Option Investor

Daily Newsletter, Thursday, 10/26/2017

Table of Contents

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

Market Wrap

Big Tech, Big Money

by Thomas Hughes

Click here to email Thomas Hughes


Big tech reported after the bell, the reports are good, expect big moves at tomorrow's open. Today's action was generally bullish with only the uncertainty of after-hours earnings reports and tomorrow's GDP announcement hanging over it. With that uncertainty gone there is little to stand in way of the bulls.

Asian indices were mostly higher on earnings with some isolated weakness. Gains were small, led by the Shanghai Composite's 0.33%. European markets were higher in the early part of the session and then extended those gains post-ECB announcement. The bank held rates steady, as expected, but was much more dovish than expected on inflation, the taper, the length of QE and how long interest rates would remain low. Most indices in this region gained an easy 1%+, lagged by the FTSE's less substantial 0.53%.

Market Statistics

Positive vibes were flowing through the market from the earliest although there was restraint; yesterday's sell-off was shrugged off in favor of positive earnings, EU stimulus and economic data but there was no massive rebound.The SPX opened with a gain of about 3 points and then extended that to roughly 6 points within the first 20 minutes of trading. This turned out to be intraday top, capping gains and leaving the indices trending sideways within a tight range. Unlike most days after hours news dominated today's action and will likely lead to some big moves at tomorrow's open.

Economic Calendar

The Economy

Initial claims for unemployment rose 10K from last week's low, last week's figure was revised higher by 1,000. The four week moving average of claims fell by -9,000 to 239,500. On a not adjusted basis claims rose 4.5% to 214,749 and are down -9.4% over this same time last year. Based on this week's data claims have not only recovered from the hurricane but are still trending lower in the long term.

Continuing claims fell by -3,000 to hit 1.893 million and a new low dating back to December, 1973. The previous week's figure was revised higher by 8,000. The four week moving average of claims fell by -4,500 to hit 1.903 million and a new low dating back to January, 1974.

The total number of Americans receiving unemployment benefits fell -15,883 to 1.596 million. This is a new seasonal and long term low, consistent with ongoing improvement in unemployment and hiring. On a year over year basis this week's figure is down -8.5%.

Pending Home Sales came in unchanged from last month and, with last month's downward revision, at a low dating back to January, 2015. The index is now down -3.5% on a year over year basis and has been in decline for the past 6 months. Economists at the NAR say that supply/demand imbalances persist as new listings fail to keep up with sales. This problem is likely to persist, especially in urbanized areas, as land shortages stifle activity across the sector and pent up demand continues to eat up available inventory.

The Dollar Index

The Dollar Index got a big boost from the ECB this morning as the bank tones down its outlook and dashed any hopes of hawkishness the market may have had. The bank has decided to cut its bond purchases in half, starting January 2018, and effectively extending QE into the fourth quarter of next year. Along with this they've amended their inflation outlook, expecting the 2% target to be hit in the second half of next year, and announced that current low rates would remain in place for a long time to come. The index gained nearly 1.5%, creating a long green candle and breaking above the $94 dollar resistance level. This move is likely to continue now that ECB and FOMC policy are no longer paralleling each other. The next big mover could be tomorrow with GDP but likely next week with the BOJ/FOMC meetings.

The Gold Index

Gold prices fell under the weight of a stronger dollar, shedding close to -0.80% by late afternoon. The metal is moving down from the now broken $1,275 near term support target and heading lower. Next target is near $1,263 and may be reached in the next trading day particularly if US GDP is on track or stronger than expected. A break below $1,263 would be bearish with next target at $1,250.

The Gold Miners ETF GDX fell -2% on the fall in gold prices as they equate directly to forward earnings potential. The ETF created a long red candle moving down from my near term support target and coming to rest at the top of the down trending resistance line near $22.37. The ETF is moving lower within a long term trading range and supported by the indicators. Both MACD and stochastic are bearish and showing a little strength so I would expect to see lower prices in the near term. Support may be found along the down trend line but, if broken, firmer targets exist near the bottom of the range at $21.

The Oil Index

Oil prices wobbled a bit in today's action but steadied in the later part of the day and managed to move up and set a 6 month high. WTI settled up $0.46 at $52.64 on tightening markets and hopes OPEC will extend its cuts. The cartel has pledged to do so, we'll find out for sure in a few weeks. Until then upside momentum may prevail with targets near $55.

The Oil Index held steady despite gains in the underlying commodity. The index created a small red bodied candle to the side of yesterday's candle and sitting on near term support target just above 1,200. The index has been in consolidation for about a month now and setting up for what could be another move higher. Price action such as what we've seen over the past month is healthy within uptrend and forming a significant congestion band. It allows the indicators to cool off as they have, setting them up for trend following crossovers. The indicators are still bearish and pointing lower so a further test of support is possible, the flipside is that both are also low in their range and set up to fire trend following signals should a bounce from support develop. A catalyst for such a bounce may be a move higher in oil prices, positive earnings/outlook from the energy sector or both.

In The News, Story Stocks and Earnings

Twitter released earnings this morning and sent the market a good message despite admitting it had been miscalculating monthly average users for many, many quarters. The company reports that revenue is down more than -4% over last year, beating estimates by about a half percent. The results come on improvement in non-GAAP income, EBIDTA, average monthly users and average daily users. Forward outlook is also good, better anyway, with earnings projected at the high end of the previously stated range. Shares of the stock jumped more than 18% to trade near the top of its long term range.

Today was the peak of peak earnings season, the busiest day of the season, with hundreds of companies reporting and many of them market moving. The ones topping the list include MSFT, INTC, GOOG and AMZN which all beat top and bottom line expectations. By beat I mean that revenue and earnings for all were well above estimates, supported by strong demand and accompanied by positive outlook. Even Amazon beat on earnings. EPS of $0.52 was nearly $0.50 ahead of estimates. Google's EPS of $9.57 blew away consensus of $8.34. Intel beat by more than 20% while Microsoft topped forecast by 16.6%. Shares of all rose in after hours action, led by Amazon's +7%. If after hours enthusiasm holds through until tomorrow the XLK Technology SPDR will likely move up to test or set a new all time high on this news.

The Wall Street Journal reported CVS was in talks to possibly buy Aetna, a deal that would combine insurance and pharma services under one umbrella. According to the report the deal could be worth $200 or more per share. The news caused CVS to drop about -3% but drove shares of Aetna up more than 10% but leaves about 10% on the table should the deal go through as reported.

The Indices

Today's action was tepid at best but to the upside and above near term support to say the least. Markets were led by the Dow Jones Transportation Average although I suspect the NASDAQ may be lead tomorrow. The transports rose nearly 1.5% intraday to close with a gain near 1% and create a medium sized green candle. This candle is in rebound to yesterday's sell off and moving up from support at the short term moving average. The indicators are mixed but consistent with a test of support within up trend. Stochastic is already firing a strong trend following crossover, MACD has yet to confirm but not far behind. A move up would be bullish with target at the all time high, a move lower bearish with target at the long term moving average near 9,400.

The Dow Jones Industrial Average closed with the 2nd largest gain, near 0.30%. The blue chips created a small bodied green candle just below the all time high and to the side of yesterday's candle. The past three candles are beginning to look like a small flag pattern within the prevailing up trend and could lead to further upside. The indicators are a bit mixed in the near term but bullish and convergent with the all time highs in the short to long. MACD in particular is convergent and bullish, ticking higher with today's data. Stochastic is high in the upper range and showing a bearish crossover but this could as easily precede a trend following signal as a decline. A fall from this level could dip below 23,000, a move higher would be trend following with targets in new all time high territory.

The S&P 500 closed with a gain near 0.10% and created a small spinning top candle to the side of yesterday's candle. The move is a sign of uncertainty, should I sell or should I not, that may persist into the near term. The indicators are not looking good and pointing lower following bearish crossovers, indicative of lower prices. Near term support is at the short term moving average and may be reached in the next few days if earnings fail to inspire support. A break below the moving average would be bearish with downside targets at 2,500 and below.

The NASDAQ Composite closed with a small loss, -0.10%, and created a small red bodied candle. The candle is sitting on support at the short term moving average and may move lower to test that support again. The indicators are both moving lower and suggestive of lower prices but not a guarantee. A break of support would be bearish with targets near 6,400, a bounce would be bullish with targets near the all time high and into new all time high territory. Based on earnings after the bell I imagine we'll see it bounce.

The markets were mixed today. Action was light, weak, tepid, lackluster and without real direction. This is most likely because of the earnings deluge released after the bell. Based on the ones I've seen I do expect to see the market move higher tomorrow. To say the tech sector beat on expectations is an understatement. The sector, for the most part, has beat on all fronts and across all metrics, and with positive forward outlook. There may be volatility and there will likely be some rotation but with earnings looking the way they are I just don't see reason for correction. I am bullish, if there should be another pull back or dip in prices I will be a buyer.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Futures Negative

by Jim Brown

Click here to email Jim Brown

Editors Note:

The four big tech stocks beat earnings after the bell but futures are negative. With the gains in Google and Amazon alone you would have expected the futures to be strongly positive and a blowout open for the Nasdaq on Friday. That may still happen but Dow, Nasdaq, S&P and Russell 2000 futures are all negative in the overnight session. When we couple that with weekend event risk there is no reason to put additional money into the market.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

Mixed Markets

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Dow posted a decent gain but not a new high while the Nasdaq closed negative. Despite the Dow's gain, the markets are still weak. The S&P only gained 3 points while the Nasdaq lost 7. Obviously we know why the Nasdaq was weak with INTC, MSFT, AMZN, GOOGL and GILD reporting earnings after the bell. Investors were worried about some high profile misses and what that could do to the market. After the four tech companies beat on earnings after the bell you would expect the Nasdaq to be positive on Friday but the futures are negative tonight. That does not bode well for Friday. In fact, all the futures, Dow, Nasdaq, S&P and Russell 2000 are negative.

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

PYPL - Paypal
The long call position was entered at the open.

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

AABA - Altaba - Company Profile


No specific news. Alibaba shares posted a minor gain despite the weak Nasdaq.

Alibaba's singles day is coming on November 11th and that will produce a lot of headlines in the two weeks ahead of the event. In 2016, they sold $17.7 billion on that day, up 32% from the prior year. With 466 million active customers, they could do well over $20 billion this year.

Original Trade Description: October 18th.

Altaba Inc. operates as a non-diversified, closed-end management investment company in the United States. Its assets consist primarily of equity investments, short-term debt investments, and cash. The company was formerly known as Yahoo! Inc. and changed its name to Altaba Inc. in June 2017. Altaba Inc. was founded in 1994 and is based in New York, New York. Company description from FinViz.com

Altaba owns a 15% stake in Alibaba, currently worth about $70 billion. They hold a stake in Yahoo Japan currently worth $7.7 billion. They have $130 million in investments. They have a $740 million stake in Excalibur, a unit of the new company that holds all the Yahoo patents that were not sold to Verizon. The company has $12 billion in cash. They recently announced a $5 billion stock buyback and the company has committed to returning nearly all the cash in the bank plus any thrown off by the investments, to the shareholders.

Owning Altaba is just like owning Alibaba only without the expensive options and a lot less volatility. We get the other parts for free. Obviously Altaba is reactive to Alibaba movement so there will still be some volatility, it is just comes with a lower risk.

Alibaba is growing much faster than Amazon and they have a larger market with 4.5 billion consumers in Asia.

Alibaba reports earnings on Nov 2nd and Altaba reports on Nov 29th. Because of the lower volatility and cheaper option prices, we can own AABA over the BABA earnings and profit from any post earnings gains.

Last week Alibaba said it was going to spend an additional $15 billion over the next three years on research. They already spend $3 billion and have more than 25,000 engineers on the payroll.

The new effort will create the Alibaba DAMO Academy, short for Discovery, Adventure, Momentum and Outlook. The academy will set up labs in China, USA, Russia, Israel and Singapore and fund collaborations with universities. They plan to explore AI, IoT, quantum computing, visual computing, machine learning and network security.

BABA shares fell $6 on the announcement because of the impact to profits. AABA shares followed Alibaba shares down and they bounced today off the 30-day average, which has been strong support. If the trend holds, this should be a buying opportunity.

I am using the Jan options so there will still be earnings expectations in the premium when we exit.

Position 10/19/17:

Long Jan $70 call @ $3.10, see portfolio graphic for stop loss.

ADI - Analog Devices - Company Profile


No specific news. New closing high.

Original Trade Description: Sept 30th.

Analog Devices, Inc. designs, manufactures, and markets a portfolio of solutions that leverage analog, mixed-signal, and digital signal processing technology, including integrated circuits (ICs), algorithms, software, and subsystems. It offers data converter products, which translate real-world analog signals into digital data, as well as translates digital data into analog signals; high-performance amplifiers to condition analog signals; and radio frequency ICs to support cellular infrastructure. The company also provides MEMS technology solutions, including accelerometers used to sense acceleration, gyroscopes to sense rotation, and inertial measurement units to sense multiple degrees of freedom. In addition, it offers isolators for various applications, such as universal serial bus isolation in patient monitors; and smart metering and satellite applications. Further, the company provides power management and reference products; and digital signal processing products for high-speed numeric calculations. Its products are used in electronic equipment, including industrial process control systems, medical imaging equipment, factory automation systems, patient monitoring devices, instrumentation and measurement systems, wireless infrastructure equipment, energy management systems, networking equipment, aerospace and defense electronics, optical systems, automobiles, and portable electronic devices. The company serves clients in industrial, automotive, consumer, and communications markets through a direct sales force, third-party distributors, and independent sales representatives in the United States, rest of North/South America, Europe, Japan, China, and rest of Asia, as well as through its Website. It has a collaboration with TriLumina Corp. to provide illuminator modules for automotive flash LiDAR systems. Analog Devices, Inc. was founded in 1965. Company description from FinViz.com.

Expected earnings Nov 29th.

ADI is a 52-year-old chip company. Yes, they had chips in 1965. The company is doing great and tends to make chips nobody else is making and that gives them an edge. They reported Q2 earnings of $1.26, which rose 54% snf beat analyst estimates at $1.15. Revenue of $1.43 billion rose 65% and beat estimates for $1.40 billion.

They guided for the current quarter for earnings of $1.29-$1.43 and analysts were only expecting $1.25. Revenue guidance was $1.45-$1.55 billion and analysts were expecting $1.46 billion.

Shares gapped up on the late August earnings then worked through the post earnings depression cycle before moving higher. They closed at a new high on Friday.

Last week IBD raised their composite rating from 93 to 96, which means ADI is outperforming 96% of all stocks in terms of fundamental and technical stock ranking criteria. The stock has an EPS rating of 97 with moderate institutional buying over the last several weeks.

I believe the breakout will continue and we could see $90+ before earnings in November. Options are still cheap because ADI is not a high profile stock.

Position 10/2/17:

Long Dec $90 call @ $1.95, see portfolio graphic for stop loss.

CCL - Carnival Corporation - Company Profile


No specific news. Moving up steadily.

Original Trade Description: October 16th.

Carnival Corporation operates as a leisure travel and cruise company. It offers cruises under the Carnival Cruise Line, Princess Cruises, Holland America Line, and Seabourn brands in North America; and Costa, AIDA, P&O Cruises (UK), Cunard, and P&O Cruises (Australia) brands in Europe, Australia, and Asia. The company operates approximately 100 cruise ships. It also owns Holland America Princess Alaska Tours, a tour company in Alaska and the Canadian Yukon, which owns and operates hotels, lodges, glass-domed railcars, and motor coaches. In addition, the company is involved in the leasing of cruise ships. It sells its cruises primarily through travel agents and tour operators. Company description from FinViz.com.

Earnings December 26th.

Carnival shares had been on a steady path higher since last October but were derailed by the hurricanes. Many of the cruise destinations, including Puerto Rico, saw significant damage. Carnival had to cancel a couple cruises but continued running a full schedule almost without interruption. Shares have recovered from their decline and are moving towards pre hurricane levels.

More than 40 islands visited by cruise ships are open, fully operational and welcoming cruise ships on a daily basis. The majority of the 48 cruise ports in the Caribbean were not impacted at all by the storms. In places such as Jamaica, Belize and Cozumel in the Western Caribbean, and Aruba, Bonaire and Curacao in the Southern Caribbean, and Antigua and St. Kitts in the Eastern Caribbean, it's business as usual. Ports in the Bahamas, including Nassau and the popular private islands of Half Moon Cay and Princess Cays, are also open for business.

The only ports out of the normal 48 that are not yet operational are St. Thomas, St. Maarten, Grand Turk, Dominica, Puerto Rico and St. Croix.

The beauty of the cruise ship industry is that they can change itineraries very quickly if a normal destination is out of service.

Carnival reported Q3 earnings of $2.29 beating estimates for $2.20. Revenue of $5.52 billion beat estimates of $5.39 billion. The temporary port closures are expected to cause a 10-12 cent reduction in Q4 earnings. They guided for a range of 44-50 cents and analysts had been expecting 63 cents before the storms hit.

Based on the rebound it appears investors are not worried about the storm impact.

Update 10/20/17: Carnival posted only a minor gain but we may have found out why the cruise sector was down last week. It appears a lot of ships going to China have been takes off that route. China was once touted as the new Caribbean with companies adding ships for Chinese customers. There is no confirmation but maybe taking a cruise was not on the bucket list for most Chinese. Analysts claim it would not be a material impact to cruise earnings but it would reduce suspected growth targets for the coming years. I tightened the stop loss in case the decline continues.

Position 10/17/17:

Long Jan $70 call @ $1.90, see portfolio graphic for stop loss.

COST - Costco - Company Profile


No specific news. Minor gain on a weak Nasdaq.

They will report comp sales for October next week and expectations are for +7% same store sales and +9% total sales. That should give the stock a boost.

Original Trade Description: October 14th.

Costco Wholesale Corporation, together with its subsidiaries, operates membership warehouses. It offers branded and private-label products in a range of merchandise categories. The company provides dry and packaged foods, and groceries; snack foods, candies, alcoholic and nonalcoholic beverages, and cleaning supplies; appliances, electronics, health and beauty aids, hardware, and garden and patio; meat, bakery, deli, and produces; and apparel and small appliances. It also operates gas stations, pharmacies, optical dispensing centers, food courts, and hearing-aid centers; and engages in the travel businesses. In addition, the company provides gold star individual and business membership services. As of August 28, 2016, it operated 715 warehouses, including 501 warehouses in the United States, Washington, District of Columbia, and Puerto Rico; 91 in Canada; 36 in Mexico; 28 in the United Kingdom; 25 in Japan; 12 in Korea; 12 in Taiwan; 8 in Australia; and 2 in Spain. Further, the company sells its products through online. Company description from FinViz.com.

We all know the story. Amazon bought Whole Foods and Costco shares lost over $30. Fast forward three months and Costco reported strong earnings but analysts still believed Whole Foods was going to kill them. Shares fell $13.

Let me put this in caps. IGNORE WHOLE FOODS. They are an entirely different business model and even with Amazon behind them, they are no threat to Costco. Costco operates 741 retail warehouses, each 4 times bigger than a Whole Foods store. Whole Foods only has 346 stores. At Costco you can buy food, diamond rings, cameras, large screen TVs, clothing, drugs, discount eye glasses, GE appliances, cruises to anywhere in the world and caskets among thousands of other items. Whole Foods has food.

Costco reported earnings of $2.08 that beat estimates for $2.02. Revenue of $42.3 billion beat estimates for $41.55 billion. Those numbers were up from $1.77 and $36.56 billion in the year ago quarter. US same store sales were up 6.5% and online sales were up 30%. There was NO weakness from the Whole Foods acquisition.

Paid memberships rose 274,000 to 18.5 million. That equates to an addition of 16,000 per week. Business members had a 94% renewal rate and Gold Star members an 89.3% renewal rate. They ended the quarter with $5.78 billion in cash, up more than $1 billion from the year ago quarter.

Costco rolled out a free two-day delivery service for orders over $75 with same day delivery at 376 stores through Instacart.

Shares were knocked for a loss despite the strong results because analysts are still only looking at the surface comparisons between Whole Foods and Costco. The decline stopped at $155 and did not even come close to strong support at $155. The weakness lasted five days.

On Friday, JP Morgan released the results of a recent survey showing Costco grocery prices were a whopping 58% cheaper than Whole Foods. JP Morgan said Whole Foods and Costco actually have very little in common other than a few grocery items and Costco wins hands down.

That report lifted Costco shares by $2.63 on Friday but the stock has a long way to go to recover lost ground.

I looked at the December option with only 48 days left because it was cheaper but I chose the January option with 97 days left because it expires after their January 4th earnings and will retain its premium better. We can always buy time but we do not have to use it.

Update 10/18: Reuters released a survey of 8,600 online shoppers and 75% said they never or rarely by groceries online. While that should have been negative to Amazon and the Whole Foods purchase, it weighed on COST as well because of their efforts to accelerate their online business. Amazon fell $12 on the news.

Update 10/20: Oppenheimer reiterated an outperform rating and $185 price target. They listed 5 reasons why Costco is still a buy. Management optimism, credit card change is over, the new delivery options are just starting, IT investments over the last several years are paying off and costs are declining, improved advertising showing the extended benefits of being a member.

Position 10/16/17:

Long Jan $165 call @ $3.85, see portfolio graphic for stop loss.

DLTR - Dollar Tree - Company Profile


No specific news. New closing high.

Original Trade Description: October 21st.

Dollar Tree, Inc. operates variety retail stores in the United States and Canada. It operates in two segments, Dollar Tree and Family Dollar. The Dollar Tree segment offers merchandise at the fixed price of $1.00. It provides consumable merchandise, including candy and food, and health and beauty care products, as well as everyday consumables, such as household paper and chemicals, and frozen and refrigerated food; various merchandise comprising toys, durable housewares, gifts, stationery, party goods, greeting cards, softlines, and other items; and seasonal goods, which include Valentine's Day, Easter, Halloween, and Christmas merchandise. This segment operates under the under the Dollar Tree and Dollar Tree Canada brands, as well as 11 distribution centers in the United States and 2 in Canada, and a store support center in Chesapeake, Virginia. The Family Dollar segment operates general merchandise discount retail stores that offer consumable merchandise, which comprise food, tobacco, health and beauty aids, household chemicals, paper products, hardware and automotive supplies, diapers, batteries, and pet food and supplies; and home products, including housewares, home decor, and giftware, as well as domestics, such as blankets, sheets, and towels. It also provides apparel and accessories merchandise comprising clothing, fashion accessories, and shoes; and seasonal and electronics merchandise, which include Valentine's Day, Easter, Halloween, and Christmas merchandise, as well as personal electronics that comprise pre-paid cellular phones and services, stationery and school supplies, and toys. This segment operates under the Family Dollar brand, 11 distribution centers, and a store support center in Matthews, North Carolina. As of January 28, 2017, the company operated 14,334 stores in 48 states and the District of Columbia, and 5 Canadian provinces. Company description from FinViz.com

Dollar Tree reported earnings in late August that rose 36.1% to 99 cents and beat estimates for 87 cents. Revenue of $5.28 billion rose 5.7% and beat estimates for 5.24 billion. Same store sales rose 2.4%. They guided for the full year for revenue of $22.07-$22.28 billion, up from $21.95-$22.25 billion. Earnings guidance of $4.44-$4.60 rose from $4.17-$4.43.

Shares spiked $6 on the earnings and then went through a week of post earnings depression then began a steady hike higher.

Next earnings Nov 23rd.

After earnings Raymond James upgraded them from market perform to strong buy. Bernstein upgraded from underperform to market perform. Telset Advisory reiterated an outperform.

Dollar Tree is Amazon proof. With everything in the store $1 or less even Amazon cannot sell and ship items that cheap. Since their acquisition of Family Dollar, they now operate 14,334 stores. This is a retail powerhouse and even if the economy weakens, their business will thrive because of the low price point.

Shares have traded sideways for the last 7 days but they moved up on Friday to close at a new 52-week high. Their historic high in August 2016 was $99 and that is the next resistance level.

In September they promoted the past VP of stores since 2001 who became COO in 2007, president in 2013 and now to CEO. He has a ton of experience in every phase of the business. He oversaw the acquisition of Family Dollar in 2015 as president and COO of Family Dollar during the transition. This is very positive for DLTR and the rise in the stock suggests investors like the choice.

The November options expire several days before earnings so I am going with the December strikes so there are some earnings expectations in the premium when we exit before the event.

Position 10/23/17:

Long Dec $95 call @ $2.70, see portfolio graphic for stop loss.

FMC - FMC Corp - Company Profile


No specific news. Shares down with the market but they are holding the recent gains.

Original Trade Description: October 11th.

FMC Corporation, a diversified chemical company, provides solutions, applications, and products for the agricultural, consumer, and industrial markets worldwide. The company operates through three segments: FMC Agricultural Solutions, FMC Health and Nutrition, and FMC Lithium. The FMC Agricultural Solutions segment develops, manufactures, and sells crop protection chemicals, such as insecticides, herbicides, and fungicides that are used in agriculture to enhance crop yield and by controlling a range of insects, weeds, and diseases, as well as in non-agricultural markets for pest control. The FMC Health and Nutrition segment offers microcrystalline cellulose for use in drug dry tablet binders and disintegrants, and food ingredients; carrageenan for use in food ingredients for thickening and stabilizing, pharmaceutical, and nutraceutical encapsulates; alginates for food ingredients, pharmaceutical excipients, healthcare, and industrial uses; natural colorants for use in foods, pharmaceutical, and cosmetics; and omega-3 EPA/DHA for nutraceutical and pharmaceutical uses. The FMC Lithium segment offers lithium for use in batteries, polymers, pharmaceuticals, greases and lubricants, glass and ceramics, and other industrial uses. FMC Corporation was founded in 1884 and is headquartered in Philadelphia, Pennsylvania. Company description from FinViz.com.

Expected earnings Nov 6th, unconfirmed.

FMC is riding the lithium wave. The once ignored mineral is now becoming a very important part of FMC's future. In the first half of 2017, lithium accounted for 11% of total revenue and 20% of earnings. The rush to find more lithium so companies like Tesla can produce 500,000 battery operated cars a year, has turned the mining of this material into a race to the future. FMC is in the process of tripling capacity from 2016-2019 and that may not be enough to satisfy battery demand by 2020. Because of the fast growth in this segment, FMC is planning on spinning off FMC Lithium at some point in the future.

Also, around November 1st, FMC is expected to get approvals to buy the crop protection assets from DuPont. Dow and DuPont were forced to sell some of those agricultural assets as terms for their merger approvals. Once the sale to FMC is approved, FMC will become the fifth largest crop=protection chemical company in the world. With global food demand skyrocketing, the demand for fertilizer and weed/pest killer is also ramping higher.

The business being bought from DuPont generates $1.4 billion in annual revenue and the segment will jump to $3.8 billion after the acquisition. Also a part of the deal, DuPont will acquire FMC's Health & Nutrition business.

Shares have rebounded from the late September dip and should breakout to a new high in the days ahead.

Position 10/12/17:

Long Nov $95.00 call @ $2.25, see portfolio graphic for stop loss.

MU - Micron Technology - Company Profile


No specific news.

Original Trade Description: October 9th.

Micron Technology, Inc. provides semiconductor systems worldwide. The company operates through four segments: Compute and Networking Business Unit, Storage Business Unit, Mobile Business Unit, and Embedded Business Unit. It offers DDR3 and DDR4 DRAM products for computers, servers, networking devices, communications equipment, consumer electronics, automotive, and industrial applications; mobile low-power DRAM products for smartphones, tablets, automotive, laptop computers, and other mobile consumer device applications; DDR2 and DDR DRAM, GDDR5 and GDDR5X DRAM, SDRAM, and RLDRAM products for networking devices, servers, consumer electronics, communications equipment, computer peripherals, automotive and industrial applications, and computer memory upgrades; and hybrid memory cube semiconductor memory devices for use in networking and computing applications. The company also provides NAND Flash products, which are electrically re-writeable, non-volatile semiconductor memory devices; client solid-state drives (SSDs) for notebooks, desktops, workstations, and other consumer applications; enterprise SSDs for server and storage applications; managed multi-chip package products; digital media products, including flash memory cards and JumpDrive products under the Lexar brand name. In addition, it manufactures products that are sold under other brand names; and resells flash memory products that are purchased from other NAND Flash suppliers. Further, the company provides 3D XPoint memory products; and NOR Flash, which are electrically re-writeable and semiconductor memory devices for automotive, industrial, connected home, and consumer applications. Company description from FinViz.com.

Micron is on a roll. Analysts are targeting $50 by the end of December despite the monster gain so far in 2017. Memory is in short supply and prices are rising monthly. The rapid escalation of cloud technology is demanding hundreds of thousands of servers per quarter, millions of disk drives and untold numbers of PCs, phones, tablets and IoT devices.

For Q2, they reported earnings of $2.02 compared to estimates for $1.84. Revenue rose 90% to $6.14 billion and analysts were expecting $5.97 billion.

For the current quarter, analysts are expecting $2.14 in earnings on a 60% increase in revenue. They are likely to beat those estimates.

Despite the strong earnings and forecasts, the company trades at a PE of 8.7 when the S&P is trading at 18.0. This is a monumental mismatch and suggests investors will be racing to buy this undervalued stock.

Shares spiked on earnings and ran up to $40.50. There was a three-day decline of about $1 to consolidate those gains and the stock surged again to close at a new high on Monday. I was hoping for a deeper pullback to buy but it never happened. If we do not buy this breakout, we could still be waiting after it runs up another $5.

I am using January options to capture the earnings expectations in December.

Update 10/10/17: Shares of Micron rallied more than $1 in the regular session but fell $2 in afterhours. The company announced a $1 billion secondary offering after the close. The proceeds will be used to pay off debt including $476 million of 7.5% secured notes and various other notes and credit lines. This should be positive for Micron because interest costs will decline but it will add approximately 25 million shares to the float.

Update 10/11/17: Shares rebounded from the $2 selloff in afterhours to close down only 37 cents. Summit Redstone said buy the dip because the secondary offering to pay off debt was an exercise in value creation. The analyst has a $51 price target. Instinet reiterated a buy rating and $45 target. Wells Fargo reiterated a buy rating and $45 target. Credit Suisse reiterated an outperform rating and $50 target.

Update 10/12/17: Micron priced its $1.2 billion, upsized secondary, at $41 after the close on Wednesday. Shares had closed at $41.61 and dipped today to close at $40.50. Barclay's boosted their target price from $40 to $60 saying DRAM demand looks good through 2018. Demand should remain high and supply should remain tight. Needham, Rajvinda Gill has a price target of $76. Let's hope he is right.

Update 10/18/17: Micron said it was retiring $2.25 billion in debt that carried interest rates of 7.5% and 5.25%. The secondary offering last week will provide most of the funds with the rest paid out of cash on hand. Shares posted a nice gain on the news and have almost recovered the $42 highs before the secondary was announced.

Update 10/20/17: Deutsche Bank reiterated a buy rating. UBS reiterated a buy rating and raised his price target from $39 to $53. UBS said Micron would be cash positive in 2018. The analyst no longer sees DRAM prices declining in 2018 as previously forecast.

Update 10/24/17: David Einhorn's Greenlight Capital took a new position in Micron saying investors are under appreciating the dynamics of the current memory cycle.

Position 10/10/17:

Long Jan $43 call @ $3.05, see portfolio graphic for stop loss.

PYPL - PayPal - Company Profile


No specific news. New closing high.

Original Trade Description: October 25th.

PayPal Holdings, Inc. operates as a technology platform company that enables digital and mobile payments on behalf of consumers and merchants worldwide. It enables businesses of various sizes to accept payments from merchant Websites, mobile devices, and applications, as well as at offline retail locations through a range of payment solutions, including PayPal, PayPal Credit, Braintree, Venmo, Xoom, and Paydiant products. The company's platform allows consumers to shop by sending payments, withdraw funds to their bank accounts, and hold balances in their PayPal accounts in various currencies. Company description from FinViz.com.

They reported Q3 earnings of 46 cents, up 32%, that beat estimates for 44 cents. Revenue of $3.24 billion, up 21% and beat estimates for $3.17 billion. They guided for the current quarter for earnings of 50-52 cents and full year earnings of $1.86-$1.88. Mobile payment volume rose 54% to about $40 billion. Total payments rose 31% to $114 billion. Free cash flow rose 36% to $841 million and they have $7.1 billion in cash. They added 8.2 million active accounts with net new actives up 88%. They now have 218 million active customer accounts with 17 million merchants. They processed 1.9 billion payments, up 26%.

Q4 revenue is expected to rise 20-22% to $3.570-$3.630 billion. Paypal said payment platform Venmo was on track with expectations. The platform processed $9.1 billion in payment volume, a 93% YoY increase.

Expected earnings January 18th.

The company recently announced partnership deals with Baidu, Bank of America, Visa, JP Morgan, Facebook and Apple. They have changed their focus from disruptor to partner where they can process more transactions through the partners. The Baidu partnership will connect them to 700 million Chinese shoppers and 17 million Paypal merchants. The deal with Apple to allow Paypal in the iTunes store, AppStore and Apple Music will connect them to more than 1 billion IOS devices worldwide. The Facebook partnership gives them access to 2.01 billion users.

Pacific Crest Securities said their market cap of $85 billion does not make them too big to be acquired by a larger bank. Even Amazon has been mentioned as a possible acquirer.

In mid August Paypal said it was acquiring Swift Financial, a small business lender and the transaction would close by the end of 2017. No terms were given. This will extend Paypal's reach for financing services. Paypal already has a working capital unit since 2013 and they have loaned more than $3 billion to small businesses.

Thanks to recent agreements with MC/V, users will be able to transfer money directly from their accounts to credit/debit cards, which will become a big selling point. The new "Pay with Venmo" platform that will allow users to make purchases at retail locations is in test mode with Lululemon, Athletica and Forever 21 already accepting those payments. This is turning into another big revenue stream for Paypal.

Shares posted an 81% gain on Wednesday when the market was down on much needed profit taking. Investors looking for a buying opportunity are going to be left behind.

Position 10/26/17:

Long Jan $72.50 call @ $2.95, see portfolio graphic for stop loss

VIX - Volatility Index - Index Profile


The VIX rose again in a positive market.

If we ever hit that 16 exit target it means we are probably going to lose other long positions. This is insurance against that potential decline.

This is the fourth longest period in history of the markets without a 5% decline. While it does not look likely today, it could happen at any time. It has been 481 days since a 5% decline.

Original Trade Description: July 12th.

The CBOE Volatility Index (VIX Index) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. Since its introduction in 1993, the VIX Index has been considered by many to be the world's premier barometer of investor sentiment and market volatility. Several investors expressed interest in trading instruments related to the market's expectation of future volatility, and so VX futures were introduced in 2004, and VIX options were introduced in 2006.

The VIX closed at a 24-year low on July 14th at 9.51. The index has been spending a lot of time under 10 over the last three months and this is highly abnormal. The VIX typically trades up to 20 or more three times a year or more. That has not happen since the days before the election. This period of abnormal volatility WILL eventually end.

With the Trump administration getting more desperate to achieve some legislative goals there is always the risk they will go to extremes to get them accomplished. Add in the unknown but rapidly expanding Russian probes and anything is possible. We saw the Dow fall triple digits intraday on just the release of 5 emails from Trump Jr. If the probe actually uncovered something material, it could cause a major market meltdown.

The debt ceiling and the budget expire on Sept 31st. If Congress cannot get a budget passed and raise the debt ceiling, the government would shut down on October 1st. We have seen this before. The last time it happened the U.S. lost its AAA credit rating and the market declined sharply for more than a week.

What about North Korea? Military force could be used at any time but North Korea seems dead set on testing another nuke and expanding its ICBM tests. If fighting breaks out between the U.S. and North Korea it would cause a significant market decline because of the geopolitical concerns and the potential loss of life in Seoul, South Korea.

Even if none of those events occurred, there is always the risk of a 10% market decline just because we have not had one in a very long time. With August and September the worst months of the year for the market, the potential for a correction this year could be higher than normal. The Nasdaq is already up 18% and the Dow 9% for the year. The FAANG stocks are at record highs, which many say are unsupported by fundamentals.

There are so many potential opportunities for a market disaster. It only makes sense to take out some protection while the volatility is at record lows. I am recommending a November call to get us past the Aug/Sep period and the potential for a debt ceiling event in early October.

Position 7/20/17:

Long Nov $15 call @ $1.85, no stop loss, see portfolio graphic for stop loss.

BEARISH Play Updates (Alpha by Symbol)

DIA - Dow SPDR ETF - ETF Profile


The Dow posted another strong gain but the biggest winner was AXP with only a $2.16 gain. Dow earnings will basically be over after Friday. Could be a different direction next week.

Original Trade Description: October 21st.

The SPDR Dow Jones Industrial Average ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Dow Jones Industrial Average. The DJIA is the oldest continuous barometer of the U.S. stock market, and the most widely quoted indicator of U.S. stock market activity.

I am going to make this as simple as possible. The Dow is extremely overbought. It is due for a rest. There are 12 Dow components reporting earnings this week. Volatility will occur but we do not know in which direction. Since all the Dow gainers are already up strongly over the last several weeks, there is a good chance we could see some declines.

This is highly speculative. I am using November options because they are cheap but they will require a substantial move in the next ten days or they will decay quickly. This will be a quick trade.

Buy Nov $232 put, currently $1.86, no initial stop loss.

SLB - Schlumberger - Company Profile


No specific news. Maybe the post earnings rebound is about to end.

Original Trade Description: October 23rd.

Schlumberger Limited supplies technology products and services to the oil and gas exploration and production industry worldwide. Its Reservoir Characterization Group segment provides reservoir imaging, monitoring, and development services; wireline technologies for open and cased-hole services; slickline services; exploration and production pressure and flow-rate measurement services comprising surface and downhole services; software integrated solutions, such as software, consulting, information management, and IT infrastructure services; consulting services for reservoir characterization, field development planning, and production enhancement; and petrotechnical data services and training solutions, as well as integrated management services. Its Drilling Group segment designs, manufactures, and markets roller cone and fixed cutter drill bits; supplies drilling fluid systems; provides pressure drilling and underbalanced drilling solutions, and environmental services and products; mud logging services; land drilling rigs and support services; and well planning and drilling, engineering, supervision, logistics, procurement, contracting, and drilling rig management services, as well as bottom-hole-assembly, borehole-enlargement technologies, impact tools, tubulars, and tubular services. Its Production Group segment provides well services comprising pressure pumping, well cementing, and stimulation services; coiled tubing equipment; well completion services and equipment that include packers, safety valves, and sand control technology, as well as completions technology and equipment; artificial lifts; and integrated production and production management services. Its Cameron Group segment offers integrated subsea production systems; surface systems; drilling equipment and services; and valve products and measurement systems. Company description from FinViz.com.

The company said the already week offshore sector was also declining because offshore drilling/production is not profitable at $50 oil. This sector will continue to decline until oil prices rebound over $75 sometime in 2019 according to best estimates.

Schlumberger said production growth was slowing faster than expected. That means less cash flow for producers and another decline in rig counts. The company said customers were reducing their forecasts for prices and activity for 2018 and future revenue and profitability was likely to decline.

Shares fell $2 post earnings to $62 but the odds are very good we are going to see lower lows as the energy companies report disappointing earnings and guidance in the weeks ahead.

Earnings January 19th.

Position 10/24/17:

Long Jan $60 put @ $1.42, see portfolio graphic for stop loss.

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