Option Investor

Daily Newsletter, Tuesday, 5/16/2017

Table of Contents

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

Market Wrap

Buckle Up

by Jim Brown

Click here to email Jim Brown

The late day revelations that President Trump reportedly asked Comey to drop the Flynn investigation and put reporters in prison, is tanking the futures.

Market Statistics

It turns out that former FBI Director Comey is a compulsive note taker. A memo has surfaced claiming Trump asked Comey to "let the Flynn investigation go" and the implications are huge. Since Comey was still in the early "interview" stages of his new relationship with the president, the urging of the president to end the investigation could easily be seen as coercion and obstruction of justice. Comey's refusal to end the investigation is now being seen as the real reason for his termination. In the same New York Times article, Trump also called for Comey to begin arresting reporters for leaking and publishing classified information. That would also be illegal since it has long been held that a reporter has no responsibility to keep information private. It is up to the original holder of that information to keep it secret. Comey had shared his notes from the meetings with senior FBI officials who interpreted Trump's remarks as coercion.

The democrats are already using the "I" word and calling for even tougher special prosecutors and more testimony. The republicans have vanished. Nobody from the House, Senate or White House has been willing to go on camera as of 8:15 PM to rebut any of these allegations. Since many people have gone out on a limb for Trump to rebut various events over the last several weeks only to have that limb sawed off behind them, the lack of volunteers for a new suicide mission is not surprising.

With commentators talking about impeachable offenses it is not surprising the S&P futures are down -18 points as I type this. Whether this qualifies or not or even if it is true or not, no longer matters. President Trump will be battling this event for months to come. His agenda is dead and his position could be in serious jeopardy. Senators are already saying they will subpoena all of the White House records, notes, tapes, etc along with any notes and memos from Comey and the FBI and there is no doubt that Comey will have to testify multiple times. After the rude way he was fired and the slander he received afterwards, he will not likely testify favorably about the conversations with the president.

This could actually turn into a constitutional crisis that at a minimum kills the Trump agenda and at a maximum lead to a resignation or worse.

The news above makes everything that happened in the market today nearly meaningless but I will report it.

New home construction starts for April declined from 1.203 million to 1.172 million. The decline was in multifamily units. Starts for single-family homes rose from 832,000 to 835,000. Multi-family starts declined from 371,000 to 337,000. Permits, a good indication of future starts, declined from 1.260 million to 1.229 million. Single-family permits declined from 826,000 to 789,000. Multi-family permits rose from 434,000 to 440,000.

Industrial production for April rose +1% after a +0.4% rise in March. This was the best monthly gain since February 2014. Manufacturing production rose from -0.4% to +1.0%. Durable goods rose from -0.8% to 1.0%. Motor vehicles and parts posted a sharp rebound from -3.6% to +5.0%. Business equipment rebounded from -0.3% to +1.2%. This was a very strong report.

The industrial production gains provided a springboard for revised GDP estimates. The Atlanta Fed real time GDPNow forecast for Q2 jumped to 4.1%, up from 3.5% just a couple days ago.

The calendar for the rest of the week is headlined by the Philly Fed Manufacturing Survey on Thursday. Everything else is just filler.

Dow component Home Depot (HD) reported earnings of $1.67 that beat estimates for $1.61. Revenue of $23.9 billion rose $1.1 billion and beat estimates for $23.8 billion. Same store sales rose 5.5%. For a company doing $100 billion a year in revenue, posting same store sales that strong was amazing. They guided for full year revenue to rise 4.6% with full year earnings of $7.15. Analysts were expecting $7.20. Shares rallied $1.40 to a new high but would have gone higher were it not for the earnings guidance. HD ended the quarter with 2,281 US stores and more than 400,000 employees.

Retailer Dick's Sporting Goods (DKS) reported earnings of 54 cents that rose 8% and met estimates. Revenues of $1.825 billion rose 9.9% but missed estimates for $1.834 billion. Same store sales rose 2.4% and missed the company's own guidance of 3% to 4%. Analysts expected 3.5%. Dick's guided for the full year to earnings of $3.65-$3.75 with same store sales of 1% to 3% compared to the 2.5% previously projected. Analysts were expecting $3.74 for earnings. For the current quarter, the company guided for $1.02 to $1.07 and analysts were expecting $1. Dick's had 609 Dick's stores, 100 Golf Galaxy stores and 30 Field and Stream stores at the end of the quarter. They plan to open 15-20 locations next year with 5-10 in 2019. They will open 43 in 2017. Management said it was waiting for real estate prices to decline and could consolidate some of its locations. Shares were crushed on the same store sales miss.

Staples (SPLS) reported earnings of 17 cents that declined -11% but matched estimates. Revenue of $4.15 billion missed estimates for $4.54 billion. Same store sales fell -2.6%. The company guided for earnings of 10-13 cents for the current quarter. They closed 18 stores in Q1 and are planning on closing 70 stores in fiscal 2017. Shares fell slightly on the news.

Retailer TJX Companies (TJX) reported earnings of 82 cents that beat estimates for 79 cents. Revenue of $7.78 billion missed estimates for $7.88 billion. Same store sales rose 1% but missed estimates for a 1.6% increase. The company guided for Q2 earnings of 81-83 cents and well below analyst estimates for 92 cents. Full year guidance was $3.71-$3.78 and analysts were expecting $3.90. Shares fell $3 on the news.

Virtusa Corp (VRTU) reported earnings of 43 cents that missed estimates for 46 cents. Revenue of $226 million missed estimates for $227.2 million. They guided for the current quarter for earnings of 24-30 cents and revenue of $222.5 million to $337.5 million. For the full year, they expect $1.42-$1.66 per share and $920-$950 million. Shares fell 15% on the earnings miss.

Jack in the Box (JACK) reported earnings of 98 cents that beat estimates for 91 cents. Revenue of $369.4 million beat estimates for $369.2 million. Same store sales fell -0.8% but sales at Qdoba fell -3.2%. They guided for the current quarter for same store sales at both brands to be down 1% to up 1%. Full year comps are expected to be up +1% compared to prior guidance for a 2% rise.

JACK said the quarter started sluggishly because of late tax refunds and record rainfall in California. Sales improved near the end of the quarter. Qdoba sales comps were impacted by aggressive discounting in the year ago quarter when Chipotle was having trouble. They tried to pull in as many of those customers as possible. Earnings were impacted from the rise in the minimum wage in California starting in January.

Despite the mixed commentary, shares rallied $10 in afterhours trading. The gain came after the company said it had retained Morgan Stanley to research strategic alternatives for the Qdoba brand. JACK said its overall valuation had been impacted by having two different business models. That suggests Qdoba will be spun off soon.

Red Robin Gourmet Burgers (RRGB) reported blowout earnings of 89 cents compared to estimates for 57 cents. Revenue of $419 million was only slightly better than estimates for $416 million. They guided for full year earnings of $2.80-$3.10 and analysts were only expecting $2.76.

Earnings for Wednesday include Dow component CSCO, retailers Target, L Brands and American Eagle.

Citigroup cut Pfizer (PFE) from neutral to sell on earnings concerns. When Pfizer reported Q1 earnings, they beat estimates by 2 cents but missed on revenue.

Goldman initiated coverage on Intuitive Surgical (ISRG) with a $1,000 target price. The bank said robot assisted surgeries will double over the next two years. "With less than 4% of U.S. surgeries employing robotics today, we think investors should own this structural winner as the market doubles in the next few years." Only 3% of tier-three hospitals in China have the Intuitive Surgical robot system. Those are facilities with more than 500 beds. The tier three market in China is the same size as the entire U.S. market. "We see new product cycles, an expanding platform, high hurdles for physician training and significant financial resources as tail winds to the ISRG competitive position." Shares rose $9 to close at $860.

Microsoft shares spiked 2% because the recent WannaCry ransomware outbreak will probably spark millions of people around the world to upgrade from Windows XP and Windows 7 to the much better security of Windows 10. This could be a windfall for Microsoft since out of date Windows systems tend to linger forever because users are hesitant to take the time and trouble to upgrade a working system.

The outbreak has thought to have infected up to 300,000 systems in 150 countries and all have the same common denominator of being an older Windows operating system. Credit Suisse reiterated an outperform rating on the company. The analyst wrote, "If you are not current on Windows, you are toast." He believes the ransomware attacks could accelerate due to the success of the recent attack. Hundreds of other hackers see the successful attack as free money and they will immediately copy the code to construct their own versions. Last weekend's attack is now considered the first wave of many more self-replicating attacks.

Credit Suisse said this could also accelerate the upgrade cycle on enterprise software. Millions of servers are still using Windows 2003 and 2008 server operating systems and those are also out of date. Companies are even more hesitant to upgrade if they do not have to because of the complexity of moving installed programs and applications code. The ransomware attack could push those companies into making the move. CS estimates that 85% of companies have not yet upgraded business PCs to Windows 10. That is another huge base of potential upgrades. Last week Microsoft announced the next big release of the Windows 10 Fall Creators Update. This is a major refresh of the Windows 10 operating system and right in time for the expected rush to upgrade.

After the bell, the API inventories were announced. Crude oil inventories rose 882,000 barrels compared to an expected decline of -2.3 million. Gasoline inventories fell -1.88 million barrels. The API report is mostly ignored because it does not track with the government's EIA inventories that are released on Wednesday mornings. However, crude prices did decline 48 cents to $48.08 after a 26-cent decline in the normal session.


This was another day of major divergence in the broader markets. The Dow rose just over 21,000 thanks to Home Depot earnings. After peaking at 20,133 at the open, the decline was immediate. The low of 20,932, a -101 point drop, came by 10:30. It was a battle the rest of the day with the index trading on both sides of zero and ending the day with a 2-point loss. This is a good spot for the Star Wars line, "Nothing to see here, move along." Tomorrow could be a different story if the political events blossom even further overnight. With the Dow the weakest index, there could be a meltdown.

The S&P closed at a new high on Monday at 2,402 but it was not a breakout. It was only a marginal close over the prior high and the index was still in the grip of resistance at 2,400. Today's move from 2396-2406 saw the index close almost in the middle and right on that 2,400 level.

In theory, this was a positive event that suggested sellers were losing their conviction. The real test will be whether the bulls can hold the index over 2,380 if we get a washout at the open.

The Nasdaq indexes each gained another 20 points and both closed above prior uptrend resistance. If we could ignore the Dow and S&P this would be a runaway bull market. Unfortunately, this divergence cannot continue. It is only a matter of time before the indexes begin moving in the same direction again the odds are not in favor of a continued move higher. I could be wrong but the Nasdaq overextension is due for a rest.

Small caps ended the day flat but they did rebound from a sharp decline at the open. If traders are trying to derive their small cap clues from the direction of the big cap indexes they must be greatly confused.

The real danger for Wednesday is the damage to market sentiment. Since we seem to be developing a pattern of a crisis a day from the White House, traders will either grow numb from the constant headline stream or they are eventually going to throw up their hands in disgust and move to the sidelines.

If sentiment is damaged, we could get the correction everyone has been expecting since January. This is the sell in May and go away period and selling excuses are rapidly becoming more prevalent.

I will be watching for the dip buyers to appear after the opening drop. As long as they appear and can keep the losses to a minimum, we should be ok. If the first dip is bought and a second dip makes a lower low, I would move to the sidelines.

Futures are improving slightly with only a -13 print as I hit the email send button.

Enter passively, exit aggressively!

Jim Brown

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New Option Plays

Daily Crisis

by Jim Brown

Click here to email Jim Brown

Editors Note:

The daily political crisis has tanked the overnight futures. With the futures down -18 at their lows and -13 at present and a lot of darkness before the dawn, I am not adding any new plays today. This has the potential to damage market sentiment. We need to let the smoke clear before we venture back into the market.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

Tale of Two Markets

by Jim Brown

Click here to email Jim Brown

Editors Note:

The S&P and Dow closed negative and the Nasdaq continued to surge to new highs. If the big cap indexes continue to lag the Nasdaq is eventually going to get the message and weaken as well. The Dow and S&P only made low single digit declines but both were well off the intraday highs. The Dow closed 55 points below its high and the S&P traded almost at 2,406 before falling back to close at 2,400.

The Nasdaq indexes both gained 20 points and both closed over resistance at new highs. The small cap indexes were flat.

This divergence in the market has the potential for a major change in sentiment. The Nasdaq cannot continue making new highs without some confirmation from the broader market. Futures are down -5 as I type this.

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

TSCO - Tractor Supply
The long put position was entered at the open.

PG - Procter & Gamble
The long put position was stopped out at $86.85.

If you are looking for a different type of option strategy, try these newsletters:

Credit spreads and naked puts = OptionWriter

Long term option investments = LEAPS Investor

3-6 month Option Trades = Ultimate Investor

Iron Condors = Couch Potato Trader

Long and short equity trades = Premier Investor

BULLISH Play Updates

ATHN - AthenaHealth - Company Profile


No specific news. Monday's big gain was reversed with no obvious reason.

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. Not a material move. 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. Minor gain despite decline in oil prices.

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%.

Udate 5/15/17: 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.

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. Minor decline after a big gain on Monday.

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 pulled a very touching ad from the UK that upset some groups. A mom and son were discussing what the deceased dad was like on a walk to a McDonalds. The son orders a fish sandwich and the mom said, that was your dad's favorite too. The son's countenance immediately changed because he had something in common with the dad he never knew. I thought it was a good ad but probably not for everyone. What was my dad like?

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.

Update 5/15/17: 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.

Position 5/4/17:

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

$VIX - Volatility Index - Index Description


The VIX closed higher again as the Dow and S&P sunk into negative territory.

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


Shares spiked with the Dow at the open as Home Depot posted strong earnings. The spike in PG was enough to stop us out for a minor loss. The stock closed lower for the day.

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:

Closed 5/16/17: Long Sept $85 put @ $2.05, exit $1.90, -.15 loss.

TSCO - Tractor Supply - Company Profile


The TSCO CEO met with Treasury Secretary Mnuchin on Tuesday to try and block the border adjustment tax because of the damage it would do to his company and the 9 other CEOs in the meeting.

Original Trade Description: May 15th.

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 do not have to use it. We will exit before earnings.

Position 5/16/17:

Long Oct $55 put @ $1.95, see portfolio graphic for stop loss.

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