Option Investor

Daily Newsletter, Tuesday, 1/9/2018

Table of Contents

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

Market Wrap

Boeing Leads Again

by Jim Brown

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Boeing continued its role as the biggest gainer on the Dow by adding another 54 points or half of the day's gains.

Market Statistics

Boeing has contributed 151 Dow points in just the last three days. The 54-point gain today came after the company said it delivered 763 commercial planes in 2017, up from 748 in 2016 and beating the 2016 record by 1 plane. Two-thirds of the deliveries were 737s. For the year, Boeing booked orders for 912 commercial planes with a list price of $134.8 billion. That lifts their order backlog to a record 5,864 planes.

The strong assist to the Dow helped produce buying in other Dow components and lifted the index to a new high while the S&P and Nasdaq were struggling to remain in positive territory.

The NFIB Small Business Survey for December declined slightly from 107.5 to 104.9. Some analysts attributed the weakness to the tax fight that appeared doomed for most of December. It was passed just before the holidays so the January survey will be more important. Even with the minor decline, the survey is still tracking at a 4% GDP growth rate for Q4. The November number was a high for this survey.

The internal components were mostly flat with few material changes. Plans to increase inventories fell from 7 to -1 but that is typical after the holidays have passed. Employment decreased slightly from 24 to 20 but still healthy. Surprisingly, those respondents expecting the economy to improve declined from 48 to 37.

The Job Openings and Labor Turnover Survey (JOLTS) for November showed a 3.8% job openings rate. This was down only slightly from the 3.9% in October. This was impacted by the pre holiday hiring that occurred in late October and early November. The number of job openings declined from 5.925 to 5.879 million. Hires declined slightly from 5.592 to 5.488 million. Separations fell from 5.251 to 5.202 million. Quits fell from 3.187 to 3.174 million. Layoffs declined from 1.693 to 1.686 million. Job openings remained near their historical highs. Layoffs remain very low because economic conditions are strong. The quit rate at 2.2% is also at a cyclical high because jobs are easy to find and workers are moving upward. The report was ignored.

The calendar for the rest of the week is highlighted by the Philly Fed Manufacturing Survey on Thursday but investors are going to be more interested in the coming government shutdown deadline and the Q4 earnings that start on Friday.

The bank earnings on Friday kick off the Q4 cycle. Societe-Generale (SOC-GEN) downgraded BAC, JPM, MS and CS this morning saying their results could be disappointing. Apparently, some investors disagreed because more than 103,000 contracts of the January $29 calls on the XLF were bought this morning with the ETF at $28.50.

Target (TGT) set the retail sector on fire before the open this morning but it was short lived. Target raised Q4 earnings guidance from $1.05-$1.25 to $1.30-$1.40. Same store sales are expected to rise 3.4% and well above analyst expectations for 1.25%. They guided for 2018 earnings of $5.15-$5.45 and well above estimates for $4.36. Target shares spiked to $70 on the news but faded at the close. The retail ETF declined despite the strong guidance. Apparently, investors believe all the good holiday shopping news is priced into the market.

Bernstein upgraded Target on Monday with a $75 price target.

Shares of retailer Under Armour (UA) declined sharply after Susquehanna Financial cut their rating from hold to sell with an $11 price target, a -31% decline. The analyst said the company's brand position continued to weaken because they were discounting too heavily and selling items too cheaply in stores like Kohl's, DSW and Famous Footwear. He said discount sales at these stores were causing companies like Dicks Sporting Goods and Hibbett Sports to reduce their retail exposure by cutting shelf space and styles on hand. The analyst said UA would have to eliminate all the selling at discount stores or the brand would suffer significant damage.

Piper Jaffray reiterated an overweight rating on Amazon (AMZN) with a price target raise from $1,200 to $1,400. The analyst said a survey of 1,000 internet users found that a significant portion did not spend much on Amazon for the holidays. The analyst said this proves that Amazon is still in the early innings of its sales growth even in its most developed market. The survey showed that 50% of people spent less than 10% of their holiday budget on Amazon. That equates to about 4% share of the US market. Amazon is expected to grow revenue 28% in 2018.

Amazon continues to break into new markets. Harman Kardon will include Alexa in its speakers in 2018. Toyota and Lexus are adding Alexa to their top of the line models in 2018. Alexa will be able to start cars remotely, set the cabin temperature, lock car doors, play music, answer questions, map trips, give weather and news reports, etc.

UBS reiterated a buy on Apple (AAPL) saying the company could repurchase $120 billion of its stock over the next two years thanks to the lower tax on repatriation of overseas cash. The company only has a $190 price target, which is lower than targets from other major analysts. UBS warned that supply chain noise and mixed demand data points create near term uncertainty but the potential stock buybacks would limit any downside on the stock. Barclay's is targeting $190 billion in buybacks over three years.

RBC Capital believes Apple will report robust Q4 sales. They base this on results from some Apple suppliers. Broadcom and Jabil have reported solid earnings and raised guidance. Consensus estimates are for $86.2 billion in revenue, which is at the high end of the $84-$87 forecast by Apple. Earnings estimates range from $3.57-$3.78 with RBC at $3.74. The analyst does not expect Apple to disclose its plans for the overseas cash in the Q4 conference call. They are likely to defer until they have developed a range of plans. Normally Apple updates its dividend and buyback plans in April and RBC expects that to continue. Apple has $97 billion in long-term debt that it used to pay for its buybacks and the new campus. Paying down that debt with repatriated cash would be a smart move.

Urban Outfitters (URBN) reported same store sales for the Nov/Dec period rose 2% with overall sales up 3.6%. The company said it saw weak sales in Crosley cameras and film and while they knew they would be weak, they were worse than expected. The CFO said the tech and media category tends to double over the holidays and then is halved the rest of the year. Same store sales were up 2% at Anthropologie, 5% at Free People and 1% at Urban Outfitters. With URBN shares up 47% over the last several months, the weak results were disappointing.

Berkshire Hathaway (BRK.B) is going to be a major winner from the tax reform. Barclay's said Berkshire's windfall could be as much as $37 billion. The windfall will come from the lower tax liability on appreciated investments. Future earnings should increase by 12% on an ongoing basis. Morgan Stanley estimates are slightly higher at 14%. Berkshire currently has $109 billion in cash and equivalents and that hoard should continue to rise at a faster pace thanks to the reduction in taxes.

Seagate (STX) shares cooled slightly after Monday's revelation they were hoarding a massive amount of Ripple crypto currency. The company raised guidance on Monday for revenue of $2.9 billion beating the $2.74 billion consensus. Seagate said it participated in the Series A $28 million and B $55 million rounds of funding for Ripple. The company Ripple owns 61% of the outstanding XRB currency. If Seagate held just 1% of Ripple, that would be worth $1.5 billion. While Seagate did not disclose its percentages, analysts believe their Ripple holdings could be worth as much as $7 billion. Seagate's market cap is only $13 billion and only rose $1.4 billion on Monday when the news broke. That suggests Seagate shares could be significantly undervalued.

Seagate said it shipped 40 million disk units in Q4 with more than 88 exabytes of storage. The company said they had signed a long-term agreement to obtain NAND flash memory from Toshiba and will provide continuity for its current and future SSD product portfolio. This is negative for WDC because they had the guaranteed pipeline before Seagate joined the consortium that bought the memory unit from Toshiba. Earnings are Jan 29th.

After the bell, WD-40 (WDFC) reported earnings of 90 cents that beat estimates for 83 cents. Revenue of $97.6 million rose 9% but missed estimates for $93 million. They raised guidance for 2018 for sales growth of 4% to 6%, revenue of $396-$403 million and earnings of $3.91-$3.98. Analysts were expecting $3.85 and $398 million. Shares rallied $5 in afterhours.

Crude oil prices shot up nearly $2 to $63.44 and the highest level since December 2014 after the API inventory report showed a monster decline of -11.2 million barrels. That was the biggest decline for this time of year since 1999. That was about three times the analyst estimates. Brent crude rose to $69 on the news and that is a huge challenge to global producers. At those prices, US producers can raise their exports of our light crude and take market share from OPEC. US producers have been ramping up exports since the ban was removed 2 years ago.

I would caution readers that December 31st was property tax day in the US and refiners typically move as much oil out of inventory as possible to reduce their tax bill. Beginning next week, we should see US inventories begin to rise again.



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The markets have been moving higher on mediocre volume and the indexes are starting to show increased signs of volatility. After such a large gain over the last week, it is not surprising and we should watch for some temporary signs of instability. It is highly unusual for the markets to simply sprint up 4% in a week's time.

The outlook is still positive but we need a temporary pause to relieve some of the overbought conditions. The Dow was the only bullish index today and half of its gains came from Boeing. The S&P posted a minor 3-point gain and the Nasdaq only gained 6 points with the Russell 2000 negative. That is not the kind of gains you would expect with the Dow up +156 points at its high.

The S&P stalled when it hit 2,750 today. That was the optimistic upside target for 2017 and whether that had anything to do with it today is unknown. The S&P is well outside the uptrend regression channel and is clearly overextended. Support should be back at 2,700 but I strongly doubt we will see that level again without a government shutdown. After Q4 earnings, we could revisit that level.

The Dow A/D line was almost evenly split with one more advancer than decliner. The Dow traded well over 25,400 intraday but pulled back at the close. There was more than $1 billion in market on close orders on the NYSE. This was the first time in a week that MOC orders were not strongly positive.

I doubt anyone can look at the Boeing chart and not expect a retracement soon. The same could be said with CAT, HD and others. These are the stocks that will benefit significantly from the tax reform and they could still move higher before they correct. When that correction comes, it could be ugly.

The Nasdaq Composite posted a minimal 6-point gain and the A/D line was negative with 1,282 advancers compared to 1,527 decliners. Up volume was the weakest since December 20th, if you discount Christmas week and the low overall volume. Only four of the top 15 big cap stocks were positive.

The Nasdaq has rallied the strongest at +4.0% since the low on Friday before New Year's weekend. Many of the big cap stocks were making new highs after major gains. That may have run its course. Tech stocks are not big taxpayers. Their average effective tax rate was already in the low 20% range and therefore they will not be big beneficiaries of the reform. There may be a retracement ahead. Like the big cap industrials, I would not expect it for another 3-4 weeks but that does not mean it could not happen at any time. I would keep my stop losses tight.

The Russell rebounded from a 12-point decline on Monday to close with a 2-point gain. The index rebounded from a 4-point decline to 1,559 at Tuesday's open to rise to 1,565 intraday. That rebound failed and the index closed with a 2-point loss. The Russell is struggling just to remain positive despite the 5-day streak of minimal gains. This could be the canary in the coalmine and a warning the 2018 rally is fading.

Supporting the Nasdaq and the Russell on Tuesday was a 3.3% gain in the biotech sector. This came from the streaming news from the JP Morgan Health Care Conference and the potential for M&A in the space. The tax reform will help drug and biotech companies and this is lifting the sector. The Biotech Index closed only 6 points from a new high.

S&P futures opened negative but have recovered off their lows to be down only 1 point. There is still a lot of darkness before the dawn and anything can happen by morning. I would be cautious about buying these market highs but I would continue to hold long positions. Just monitor your stop losses and expect increased volatility over the next four weeks.

There was a 7.8 magnitude earthquake in the Caribbean this evening and tsunami warnings have been issued for all the islands. We will not know until morning the extent of the damage and that could have a bearing on the market. Natural disasters do not normally move the market but there have been instances where moves appeared.

Enter passively, exit aggressively!

Jim Brown

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New Option Plays

Volatility Rising

by Jim Brown

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Editors Note:

Market volatility is rising and the major indexes are diverging. This may be nothing or it could be the beginning of some profit taking. The Dow was up 156 intraday and the S&P and Nasdaq gained 3 and 6 points respectively with the Russell negative. There is no reason to add positions with the markets at record highs with increasing volatility. There is always another day to trade.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

Tag Team

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Nasdaq rested on Tuesday while the Dow returned to the fight and carried the load once again. The Dow posted a minor 12-point decline on Monday while the Nasdaq surged higher. On Tuesday, it was the Nasdaq resting with only a 6 point gain while the Dow surged to a new record. The Russell gave back all its intraday gains to lose -2 points and the S&P struggled to hold on to a 3-point gain. The volatility among the indexes could be a symptom of a slowing rally and the potential for a broader pause ahead of Q4 earnings.

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

SYNA - Synaptics
The long call position was entered at the open.

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Credit spreads and naked puts = OptionWriter

Long term option investments = LEAPS Investor

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Long and short equity trades = Premier Investor

BULLISH Play Updates

AKAM - Akamai Technologies - Company Profile


Bloomberg reported Akamai was working with Morgan Stanley to explore strategic alternatives including a sale. Shares posted a nice gain on the news.

Original Trade Description: January 3rd.

Akamai Technologies, Inc. provides cloud services for delivering, optimizing, and securing content and business applications over the Internet in the United States and internationally. The company offers Web and mobile performance solutions, such as Ion, a situational performance solution that consists of an integrated suite of Web delivery, acceleration, and optimization technologies; Dynamic Site Accelerator that helps in consistent Website performance; IP Application Accelerator to enable enterprises to deliver Internet Protocol-based applications; Global Traffic Management, a fault-tolerant solution; Image Manager that automatically optimizes online images; and Cloudlets, which provides self-serviceable controls and capabilities. It also provides cloud security solutions, including Kona Site Defender, Bot Manager, Fast Domain Name System, Prolexic Routed, and Client Reputation; enterprise solutions comprising Enterprise Application Access and Akamai Cloud Connect. In addition, the company offers media delivery solutions, such as adaptive delivery solutions, download delivery solutions, media delivery acceleration solutions, media services, media analytics, and NetStorage, a cloud storage solution. Further, it provides network operator solutions, including Aura Licensed CDN suite of solutions, Aura Managed CDN solutions, and Intelligent DNS Solutions; and professional services and solutions. Company description from FinViz.com

Expected earnings Feb 6th.

Akamai reported Q3 earnings of 62 cents that beat estimates for 59 cents. Revenue of $621.4 million beat estimates for $610 million. Web division revenue rose 14% to $328 million. Media division revenue fell -1% to $273 million. Enterprise and carrier division revenue rose 2% to $20 million. Performance and security solutions revenue rose 11% to $381 million. Cloud security solutions revenue rose 27% to $121 million. Services and support revenue rose 12% to $57 million. International revenue rose 18% to $213 million. Cash on hand was $1.4 billion. They repurchased $129 million shares of stock in the quarter.

Shares spiked $4 on the report but faded over the next week. Deutsche Bank reiterated a buy rating and raised their price target to $75. The analyst pointed to what would be monster traffic volumes from the Winter Olympics in Q1 and the World Cup Soccer in Q2.

In October, Akamai announced the acquisition of Nominum, a market leader in DNS and enterprise security solutions for carriers. Akamai also announced the launch of Bot Manager Premier, designed to help organizations manage the impact of bots across their entire digital environment, including websites, mobile applications and wed APIs.

The company guided for Q4 revenue of $638-$656 million with gross margins of 65% to 77%. Earnings are expected to be in the 60-65 cent range after a 4-cent impact from the acquisition of Nominum. They are forecasting 5% to 8% growth for the year with a 64% gross margin. There is nothing wrong with their business.

Akamai said the rapid advancement of video on demand was a strong factor in future earnings since they are the largest provider of content. Also seeing a rapid ramp was the cloud storage business. Akamai has a security hook in that growth and the redundancy of that storage.

Akamai collaborated with Google, Cloudfire, Flashpoint, RiskIQ and the RBI to squash a botnet named WireX that had infected 120,000 Android phones in early August. The bot was generating 20,000 page requests a second against a set of targeted servers in a DoS attack.

Akamai announced it had set a new record for throughput delivered on September 12th with more than 60 terabytes per second (Tbps). That beat the old record of 47 Tbps set on August 29th. Akamai delivers more content on a daily basis than any other content provider. In January 2017, they set a single event record of 8.7 Tbps streaming the Presidential Inauguration. The company has more than 200,000 servers spread across 130 countries to accomplish this record content delivery.

Akamai announced the Content Delivery Network (CDN) capabilities for enterprises are now available on the IBM cloud. The new offering is part of the IBM Cloud Content Delivery Network. Akamai currently provides CDN services on 1,700 networks in 131 countries. That now included IBM's footprint of 60 cloud centers across 19 countries. Akamai has more than 200,000 servers across 130 countries.

In mid December Elliott Management disclosed at 6.5% stake in Akamai saying the shares were significantly undervalued. Elliott said it would attempt to talk with the board, other shareholders and potential acquirers about strategic alternatives. Shares spiked to $67 on the news and have faded only slightly with support appearing at $65.

I have to use the May calls because the February calls have a $1.25 bid/ask spread on a $3 option. Just because we buy May does not mean this is a long term position. We will exit before the Feb 6th earnings. I am just using May because the bid/ask spread of only 35 cents. They should also hold their premium better than the February strikes.

Position 1/4/18P:
Long May $70 call @ $3.20, see portfolio graphic for stop loss.

ARNC - Arconic Inc - Company Profile


No specific news.

Original Trade Description: December 27th.

Arconic creates breakthrough products that shape industries. Working in close partnership with our customers, we solve complex engineering challenges to transform the way we fly, drive, build and power. Through the ingenuity of our people and cutting-edge advanced manufacturing techniques, we deliver these products at a quality and efficiency that ensure customer success and shareholder value. Company information from Arconic.

Earnings January 22nd.

Arconic was the original Alcoa. They spun off the aluminum business then changed their name to Arconic. This company makes precision aluminum parts for aircraft and transportation equipment. Eliott management has been agitating for change and managed to get the long term CEO Klaus Kleinfeld kicked out and oversaw the five-month process to get 24-year GE veteran Charles Blankenship installed as the new CEO.

Elliott has seen their investment lag for the last year as the spinoff and CEO hunt took the wind out of Arconic's sales. Now they could be reaching the end of their struggle with a potential buyout on the horizon.

One analyst got the fire started a couple weeks ago when he suggested Honeywell was on the prowl and would eventually buy Arconic. Honeywell lost out on Rockwell Collins (COL) when United Technologies bought them for $30 billion or 14 times EBITDA.

Honeywell was under pressure by Dan Loeb to spin off its aerospace unit. Instead, they agreed to spin off the homes and global distributions unit and the transportation business leaving (by the end of 2018) the aerospace unit intact and the surviving business. Now Honeywell needs to bulk up its aerospace business of they will be the nex company acquired.

With Dan Loeb on one side urging Honeywell to build aerospace and Elliott Management on the other side urging Arconic to sell itself, this is a match made in heaven and could happen in early 2018 according to the analyst.

Shares have sprinted higher since the news story broke a couple weeks ago. They are very close to a 52-week high over $28 and a move over that level could trigger additional buying and short covering.

I am using a July option to get well past the January and April earnings. We will not hold it that long but the uncertainty surrounding those events should keep the premium up if we have a market drop in January.

Update 1/8/17: Arconic said it was freezing the pension plans at current levels for 7,900 employees and would make contributions to 401K plans instead. This will save them $140 million.

Position 12/28/17:

Long July $30 call @ $1.50, see portfolio graphic for stop loss.

BITA - BitAuto Holdings - Company Profile


No specific news.

Original Trade Description: December 30th.

Bitauto Holdings Limited provides Internet content and marketing, and transaction services for the automotive industry in the People's Republic of China. The company operates in three segments: Advertising and Subscription Business, Transaction Services Business, and Digital Marketing Solutions Business. The Advertising and Subscription Business segment provides advertising services, including new automobile pricing and promotional information, specifications, reviews, and consumer feedback to automakers through its bitauto.com and taoche.com Websites, as well as mobile applications. It also provides Web-based and mobile-based integrated digital marketing solutions to automobile dealers. The Transaction Services Business segment operates automotive transaction services platform that provides e-commerce transaction services to automobile dealers; and offers online automotive financial platform services to consumers and financial institutions, including banks, auto finance companies, and insurance companies. The Digital Marketing Solutions Business segment provides one-stop digital marketing solutions, such as Website creation and maintenance, online public relations, online marketing campaigns, and advertising to automakers. The company also distributes its dealer customers' automobile pricing and promotional information through its Internet service provider partners. Bitauto Holdings Limited was founded in 2000 and is headquartered in Beijing, the People's Republic of China. Company description from FinViz.com.

For Q3 BITA reported earnings of 23 cents that missed estimates for 33 cents. Revenue of $352.4 million rose 54% and beat estimates for $334 million. They guided for Q4 revenue of $360.7 to $368.3 million, a 51% increase, and that was well above estimates at $331 million.

Shares were crushed on the earnings miss despite the 54% increase in revenue and strong guidance. Their Yixin website generated approximately 140,000 automobile transactions in Q3. Active monthly users rose to 51 million and they have more than 15,000 dealerships in the network. Transaction services rose 145.7% in Q3. Advertising and subscription service businesses saw revenue rise 19.3%. The company ended the quarter with $487 million in cash.

Their Yixin subsidiary IPOed on the Hong Kong exchange on Nov 15th and that raised a significant amount of money that will allow them to rapidly expand that portion of the business. The perceived dilution was also a factor in the stock decline.

The company is growing rapidly and guidance was very strong. There is no reason why the shares should not continue rebounding. There is strong support at $28.50.

I am recommending a February option because it is cheap. Normally I would reach out to the next month to capture the expectation premium of their Feb 19th earnings but the options are twice as expensive and with potential market volatility in January, i would rather risk less with cheaper options.

Position 1/2/18:
Long Feb $35 call @ $1.55, see portfolio graphic for stop loss.

CGNX - Cognex - Company Profile


No specific news.

Original Trade Description: December 9th.

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. Cognex Corporation was founded in 1981 and is headquartered in Natick, Massachusetts. Company description from FinViz.com.

Cognex is a tech stock where growth is booming. Every manufacturer is looking to automate as many tasks as possible and Cognex provides them the opportunity with robotic vision equipment that can inspect and track items much faster than humans.

For Q3 they reported earnings of $1.14 that beat earnings for $1.05. Revenue of $259.7 million beat estimates for $256.8 million. They guided for the current quarter for revenue of $170-$180 million and analysts were expecting $155 million. That was a major guidance beat.

Expected earnings Jan 29th.

They announced a 2:1 split that was effective on December 4th. Shares immediately sank $7 on post split depression and Nasdaq rotation but have rebounded the past two days. The 50% decrease in the stock price also reduced the option premiums by 50% and made them cheap enough to buy.

Position 12/11/17:

Long Feb $67.50 call @ $3.20, see portfolio graphic for stop loss.

JUNO - Juno Therapeutics - Company Profile


No specific news.

Original Trade Description: January 4th.

Juno Therapeutics, Inc., a biopharmaceutical company, engages in developing cell-based cancer immunotherapies. The company develops cell-based cancer immunotherapies based on its chimeric antigen receptor and T cell receptor technologies to genetically engineer T cells to recognize and kill cancer cells. Its CD19 product candidates include JCAR017 that is in Phase I/II trials for adults with relapsed or refractory (r/r) B cell aggressive non-Hodgkin lymphoma (NHL) and pediatric patients with r/r B cell acute lymphoblastic leukemia (ALL); JCAR014, which is in Phase I/II trials to treat various B cell malignancies in patients relapsed or refractory to standard therapies; and JCAR015 that is in Phase II trials for adult patients with r/r ALL. The company's CD22 product candidate comprise JCAR018, which is in Phase I trial for pediatric and young adult patients with CD22-positive r/r ALL or r/r NHL. Its additional product candidates include CD171, a cell-surface adhesion molecule to treat neuroblastoma; Lewis Y for the treatment of lung cancer; JCAR023, which is in Phase I trial for patients with refractory or recurrent pediatric neuroblastoma; MUC-16, a protein for treating ovarian cancers; IL-12, a cytokine to overcome the inhibitory effects; ROR-1, a protein for the treatment of non-small cell lung, triple negative breast, pancreatic, and prostate cancers; WT-1, an intracellular protein that is in Phase I/II clinical trials to treat adult myeloid leukemia and non-small cell lung, breast, pancreatic, ovarian, and colorectal cancers; and IL13ra2 for treating glioblastoma. Juno Therapeutics, Inc. has collaboration agreements with Celgene Corporation, Fate Therapeutics, Inc., Editas Medicine, Inc., MedImmune Limited, and Memorial Sloan Kettering Cancer Center. The company was formerly known as FC Therapeutics, Inc. and changed its name to Juno Therapeutics, Inc. in October 2013.Company description from FinViz.com

Expected earnings January 31st.

This is a simple story. Juno is developing CAR-T drugs. Their JCAR017 drug treats non-Hodgkin lymphoma. The drug is currently in trials. Two other drugs, Yescarta and Kymriah, developed by other companies are already approved and being marketed.

In the latest JCAR017 trial 80% of patients were in complete response at the end of 3 months. At the end of six months they were still in complete response and after the six month date until the end of the trial, 92% stayed in complete response. That is an amazingly successful trial. In early December Juno reported only a 50% response rate using different term length and dosages and investors were expecting something over 70% based on the early results. Shares were crushed.

In reality, the results are still there. Yescarta and Kymriah only showed a 30% to 40% response rate so even with the downplayed results from JCAR017 it is significantly better. Once the drug is approved it is going to be a major winner in the category.

Investors have begun buying the stock again and shares are up from the $42.50 low to close just under $48 today. This is long term support and the 100-day average.

Position 1/5/18:
Long Feb $50 call @ $3.50, see portfolio graphic for stop loss.

PYPL - PayPal - Company Profile


A previously skeptical Cowen analyst upgraded the stock from market perform to outperform and raised the price target from $67 to $88. Shares spiked as high as $80 intraday but faded at the close. Somebody used the spike to lighten their load.

Original Trade Description: November 29th

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.

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.

PayPal just launched domestic payment services in India with 1.324 billion people.

Paypal signed a deal to sell $5.8 billion in its credit card portfolio to Synchrony Financial. The company said that would free up cash for acquisitions and expansion. The company raised its revenue forecast to $3.64-$3.70 billion for the current quarter. They raised earnings guidance from 37-39 cents to 52-59 cents.

Paypal closed exactly on horizontal support and the 30-day average, which has been support since February. The company is more of a bank than a tech stocks and should benefit from any further rotation into banks.

The original PYPL position was stopped out in the Nasdaq crash on Nov 29th and we reentered this new position on Nov 30th.

Update 12/2: Keybanc believes the Venmo payment app is going to be a breakout hit in 2018 and raised his price target for Paypal from $85 to $90. In a recent survey of 500 consumers, Venmo was the preferred payment option for 76% of respondents. Paypal is forecasting $75 billion in Venmo payments in 2018 and they get an estimated 4 cent EPS boost for every $10 billion.

Update 12/13: BMO Capital raised their price target from $80 to $85 saying the sale of the credit business will reduce expenses and increase earnings per share. The sale will free up $1.0 billion in cash for 2018 and $2.5 billion in 2019.

Position 11/30/17:

Long Feb $75 call @ $3.75, see portfolio graphic for stop loss.

SYNA - Synaptics - Company Profile


Synaptics announced the new Harmon Kardon Allure speakers would feature the AudioSmart far-field voice DSPs made by Synaptic. These speakers also feature Amazon's Alexa Voice Service or AVS.

Original Trade Description: January 8th.

Synaptics Incorporated develops, markets, and sells intuitive human interface solutions for electronic devices and products worldwide. The company offers its human interface products solutions for mobile product applications, including smartphones, tablets, and touchscreen applications, as well as mobile, handheld, wireless, and entertainment devices; notebook applications; and other personal computer (PC) product applications, such as keyboards, mice, and desktop product applications. Its products include ClearPad, which enables users to interact directly with the display on smartphones and tablets; ClearView products that provide advanced image processing and low power technology for entry-level smartphones; TouchView products, which integrate touch and display technologies to deliver performance and simplified design; and Natural ID, a fingerprint ID product that is used in smartphones, tablets, notebook PCs, PC peripherals, and other applications. The company??s products also comprise TouchPad, a touch-sensitive pad that senses the position and movement of one or more fingers on its surface; SecurePad that integrates fingerprint sensor directly into the TouchPad area; ClickPad that offers a clickable mechanical design to the TouchPad solution; and ForcePad, a thinner version of its ClickPad. In addition, its other product solutions include dual pointing solutions, which offer TouchPad with a pointing stick in a single notebook computer enabling users to select their interface of choice; TouchStyk, a self-contained pointing stick module; and TouchButtons, which provides capacitive buttons and scrolling controls, as well as display interface products. The company sells its products through direct sales, outside sales representatives, distributors, and resellers. It serves smartphone, tablet, and PC original equipment manufacturers, as well as various consumer electronics manufacturers. Company description from FinViz.com

Expected earnings February 6th.

In August, Synaptics reported earnings of $1.18 that beat by a penny and revenue of $426.5 million that exactly matched estimates. However, they guided for the next quarter for revenue of $380-$425 million. That was a sequential decline and they blamed it on the mobile business. However, based on orders in the pipeline they expected future quarters to show significant gains. Investors were not impressed and shares fell from $56 to $33.

In early November the company reported earnings of $1.03 that beat estimates for 97 cents. Revenue of $417.4 million beat estimates for $397.6 million. For the current quarter they guided for revenue of $410-$450 million. Shares spiked to $44 on the news then fell back to $35 again. The company said it lost market share with Apple's fingerprint sensor business because its product was not completely ready for Apple's manufacturing cycle.

The current quarter is normally seasonally strong for Synaptics. They are now shipping fingerprint sensors in volume to Huawei and Samsung. Huawei sold more than 100 million phones in the first three quarters of 2017 and has outsold Apple since the new iPhones were introduced. Samsung has adopted the Synaptics technology for their Galaxy S8 and Note 8. For the next evolution of the Note 8 the sensor will be built tight into the screen.

Synaptics is also big in touch screen technology and device driver integration or TDDI. This is their specialty. Demand is expected to grow from 100 million units in 2017 to $654 million by 2022.

In the last quarter, the company received 14% of its revenue from IoT devices. That is expected to rise to 24% in the current quarter. They recently bought Conexant and that will expand their addressable market. Conexant makes voice and audio solutions for Amazon's Alexa voice assistant.

The company just announced a partnership with Microsoft to develop voice enabled solutions for Cortana using Synaptics far-field DSP voice technology.

Synaptics has a lot on their plate and much of these efforts are just now reaching broad commercialization with the major device manufacturers. Shares are rebounding and broke over resistance at $42.50 on Monday.

Position 1/9/17:
Long Mar $45 Call, currently $3.10, see portfolio graphic for stop loss.

TGT - Target Corp - Company Profile


Target raised Q4 earnings guidance from $1.05-$1.25 to $1.30-$1.40. Same store sales are expected to rise 3.4% and well above analyst expectations for 1.25%. They guided for 2018 earnings of $5.15-$5.45 and well above estimates for $4.36.

Original Trade Description: December 13th.

Target Corporation operates as a general merchandise retailer. It offers household essentials, including pharmacy, beauty, personal care, baby care, cleaning, and paper products; dry grocery, dairy, frozen food, beverages, candy, snacks, deli, bakery, meat, produce, and pet supplies; and apparel for women, men, boys, girls, toddlers, infants, and newborns, as well as intimate apparel, jewelry, accessories, and shoes. The company also provides home furnishings and decor, such as furniture, lighting, kitchenware, small appliances, home decor, bed and bath, home improvement, and automotive products, as well as seasonal merchandise, such as patio furniture and holiday decor; music, movies, books, computer software, sporting goods, and toys, as well as electronics, such as video game hardware and software. In addition, it offers in-store amenities, including Target Cafe, Target Photo, Target Optical, Starbucks, and other food service offerings. Target Corporation sells products through its stores; and digital channels, including Target.com. As of September 13, 2017, the company operated 1,816 stores in the United States. Target Corporation was founded in 1902 and is headquartered in Minneapolis, Minnesota. Company description from FinViz.com.

I would not normally recommend a retailer only two weeks before Christmas but I expect Target to overcome the normal post holiday depression.

Earnings Feb 14th.

Target announced on Wednesday they were buying grocery delivery platform Shipt Inc for $550 million in cash. The company said they would be offering same day delivery across all major product categories by the end of 2019. They will be offering same day delivery for groceries, essentials, home products, electronics and other items by mid 2018.

Shipt's services cost $99 a year for unlimited deliveries. Shipt already has a network of more than 20,000 personal shoppers to fulfill orders from various retailers and deliver within hours in more than 72 markets. Shipt partners include stores like Costco, Whole Foods, Meijer, etc.

Target is going to continue letting Shipt deliver for their other customers. The more widely recognized the brand is the larger it will grow and Target will be able to benefit from their ability to scale deliveries all over the country. Plus, they will profit from the fees received for those other deliveries.

This is a great deal for Target as it ramps up competition against Amazon.

I wrote last week that shippers were noting the increase in packages from Target. They were the second largest volume in UPS trucks after Amazon. They should have a great Q4.

Update 1/2/18: Influential tech analyst Gene Munster said he believes Amazon will buy Target in 2018. Target has a market cap of $37 billion but it would require a huge premium to get a deal done, probably something in the $50 billion range. Amazon has a market cap of $573 billion. The deal makes sense in the long run because it would give Amazon 1,802 major store outlets with a huge warehousing system that Amazon could use to its advantage. The addition of Amazon specific products to the already broad range of products offered by Target, would be a major boost to Amazon sales. The stores would function as customer delivery points for Amazon packages and because of the large store footprint it would allow Amazon to expand its same day, next day delivery offering to most of the US.

While it might make sense on paper, I would not hold my breath expecting a deal to be done. That would be a big bite for Amazon and there may be a problem getting regulatory approval. President Trump already believes Amazon is a monopoly with too much power and that could keep a deal from completing.

Position 12/14/17:

Long March $65 call @ $2.90, see portfolio graphic for stop loss.

TXT - Textron - Company Profile


No specific news.

Original Trade Description: January 6th.

Textron Inc. operates in the aircraft, defense, industrial, and finance businesses worldwide. It operates through five segments: Textron Aviation, Bell, Textron Systems, Industrial, and Finance. The Textron Aviation segment manufactures and sells business jets, turboprop aircraft, piston engine aircraft, and military trainer and defense aircraft; and commercial parts, as well as provides maintenance, inspection, and repair services. The Bell segment provides military and commercial helicopters, tiltrotor aircraft, and related spare parts and services. The Textron Systems segment produces unmanned aircraft systems; smart weapons, airborne and ground-based sensors and surveillance systems, and protection systems; armored vehicles, turrets, and related subsystems, as well as marine craft; test equipment and electronic warfare test, and training solutions; piston aircraft engines; and intelligence software solutions. This segment also designs, develops, manufactures, installs, and maintains full flight simulators, as well as offers training services. The Industrial segment offers blow-molded plastic fuel systems, windshield and headlamp washer systems, catalytic reduction systems, and engine camshafts, as well as plastic bottles and containers; golf cars, off-road utility and light transportation vehicles, aviation ground support equipment, professional turf-maintenance equipment, and turf-care vehicles; and powered equipment, electrical test and measurement instruments, mechanical and hydraulic tools, cable connectors, fiber optic assemblies, underground and aerial transmission and distribution products, and power utility products used in the construction, maintenance, telecommunications, data communications, electrical, utility, and plumbing industries. The Finance segment provides financing to purchase new and pre-owned aircraft and helicopters. Textron Inc. was founded in 1923 and is headquartered in Providence, Rhode Island. Company description from FinViz.com

Expected earnings January 31st.

With Airbus acquiring a stake in Bombardier, Boeing a stake in Embraer, Honeywell, United Technologies, Rockwell Collins, etc, all circling each other like sharks around a wounded whale, Textron is a potential acquisition candidate.

There are no formal rumors but options activity is huge. On Friday there were 5,400 of the Jan $55/$60 calls traded with the $55 calls at $3.50. There were 9,500 of the Feb $60 calls traded at $1.70 against an open interest of 261 contracts.

Textron has lagged the other defense contractors because they are in a contract period where capex is high but the eventual income has not yet appeared.

Last week FedEx (FDX) announced an order to buy 50 of Textron's Cessna SkyCourier 408 aircraft with an option to increase the order to 100. FedEx worked closely with Textron to design the plane for package delivery to small and medium sized markets.

The Textron aviation chief said Amazon was another potential customer because the need to ship express packages to addresses outside major cities was rapidly growing. Textron produces Cessna, Beechcraft and Hawker business jets.

Textron/Bell/Boeing produces the V-22 Osprey aircraft. They just achieved first flight on the new V-280 Valor, which is a new generation tiltrotor aircraft like the Osprey. Bell, as in Bell Helicopter, is the division producing the V-280. The aircraft has twice the speed and range of a conventional helicopter and carries a much larger payload.

The company has so many projects in the works they are right on the edge of a new chapter in their growth. With the $700 billion defense program that passed in September, they will be getting a wide variety of new orders.

There is no way to know if somebody is about to make any offer but the dramatic surge in option volume is typically a sign or rumors making the rounds.

I am recommending the March option to retain premium longer but we will probably exit before earnings on Jan 31st.

Position 1/8/18:
Long Mar $60 Call @ $2.15, see portfolio graphic for stop loss.

BEARISH Play Updates (Alpha by Symbol)

DIA - Dow SPDR ETF - ETF Profile


Another new high. There is no stopping this market. This position is dead unless we can get a 2-3 day decline ahead of the potential government shutdown. If we can get a decent drop, even just a couple days, we can sell a short put to turn it back into a spread and reduce our loss. This is a March position so we have plenty of time for disaster to strike. I believe it is worth the 70 cents to hold it just in case.

Original Trade Description: November 16th

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 still extremely overbought. It is due for a rest. The earnings cycle is over. Post earnings depression is here. The short squeeze is likely to fail. The tax plan faces an uphill battle and January could see a major market decline. It has been over 500 days since the market had a 5% decline and we average twice a year. We are due.

This is highly speculative. I am using March options because I want to have as much time as possible for this scenario to play out.

Update 12/18/17: The Dow is moving ever closer to 25,000, which could end up being a monster sell the news trigger. The Dow is up 6,900 points since the election. That is 38.5% in 13 months. There is a 100% chance there will be a correction in the future. The only unknown is when.

I am recommending we close the short put side of the spread. That captures that portion of the trade and once the Dow rolls over we do not have to deal with the rise in value in the short put. Secondly, that gives us other options to raise additional premium in the future, including selling a higher put if the index does not decline.

Position 11/17/17:

Long March $230 put @ $5.16, see portfolio graphic for stop loss.

Closed 12/19: Short March $210 put @ $1.71, exit .43, +1.28 gain.

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