained 4 points to hit 79 and another +12 month high. The only indicator to fall is traffic which shed a point to hit 51. Regardless, these numbers look good and indicate a long anticipated pick up in builder activity may be coming.

Moody's weekly Survey Of Business Confidence gained 0.7% in the past week to hit 34.6% and a new 18 month high. Mr. Zandi says the results indicate rock solid sentiment among global businesses, led by the US. The biggest concerns among businesses remains legal/regulatory and the cost of labor. Forward outlook is also positive.

The first quarter 2017 earnings cycle is coming to a close. A little more than 90% of the S&P 500 have reported with another 3.6% expected to report this week. Of those who have reported the results are above average despite the blood-bath in retail we saw last week. More than 75% have beaten EPS estimates and 64% revenue estimates making this the best quarter in terms of out-performance in over a year. The blended rate of earnings growth ticked up by a tenth and is now 13.6% and the fastest pace of growth since the Q3 2011.

Looking forward the outlook remains positive and expansionary long-term although near-term growth is expected to slow and estimates have been deteriorating. Second quarter 2017 has fallen from 10.7% to 6.8% in the latest reports with similar declines in 3rd quarter estimates. Growth is expected to expand to 7.5% in the 3rd quarter and then again in the 4th quarter to near 12.5%. Full year 2017 remains strong at 9.9% but ticked lower by a tenth. Growth remains in the forecast until the end of 2018, forecasts have been holding relatively steady around 11.7%

The Dollar Index

The Dollar Index fell a little more than -0.25% today as diverging policy expectation for the ECB and BOJ, along with last week's tepid CPI data/retail sales data, keep the dollar trading near $99. Today the index fell to $99 and moved briefly below it. This level has emerged as an important level of support and/or pivot point and may continue to be so into the near term. The next round of central bank meetings is about 4 week's away so a likely target for the focus of current trading activity. The FOMC is providing support but that support is weakening. After last week's data they are expected to raise rates in June and if not then July but the longer term outlook has fallen from 3-maybe-4 hikes in 2017 to 2-maybe-3. Adding downward pressure is rising expectation for the ECB to tighten in some form, probably additional tapering, which would be seen as hawkish and strong for the euro. Counter balancing this is the BOJ which is not expected to tighten, has left additional easing on the table and weakened the yen. Needless to say economic data will be important over the next month and likely to cause a lot of volatility as outlook for not one but three central banks is affected. A break below $99 would be bearish, a bounce bullish but either move likely short lived without major catalyst.

The Gold Index

Gold prices rose in today's session but only by 0.03%. Spot gold is now trading just above $1230 and bouncing from support. Support is at $1220, possible resistance targets are $1235 and $1250. With the dollar in limbo gold is likely to remain range bound with economic data and geopolitics driving day to day volatility until the next round of central bank meetings.

The Gold Miners ETF gapped up at the open on expected bullishness from the gold pits but traders were disappointed. Price opened at the long-term moving average, sold off from there and tested the short-term moving average before closing with nearly no movement on the day. Today's candle looks bearish but may not indicate reversal just yet. The index is moving up within a range and confirmed by both indicators so additional tests of resistance should be expected. Upside target is $23.75 in the near-term, support is along the bottom of the range near $21.

The Oil Index

Oil prices got a big boost today when Saudi Arabia and Russia Jointly announced agreement to a proposed production cut extension. The agreement is not a deal but expected to sway OPEC decision later this month and would add 9 months to production caps already in place. The news sent WTI up by more than 2% intraday to close just shy of $49. The news is bullish near-term and could lead to further upside, if the deal is extended highs near $55 could be retested.

The Oil Index gapped up at the open to begin trading just below the long-term moving average. The rest of the day saw it sell off to give up most of the early gains, create a red-bodied candle and close with a gain of only 0.5%. The longer term outlook for the sector is bullish but today's candle is tentative. Resistance is evident at this level, perhaps the market is wary of Saudi/Russia talk, and may contain prices near-term. Support is in the range of 1,125-1,150.

In The News, Story Stocks and Earnings

The ongoing Wannacry ransomware outbreak has cyber security stocks in vogue. The Cyber Security ETF HACK (ARCX:HACK) jumped more than 3% in today's action and likely going higher. The ETF has been in uptrend since hitting bottom more than a year ago and aiming to retest all-time highs. While it is hard to say which security company will come out on top the industry is set for long-term gains. Experts estimate there will be more than 50 billion connected devices by 2020, more than 6 per person, making Internet security a top priority for business and individuals alike.

Shares of Sears fell on news the company was in battle with the new owner of Craftsman brand tools. Sears sold the brand last year on condition that One World, a China based tool manufacturer, would continue to supply Sears with Craftsman tools. One World is trying to disrupt the flow of tools to Sears and effectively harming their ability to serve customers, a move the company says it won't allow. Shares of the stock fell more than -12% on the news.

The VIX continues to test resistance at the $11 level. Today the index moved up to resistance and then fell to create a red bodied candle and close with a loss of -1.15%. The indicators remain low in the range and are beginning to roll over in confirmation of resistance. A break above $11 would indicate a growing possibility for correction. Until then the index remains low and near long-term lows, consistent with bull market conditions and rally.

The Indices

Action was not overly strong but the indices managed to move higher, some of them setting new all-time highs. The day's leader is the Dow Jones Transportation Average with a gain of 0.73%. The index has begun to bounce from the long-term moving average and looks as if it will move higher in line with the prevailing trend. The indicators are still pointing lower but have begun to roll over in confirmation of support. A move higher would be bullish and trend following with upside target near 9320.

The next biggest gainer in today's session is the S&P 500. The broad market put on 0.47% at the end of the day creating a small green candle and setting new all-time intraday and closing highs. The index is bouncing from a long-term trend line with upside target near 2,480. The indicators are mixed in the nearer term but consistent with a test of support with a bull market. If the index continues higher tomorrow and the next day buy signals are likely to fire in both indicators, the caveat being they have not fired yet.

The NASDAQ Composite made the 3rd largest gain today, 0.46%. The tech heavy index created a small green bodied candle, closed near the high of the day and set a new all-time closing high. The index continues to drift higher with upside target near 6,400. The indicators remain bullish and have begun to reconfirm the uptrend; MACD began to tick higher today, equivalent to a zero-line crossover, stochastic is close behind.

The Dow Jones Industrial Average posted the smallest gain today, only 0.40%. The blue chips created a small green bodied candle moving up from support and looks like it could go higher. Support is a long-term up trend line confirmed by the short-term moving average and looks strong. The indicators are consistent with a test of support within an uptrend and set up to fire a trend-following entry should the index move higher. A move up to and through the current all-time high would be bullish and trend following with upside target near 21,500 in the near-term.

Today's action was light but bullish and promising. The market has been able to shrug off ongoing political drama in Washington in favor of fundamentals such as economic growth and earnings growth. The indices have begun to move higher in-line with that growth and could easily continue to move higher in the absence of negative news. The caveat is that we have entered a period of market doldrum, the time between earnings cycles and FOMC meetings coupled with the onset of summer holiday so volumes could decline and market direction erratic. I remain firmly bullish for the long term, cautious for the near and short but bullish and looking for more new highs.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Big Ticket Weakness

by Jim Brown

Click here to email Jim Brown

Editors Note:

Sales of big-ticket items and items used outdoors were weak in Q1. Tractor Supply blamed it on the weather.


No New Bullish Plays


TSCO - Tractor Supply - Company Profile

Tractor Supply Company operates rural lifestyle retail stores in the United States. The company offers a selection of merchandise, including equine, livestock, pet, and small animal products necessary for their health, care, growth, and containment; hardware, truck, towing, and tool products; seasonal products, such as heating products, lawn and garden items, power equipment, gifts, and toys; work/recreational clothing and footwear; and maintenance products for agricultural and rural use. As of January 26, 2017, it operated 1,600 retail stores in 49 states. The company operates its retail stores under the Tractor Supply Company, Del's Feed & Farm Supply, and Petsense names. It also operates an e-commerce Website, TractorSupply.com. The company sells its products to recreational farmers, ranchers, and others, as well as tradesmen and small businesses. Tractor Supply Company was founded in 1938 and is headquartered in Brentwood, Tennessee. Company description from FinViz.com.

In mid April TSCO warned that sales were weak and cut its earnings outlook. Same store sales fell -2.2%. The average number of transactions declined -1.4% and the average ticket size fell -0.9%. The company blamed price deflation from competition and lower sales of seasonal merchandise. They cut estimates from 49 cents to 45-46 cents.

The company has been around since 1938. Have they not gotten a grasp of weather patterns yet?

When they reported earnings of 46 cents that matched the lowered analyst estimates. Revenue rose 6.6% to $1.56 billion.

Let make sure we have this right. In Mid April, they warned of lower sales for multiple reasons and cut earnings estimates. Two weeks later, they reported a 6.6% increase in sales rather than a decrease. Other investors picked up on the discrepancy and shares began to fall. Since Amazon does not sell tractors online, somebody else is forcing their profits lower. Maybe the sale of big ticket items like tractors is suffering from the same illness as motorcycles and motor homes. A lack of extra money in consumer pockets.

The next earnings release is July 26th.

I am going to step out to the October strikes because the July options would expire before earnings. It would be best to have some earnings expectation in the premium to keep them elevated.

We can buy all the time we want. We don't have to use it. We will exit before earnings.

Buy Oct $55 put, currently $1.95, initial stop loss $62.65.

In Play Updates and Reviews

New Highs

by Jim Brown

Click here to email Jim Brown

Editors Note:

The S&P and Nasdaq posted new highs but the Dow remains stuck under 20,100. The S&P closed at 2,402 and a new high BUT we have been here before on an intraday basis. I would like nothing better than to see the S&P surge higher like the Nasdaq but until it does we should not get too excited. The Dow gained 85 points but closed below resistance at 20,100 and most of the gains came from JNJ and GS. There was a lack of broad based excitement in the rest of the Dow stocks.

The Nasdaq made a new high but stopped right at uptrend resistance at 6,150. The index is likely to pause to take a breath and then continue higher.

The Russell 2000 and S&P-600 both rebounded but both failed to close above resistance.

Today may have been just a relief rally after the negative days at the end of last week. If the Nasdaq continues higher I would be thrilled because it is pulling this train.

Current Portfolio

Stop Loss Updates

Check the graphic below for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline.

Profit Targets

Check the graphic below for any profit stops in green. We need to always be prepared for a profit exit at resistance.

Current Position Changes

ATHN - AthenaHealth
The call spread position was entered at the open.

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BULLISH Play Updates

ATHN - AthenaHealth - Company Profile


No specific news. We got into ATHN just in time with the stock blasting off for a nearly $3 gain. Unfortunately, the very positive open spiked the option prices but because we used a spread the damage was minimal.

Original Trade Description: May 13th.

athenahealth, Inc., together with its subsidiaries, provides network-based medical record, revenue cycle, patient engagement, care coordination, and population health services for medical groups and health systems. It offers athenaCollector, a network-enabled billing and practice management solution; athenaClinicals, an electronic health record for electronic health record management to help manage patient's clinical documentation; athenaCommunicator, an engagement and communication solution that provides an automated communication service between patients and provider practices for interactions outside the exam room; and athenaCoordinator for order transmission and care coordination services. The company also provides athenahealth Population Health, a cloud-based population health service; and Epocrates service that include clinical information and decision support services in the areas of drug and disease information, medical calculator and tools, clinical guidelines, clinical messaging, and market research. In addition, it offers athenahealth Health Plan data exchange facilitates to exchange the data between providers and health plans for the healthcare operations of clients; athenaOne Analytics that includes an analytics and dashboard application, as well as provides visibility into the financial and operational health of an organization; and pre-certification processing and referral processing services. The company serves clients in the health care industry through its direct sales force and channel partners in the United States and internationally. athenahealth, Inc. was formerly known as athenahealth.com, Inc. and changed its name to athenahealth, Inc. in November 2000. Company description from FinViz.com.

ATHN shares fell from $121 to $95 after reporting slower than normal growth in the first quarter. The company reported earnings of 32 cents compared to estimates for 46 cents. Revenue of $284.4 million rose 11% but missed estimates for $296.6 million. ATHN has averaged 20% growth in the past and the slowdown hammered the stock. They guided for the full year for revenue of $1.21 to $1.25 billion.

There was good news. They added 2,406 new providers of its Collector software. They added 2,791 providers using their Clinical software system. The hospital software segment saw 86% growth in discharged bed days. Covered lives rose 25% to 2.8 million. They handle 88 million patient records and now have more than 99,000 providers.

The lower earnings came from a 13% increase in expenses, mostly due to an aggressive research and development effort, which will increase profits later.

Earnings July 27th.

Analysts believe ATHN was surprised by the lower growth in Q1 and they drastically lowered guidance to avoid missing estimates again in the future. This is the under promise and over deliver tactic.

Shares have been rebounding strongly since the drop. Even on weak market days, they continue to post gains.

Because of the positioning of share price and option strikes, I am recommending a spread using the June options. This will limit our potential gain but also limit out cost and risk. There are no July/August options and the September options are far too expensive.

Position 5/15/17:

Long June $110 call @ $4.30, see portfolio graphic for stop loss.
Short June $115 call @ $1.85, see portfolio graphic for stop loss.

CGNX - Cognex Corporation - Company Profile


No specific news. New closing high.

Original Trade Description: May 10th.

Cognex Corporation provides machine vision products that capture and analyze visual information in order to automate tasks primarily in manufacturing processes worldwide. The company offers machine vision products, which are used to automate the manufacturing and tracking of discrete items, such as mobile phones, aspirin bottles, and automobile tires by locating, identifying, inspecting, and measuring them during the manufacturing or distribution process. Its products include VisionPro, a software suite that provides various vision tools for programming; displacement sensors with vision software for use in 3D application; In-Sight vision systems that perform various vision tasks, including part location, identification, measurement, assembly verification, and robotic guidance; In-Sight vision sensors; ID products, which are used for reading codes that are applied on discrete items during the manufacturing process, as well as have applications in logistics automation for package sorting and distribution; DataMan barcode readers; barcode verifiers; vision-enabled mobile terminals for industrial barcode reading applications; and barcode scanning software development kits. The company sells its products through direct sales force, as well as through a network of distributors and integrators. Company description from FinViz.com.

Cognex reported earnings growth of 200% to 51 cents. Revenue growth increased 40% to $134.9 million and well over guidance of $123.5 million. Gross margin was 79%. Operating income rose 128% to $37.4 million. Operating margin rose from 17% to 28%. The company raised guidance for Q2 for revenue in the $165-$170 million range or roughly 13.7% growth.

Earnings July 31st.

The CEO said growth across all regions were better than expected. Factory automation in the America's increased by mid-teens percentages and was expected to improve. Growth across a range of industries including consumer electronics and automotive were better than expected. Automotive related revenue rose 20% in the quarter.

There are no negatives in the Cognex story. Shares spiked to $90 on the earnings, a new high, and have held there for the last six days. Wednesday's close was a new high and it looks like a breakout is imminent.

Position 5/11/17:

Long August $95 call @ $3.70, see portfolio graphic for stop loss.

CNC - Centene Corp - Company Profile


No specific news. Bounced from support again but still in congestion.

Original Trade Description: April 28th.

Centene Corporation operates as a diversified and multi-national healthcare enterprise that provides programs and services to under-insured and uninsured individuals in the United States. It operates through two segments, Managed Care and Specialty Services. The Managed Care segment offers Medicaid and Medicaid-related health plan coverage to individuals through government subsidized programs, including Medicaid, the State children's health insurance program, long-term care, foster care, and dual-eligible individual, as well as aged, blind, or disabled programs. Its health plans include primary and specialty physician care, inpatient and outpatient hospital care, emergency and urgent care, prenatal care, laboratory and X-ray services, home health and durable medical equipment, behavioral health and substance abuse, 24-hour nurse advice line, transportation assistance, vision care, dental care, immunizations, prescriptions and limited over-the-counter drugs, specialty pharmacy, therapies, social work services, and care coordination. The Specialty Services segment provides pharmacy benefits management services; health, triage, wellness, and disease management services; vision services; dental services; correctional healthcare services; in-home health services; and integrated long-term care services, as well as care management software that automate the clinical, administrative, and technical components of care management programs. This segment offers its services and products to state programs, healthcare organizations, employer groups, and other commercial organizations. The company provides its services through primary and specialty care physicians, hospitals, and ancillary providers. Company description from FinViz.com.

Centene reported earnings of $1.12 compared to estimates for $1.05. Revenue jumped 69% to $11.72 billion to beat estimates for $11.42 billion. The big spike in revenue came from the $6.3 billion acquisition of Health Net last year.

The insurer said it had 12.15 million members on March 31st, an increase of 605,000. They raised guidance for the full year from $4.40-$4.85 to $4.50-$4.90. The health benefits ratio or HBR, the amount it spends on claims compared to the premiums received declined from 88.7% to 87.6%. The lower HBR is due to a greater mix of commercial businesses and the growth of its Obamacare businesses.

Earnings July 25th.

Shares had resistance at $73, which was broken last week. The next resistance is the 52-week high at $75.50 and the stock closed at $74.41 on Friday. There was a sell the news drop on Wednesday after the earnings but shares have already recovered $3 of that decline.

If the stock moves to a new 52-week high is should continue on to make a new high over $80.

Position 5/1/17:

Long June $77.50 call @ $1.57, see portfolio graphic for stop loss.

CVX - Chevron - Company Profile


No specific news. Shares rallied slightly with the rice in oil prices. Chevron said they had taken Train 1 of the massive Gorgon LNG plant offline for a month to do some maintenance. The plant cost $54 billion to build and has 3 trains that can produce 15.6 million tonnes of LNG per year.

Original Trade Description: April 16th.

Chevron Corporation, through its subsidiaries, engages in integrated energy, chemicals, and petroleum operations worldwide. The company operates in two segments, Upstream and Downstream. The Upstream segment is involved in the exploration, development, and production of crude oil and natural gas; processing, liquefaction, transportation, and regasification associated with liquefied natural gas; transportation of crude oil through pipelines; and transportation, storage, and marketing of natural gas, as well as operates a gas-to-liquids plant. The Downstream segment engages in refining crude oil into petroleum products; marketing crude oil and refined products; transporting crude oil and refined products through pipeline, marine vessel, motor equipment, and rail car; and manufacturing and marketing commodity petrochemicals, and fuel and lubricant additives, as well as plastics for industrial uses. It is also involved in the cash management and debt financing activities; insurance operations; real estate activities; and technology businesses. Further, the company holds interests in power plants, as well as operates geothermal plants; and engages in the transportation of refined products primarily in the coastal waters of the United States. The company was formerly known as ChevronTexaco Corporation and changed its name to Chevron Corporation in 2005. Company description from FinViz.com.

Chevron is one of the U.S. energy majors with billions of barrels of reserves. The company pays an annual dividend of $4.32 or 4.07% yield. They are totally committed to preserving and raising the dividend. This makes them a top pick by nearly every major analyst.

Chevron is coming out of a major project cycle where they spent over $25 billion a year on capex building out monster projects. Now that the projects are nearly complete and ramping up production, the company can reduce its capex significantly and still increase production as those projects come online.

Chevron has amassed a two million acre position in the Permian Basin with 9 billion barrels of reserves. The company is currently operating 11 rigs in the Permian and will be adding 9 more in the coming months. They plan on ramping up their Permian production from the current 80,000 bpd to 700,000 bpd over the next few years. Chevron's Permian acreage is said to be worth more than $43 billion. It was acquired in pieces at much lower prices by predecessor companies over the last several decades. The Permian was never a big focus for Chevron as they concentrated on megaprojects elsewhere. They are increasing spending in the Permian by $2.5 billion in 2017. They are not hedging their oil production because they believe prices will rise.

Earnings on April 28th are expected to be a miss because of the sharp decline in oil prices in March. This is expected to lower earnings and force misses for the major producers. Since this is a well-known fact, I suspect it it being priced into the stock ahead of the report.

Thursday's decline of 3% put the stock right at light support at $106. If this level fails, there is strong support at $100.

Oil prices should begin to rally any day now. Refinery utilization of back over 90% and it is time to begin pushing summer blend fuels into the distribution system. We should begin to see inventory declines every week and that should last through July. August is normally when crude prices top out. OPEC should extend the production cuts because they are right on the edge of a reduction in inventories and an extension would guarantee it.

Chevron shares should rebound with crude prices. If they were to surprise with earnings, shares should rebound quickly.

The option is cheap and we are going to hold over the earnings report.

If the market tanks at the open on Monday, please do not enter this position until the S&P is positive.

Update 4/19/17: Chevron shares crashed with the entire energy sector after a nearly $2 drop in crude prices on weak inventory numbers from the EIA. WTI only declined -1 million barrels and gasoline rose 1.5 million compared to an expected decline of -1.6 million. The EIA said gasoline demand was down -0.8% from the same period in 2016.

Update 4/22/17: Chevron lost a court case in Australia for $260 million. The case ruled on the deductibility of interest on a $2.5 billion loan made from the parent company between 2003-2008. Chevron Australia paid 9% interest on the loan from Chevron and the parent company borrowed the money at a lower rate. The court said Chevron Australia could only deduct the interest at the parent's borrowing rate. Chevron said they would appeal.

Update 4/24/17: Chevron said it was selling its assets in Bangladesh to Himalaya Energy. No price was given but Bloomberg said the fields were worth about $2 billion. Chevron is planning on selling $10 billion in non-core assets in 2017. Himalaya is owned by a consortium of Chinese state owned firms. Bangladesh has a right of refusal on any deal and they said they were not done with their evaluations yet. The three fields held in the Chevron subsidiary produce 720 million cubic feet of gas and 3,000 barrels of condensate per day.

Update 4/28/17: Chevron reported earnings of $1.41 compared to estimates for 86 cents. The Chevron number did have a $600 million gain from the sale of an upstream asset so it is not really apples to apples comparison. Revenue of $33.4 billion missed estimates for $34.9 billion. Operating costs declined 14% and capex spending will be down more than 30%. Oil production rose 3% and full year growth is expected to be 4-9%.

Position 4/17/17:

Long June $110 call, currently $1.45. See portfolio graphic for stop loss.

FFIV - F5 Networks - Company Profile


No specific news. Excellent rebound to a 4-week high close.

Original Trade Description: May 8th.

F5 Networks, Inc. develops, markets, and sells application delivery networking products that optimize the security, performance, and availability of network applications, servers, and storage systems. It offers Local Traffic Manager, which provides intelligent load-balancing, traffic management, and application health checking; BIG-IP DNS that automatically directs users to the closest or best-performing physical, virtual, or cloud environment; Link Controller, which monitors the health and availability of each connection in organizations with more than one Internet service provider; Advanced Firewall Manager, a network firewall; and Application Security Manager, an Web application firewall that provides comprehensive, proactive, and application-layer protection against generalized and targeted attacks. The company also provides Access Policy Manager, which provides secure, granular, and context-aware access to networks and applications; Carrier-Grade Network Address Translation, which offers a set of tools that enables service providers to migrate to IPv6 while continuing to support and interoperate with existing IPv4 devices and content; and Policy Enforcement Manager that offers traffic classification capabilities to identify the specific applications and services to service providers. In addition, it offers cloud-based and other subscription services; BIG-IP appliances; VIPRION chassis-based systems; and Traffix Signaling Delivery Controller for diameter signaling and routing. The company sells its products to enterprise customers and service providers through distributors, value-added resellers, and systems integrators in the Americas, Europe, the Middle East, Africa, Japan, and the Asia Pacific Region. Company description from FinViz.com.

F5 reported earnings of $1.95 that missed estimates for $2.09. Revenue of $518.2 million rose 7% but missed estimates for $538 million. The company had guided for earnings of $2.01 to $2.04. They beat their own guidance but analysts were too optimistic.

The company blamed the miss on continued weakness in Europe. Sales rose 16% in the Asia Pacific region.

F5 began shipping some new products in Q1 but the volume shipments will hit in Q2. They also announced additional products that will also be shipping in Q2, which should be a good quarter. They guided for current quarter revenue of $520-$530 million with earnings of $2.01-$2.04.

Earnings July 26th.

Shares of F5 fell from $138 to $125 on the earnings miss on April 27th. After a week of post earnings depression, shares are now rebounding.

Position 5/9/17:

Long July $135 call @ $2.75, see portfolio graphic for stop loss.

MCD - McDonalds - Company Profile


McDonald's Bar-B-Que opened on May 15th, 1940. The store closed and was later reopened in 1948 with only 9 items on the menu. Hamburgers were 15 cents, cheeseburgers 19 cents and cokes/coffee were 10 cents. Today, McDonalds serves 77 million customers a day. Short history of MCD in pictures The stock celebrated today with a new high.

Original Trade Description: May 3rd.

McDonald's Corporation operates and franchises McDonald's restaurants in the United States, Europe, the Asia/Pacific, the Middle East, Africa, Canada, Latin America, and internationally. The company's restaurants offer various food products, soft drinks, coffee, and other beverages. As of December 31, 2016, it operated 36,899 restaurants, including 31,230 franchised restaurants comprising 21,559 franchised to conventional franchisees, 6,300 licensed to developmental licensees, and 3,371 licensed to foreign affiliates; and 5,669 company-operated restaurants. McDonald's Corporation was founded in 1940 and is based in Oak Brook, Illinois. Company description from FinViz.com.

McDonalds is surging because they have overhauled their menu, offered breakfast all day, shifted to fresh beef, mobile ordering, delivery with UberEats, kiosks AND they are selling coffee for $1 and specialty drinks for $2. That is vastly lower than Starbucks and it is helping them steal market share. People stopping by to pick up a cheap coffee tend to order a snack as well. Who can resist adding an Egg McMuffin to go with that coffee.

McDonalds reported better than expected earnings and raised guidance. They reported $1.47 compared to estimates for $1.33. Revenue of $5.68 billion beat estimates for $5.53 billion. Same store sales rose 1.7% compared to expectations for an 0.8% decline. Global sales were up 4%.

Earnings July 25th.

Goldman has had a neutral rating on them forever but upgraded the fast food giant today to a buy with $153 price target. Goldman admitted they were late but said there was still plenty of time given the improved metrics. Goldman cited McDonald's "Experience of the Future" plans for mobile ordering and kiosks and said the expanding delivery options could expand revenue.

McDonalds closed at a new high today in a weak market.

Update 5/4/17: McDonalds said it was adding Signature Crafted Recipes to its stores in Florida and would be adding 5,000 workers to handle the volume.

Position 5/4/17:

Long July $145 call @ $1.67, see portfolio graphic for stop loss.

$VIX - Volatility Index - Index Description


Wow! The VIX actually closed up on a very bullish day in the markets. Somebody was betting this rally will not last.

The May 8th close at 9.77 was the lowest close since December 1993. That is a 24 year low!!

This is a July call. We have plenty of time and the odds of a market sell off over the next 2.5 months are close to 100%. The VIX cannot go much lower but it can go a lot higher.

While holding the VIX call is an insurance play for us, I hope we are never in a position to profit from it. That would mean a lot of our long positions would be under water or stopped out.

Original Trade Description: Jan 26th

The VIX is a computed index, much like the S&P 500 itself, although it is not derived based on stock prices. Instead, it uses the price of options on the S&P 500, and then estimates how volatile those options will be between the current date and the option's expiration date. The CBOE combines the price of multiple options and derives an aggregate value of volatility, which the index tracks.

The VIX closed at 10.63 and very close to record lows. You have to go back to June of 2014 for a lower recent close at 10.28. Before that, you have to travel back in time to Feb-2007 for a close at 10.05. The next lowest close was 9.48 in Dec-1993.

The point here is that volatility is near record lows only reached four times in the last 23 years. That qualifies for an abnormal event. I believe it is time we bought some VIX calls. The odds of the VIX remaining this low for the next two months are about as close to zero as you can get.

There is a very old saying in the market. "When the VIX is high, it is time to buy. When the VIX is low, it is time to go." You cannot get much lower than this.

The VIX is telling us that everyone expects the market to continue moving higher. Nobody is worried that some unexpected headline or event is going to trigger a significant market decline. When nobody expects an event is when we should be the most concerned.

Update 5/1/17: The VIX made a new intraday low at 9.90 and closed at a 10-yr low at 10.11. The government shutdown has been avoided according to reports out of Washington and that helped to deflate the VIX. Marine Le Pen is rapidly gaining on Macron in the French election runoff for next Sunday. She gained 6 points in two days to 41% in the recent polls compared to Macron's 59%. If she can gain another 6% early this week then the entire event risk scenario comes back into play with a potential come from behind win.

Position 3/30/117
Long July $14 call @ $2.55, no stop loss.
Added 5/9/17: Long July $14 call @ $1.60, no stop loss.
Average cost now $2.07.

Previously Closed 2/1/17: Long March $12 call @ $2.60, exit $2.50, -.10 loss.
Previously Closed 2/22/17: Long March $12 call @ $1.75 adj, exit $1.65, -.10 loss.
Previously Closed 4/10/17: Long Apr $13 call @ $2.30, exit $1.80, -.55 loss.

BEARISH Play Updates (Alpha by Symbol)

PG - Procter & Gamble - Company Profile


Today's lack of a material move was encouraging. After the bell Friday, news broke that Nelson Peltz increased his stake in PG by 600% to 36.17 million shares or $3.5 billion. That could have caused a major spike in PG today but the minor bounce was very lackluster. We may yet get that breakdown under $86.

Original Trade Description: May 1st.

The Procter & Gamble Company provides branded consumer packaged goods to consumers in North America, Europe, the Asia Pacific, India, the Middle East, Africa, and Latin America. The company's Beauty segment offers hair care products comprising conditioners, shampoos, styling aids, and treatments; and antiperspirants and deodorants, personal cleansing, and skin care products. This segment markets its products under the Head & Shoulders, Olay, Pantene, Rejoice, Old Spice, Safeguard, and SK-II brands. Its Grooming segment provides blades and razors, pre- and post-shave products, and other shave care products, as well as appliances under the Braun, Fusion, Gillette, Mach3, Prestobarba, and Venus brands. The company's Health Care segment offers toothbrushes, toothpaste, and other oral care products; and gastrointestinal, rapid diagnostics, respiratory, vitamins/minerals/supplements, and other healthcare products under the Oral-B, Crest, Prilosec, Vicks, Metamucil, Pepto Bismol, and Align brands. Its Fabric & Home Care segment provides fabric care products, including fabric enhancers, laundry additives, and laundry detergents; and home care products comprising air care, dish care, P&G professional, and surface care products under the Tide, Ariel, Downy, Gain, Cascade, Dawn, Febreze, Mr. Clean, and Swiffer brands. The company's Baby, Feminine & Family Care segment offers baby care products, such as baby wipes, diapers, and pants; adult incontinence and feminine care products; and family care products, such as paper towels, tissues, and toilet papers. This segment markets its products under the Pampers, Always, Bounty, Charmin, Luvs, and Tampax brands. The company sells its products through mass merchandisers, grocery stores, membership club stores, drug stores, department stores, distributors, baby stores, specialty beauty stores, e-commerce, high-frequency stores, and pharmacies. The Procter & Gamble Company was founded in 1837. Company description from FinViz.com.

P&G is never going out of business but their continual slowdown in sales it a testament to the changing retail environment. Even their age old, die hard brands, like Tide and Mr. Clean are losing market share to the dozensof new products in the same category. Tide was the old reliable that everyone used 50-70 years ago. Now it is just one of the group of brand name products for washing clothes.

P&G posted adjusted earnings of 96 cents compared to estimates for 94 cents. Revenue of $15.61 billion declined -1% and missed estimates for $15.71 billion. The strong dollar caused a 2% decline in revenue. The company guided for a 1% decline in revenue for the year compared to prior guidance of flat revenue. The affirmed earnings estimates for $3.67. This was the 13th consecutive decline in quarterly revenue.

Earnings July 26th.

Shares dropped $3 on the revenue miss and weak guidance. Investors are not excited about owning a company with declining revenue. That always squeezes profits as well.

I am recommending a September option instead of July because the July expires the week before earnings. We are not going to hold over but I would like to have those earnings expectations in the premium when we exit. Buying longer dated options does not mean you have to hold them until maturity. We can buy time but we do not have to use it.

Position 5/2/17:

Long Sept $85 put @ $2.05, see portfolio graphic for stop loss.

SPY - S&P-500 SPDR ETF - ETF Profile


The S&P rallied to close at 2,402 and a new high. This could be the start of a new leg higher. I am dropping this position from the tracking portfolio as a loss. Unless North Korea nukes Hawaii over the next three days, it will expire worthless.

Original Trade Description: March 25th.

The SPDR S&P 500 trust is an exchange-traded fund which trades on the NYSE Arca under the symbol. SPDR is an acronym for the Standard & Poor's Depositary Receipts, the former name of the ETF. It is designed to track the S&P 500 stock market index.

The S&P-500 is in danger of a material drop, possibly to 2,250 or the equivalent 225 level on the SPY ETF. The chart is unsupported and we are entering into a typically volatile period of the year over the next five weeks. I am recommending we buy insurance with a put on the SPY only IF the SPY trades at a new five-week low of 232.75. That way if the market opens higher on Monday we can watch to see if that direction holds before putting money at risk.

I believe if the market goes lower next week it could be the beginning of a major decline.

Position 3/27/17:

Dropping 5/15/17: Long May $230 put @ $3.49, expiring, -3.49 loss.

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