Option Investor
Newsletter

Daily Newsletter, Wednesday, 1/31/2018

Table of Contents

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

Market Wrap

Fed Outlook Firms

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

The market rebound from yesterday's lows on strong earnings, economic data and thumbs up for the economy from the FOMC. The committee left rates unchanged but says near-term risks are balanced, there are solid gains in labor, investment and the economy and upgraded their inflation outlook. They now see inflation rising this year and reaching their 2% target in the medium term.

The hawkish alterations to the policy statement raised the chances we'll see 4 rate hikes this year bit did not move outlook for the next hike appreciably. Trump's State of the Union was also talked about but he didn't deliver much change so it was largely shrugged off.

International markets were mixed on earnings, data and caution ahead of today's FOMC meeting. In Asia, markets were wildly mixed with the Nikkei leading losers with a loss near -0.85%, Chinese indices moving in opposite directions and gainers led by Hong Kong. European indices were equally mixed and closed near to flat for the day despite gains in the US market.

Market Statistics

Futures trading was positive all morning with gains in the range of 0.5% to 0.85% for the major indices. Future gained some strength on data and earnings although it wobbled a bit going into the open. The open saw gains in the range of 0.45% for the broad market with those extended to 0.75% within the first 15 minutes of trading. This was the early top and resulted in a retreat to break even for the SPX followed by sideways range bound trading the remainder of the morning. The FOMC release caused a little volatility which led the SPX to briefly dip into negative territory. Losses were regained before the close leaving the index with small gains.

Economic Calendar

The Economy

ADP Employment was well above expectations and point to strong gains in labor. Whether or not that spills over in the NFP remains to be seen, last month's ADP of 242,000 did not result in similarly strong numbers in the non-farm payrolls. Regardless, December's 234,000 beat consensus estimate of 167,000 and is the second month in a row of gains above 225K. Over the past 12 there have been 7 months above 200K resulting in a 12 month average above 200K. Gains were broad in terms of business size but heavily skewed in favor of service, 212K, with professional, trades and hospitality leading. There were 9,000 new construction and 12,000 new manufacturing jobs announced within the goods-producing sector.


The Employment Cost Index was released shortly after the ADP. The index shows a 0.6% rise in employment cost, in line with expectations. The gains are driven by rising wages and benefits which also show an acceleration from 2016. Wages&Salaries and Benefits increased each increased by 0.5% in the month of December bringing full year 2017 gains to 2.6%. Benefits are up 2.5% YOY but so is the costs of those benefits.


The Chicago Business Barometer fell -2.1 points to 65.7 but remains in positive territory and indicative of moderate economic expansion. This month's reading is also 28% above last January, consistent with long-term improvement in the economy. Three of the five sub-indices fell in the last but two, employment and deliveries, showed gains. New Orders fell to a 5 month lower doing the most to cause this month's decline, regardless it remains positive and indicative of increasing business. The Employment Index hit a 6 year high, breaking above 60 for the first time since 2013.

The Index of Pending Home Sales rose by 0.5% in December, the month of gains and on top of an upward revision to November. The NAR says sales are expected to moderate in 2018 as the impact of new tax laws hurts high-value markets. Despite this economists at the NAR say there is some momentum going into 2018 driven by plentiful jobs and rising wages. The problem is persistently low inventory in both new and older homes.

The Dollar Index

The Dollar Index firmed on the FOMC statement but did not gain much. The statement is a bit more hawkish but only the point of being in-line with current outlook, it did not really increase the pace of the rate hiking timeline. That being said inflation is on the rise and could easily begin to pick up momentum in to the middle part of the year. If so the FOMC could indeed be forced to increase the timeline. Until then the Dollar Index may enter a new trading range while we wait on more data here and from abroad. With the EU, the UK and Japan all showing signs (to varying degree) of accelerating growth the dollar could remain under pressure for some time to come.


The Gold Index

Gold prices wobbled in today's session, settling very near to break even and creating a medium sized doji candle. The placement of today's candle is in the middle of a range between long-term resistance and the 30 day EMA so looks more like indecision than an indication of support or resistance. The metal is under pressure from improving US economics and firming FOMC outlook but supported at the same time by recent weakness in the dollar and to some extend geopolitics. In the near term, it seems as the balance of power may shift to the dollar and if so spot prices are likely to fall. A move lower may find support at the 30 day EMA near $1320, a move higher may find resistance at the long-term high near $1360.

The Gold Miners ETF GDX created a medium sized doji in today's session. Today's candle is to the side of the previous but prices moved down to test support in today's action. Support is the pair of moving averages and based on the candle I'd say it was present. Whether it holds is yet to be seen. The indicators are both bearish and moving lower suggesting support will be tested again at least. A move below the longer term 150 day EMA would be bearish with targets at $22.50 and the bottom of a long-term range near $21. A move up may find resistance at $24, a move above there would be bullish within the range.


The Oil Index

Oil prices went on a bit of a wild ride today. Spot price for WTI was down -0.7% in the early session, bounced a bit, dipped back to the early lows on inventory data and then rebound again to close with a small gain. Today's data showed a larger than expected build in WTI and a smaller than expected draw in gasoline that provides more evidence oil markets are well supplied. Today's action suggests there is still support present near $64 but without positive news could easily crumble.

The Oil Index rebound from yesterday's low but it may be a dead-cat bounce. Today's candle is small and near the bottom of yesterday's long red candle suggesting sellers are still in control of prices. The indicators remain bearish and in support of correction within up trend so further downside may be coming. The first target for firm support at the 30 day EMA near 1385 and would equal a 5% correction from recent highs if hit. In the meantime, prices remain in an uptrend with positive and strong forward outlook. This dip may result in another buying opportunity.


In The News, Story Stocks and Earnings

Advanced Micro Devices reported before the bell and served up a 33% increase in revenue beating analysts estimates on the top and bottom lines. The company also provided guidance above consensus on strength in all areas of operation. There are some questions about the comparability of the figures due to changes in accounting practices but that didn't stop shares from gaining 5%.


Boeing also reported before the bell and also blew past estimates. The airline reported a 9.1% increase in YOY revenue driven by improved performance and operating conditions. EPS of $4.80 beat by a staggering $1.91 but that is due to tax-reform impacts. Ex-tax reform adjusted EPS is closer to $3.05, still ahead of expectations but only by a dime. The company also provided strong outlook which helped to drive shares up by more than 5% to set a new all-time high.


Poultry producers found themselves in hot water after allegations of price collusion were levied by US Foods and Sysco. The two companies, which account for the lion's share of all US restaurant and foodservice business, claim producers have been working together to artificially inflate prices. Reps at the major chicken producers deny the claims but that didn't stop shares of Tyson from falling more than -3.5% on high volume.


After hours action was filled with a number of high profile earnings reports with most beating expectations. Paypal beat top and bottom line, beating expectations, with revenue growth of 25.8%. The company says person-to-person volume is up 50%. Share moved up on the news.

Microsoft reported better than expected top and bottom line earnings with a 12% increase in YOY revenue. Gains are driven by increasing demand and strength in the cloud segment.

Facebook reported better than expected revenue and earnings on strength in advertising. The company provided mixed forward outlook as it pulls all cryptocurrency related ads in response to growing abuses. Shares of the stock fell on the news.

Qualcom beat on the top and bottom lines as did AT&T. The telecom giant reported EPS of $0.78 which beat the consensus by $0.13 and provided strong forward guidance. Shares of the stock moved higher on the news.

The Indices

The indices had a bit of a wild ride today if inside fairly narrow ranges. The Dow Jones Industrial Average posted the biggest move, close to 1% intraday and near 0.30% at the close. Today's candle is small and red with a long lower shadow indicative of support at the 26,000 level. The indicators have confirmed the move to support with bearish crossovers and suggest a further test of support is coming. A break below 26,000 would be bearish near term with a target near 25,575 and then 25,000. A confirmation of support at current levels or move higher would be trend following and bullish.


The NASDAQ Composite closed with a gain near 0.12% creating a small red bodied candle. Today's candle is within the near term consolidation range so does not appear to be overly bearish on its own. The indicators, however, confirm near-term weakness with bearish crossovers suggesting a move to test support is on the way. Support may be found at today's lows or, if those are broken, near 7,250 and the short term moving average.


The S&p 500 also closed with a gain near 0.05% creating a small red bodied candle. Today's candle is to the side of yesterday's but set a new two week low confirmed by the indicators. Both MACD and stochastic are pointing lower following bearish crossovers suggesting a test of support or correction is at hand. A move lower may find support at 2,800 or just below there at the short term moving average. A break below the MA may go as low as 2,700 or 2,600 and the long-term moving average.


The Dow Jones Transportation Average closed with barely a gain but a gain it closed with. The index created a small tombstone doji at near-term support following a brief pullback. The candle is a sign of support although the indicators remain bearish and in support of further downside. A break below the moving average would be bearish with targets near 10,500 and 10,000. A confirmation of support or move higher would be bullish and trend following with target near 11,500.


Today's action was a little wobbly but generally left the indices sitting on near-term support targets. A move below these targets would, or could, be bearish but in light of recent market gains more likely natural and healthy correction. Anything more would require a deterioration of forward outlook, an expectation for weak earnings or impending unfavorable conditions... none of which are present now. I remain firmly bullish for the long term but have turned neutral for the near term. It's time for me to sit back and wait to see how deep this correction goes, looking for my next great entry point. Based on today's after-hours earnings reports my guess is not too deep but we'll see.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Peak Earnings

by Jim Brown

Click here to email Jim Brown

Editors Note:

Thursday is the last burst of big cap tech earnings for Q4. Of all the big name tech stocks that reported after the bell on Wednesday, Facebook was the only one to gain in afterhours and that was after it crashed $10 in early trading. The conference call was sufficiently bullish to convince investors to come back into the market and cover their shorts. This rebound may not hold on Thursday. The rest of the big name techs, MSFT, PYPL, QCOM, SYMC, CHKP etc, all traded down in afterhours. EBAY was flirting with a positive close as I write this.

On Thursday AMZN, BABA and GOOGL report. Amazon is always a coin toss on whether Bezos elected to produce profit or not but Q4 is normally a good quarter. Will it be good enough to power it to another new high? The stock closed at $1,451 and a new high on Wednesday. It is up almost $300 for January.

With the market showing increasing volatility and the big cap tech earnings nearly over, I am going to recommend a QQQ put.

I am also profiling a put recommendation on Harley-Davidson. Weak earnings, weak guidance, higher costs, lower shipments. That should be a cloud for weeks to come.



NEW DIRECTIONAL CALL PLAYS

No New Bullish Plays


NEW DIRECTIONAL PUT PLAYS

QQQ - Powershares QQQ - ETF Profile

PowerShares QQQ, formerly known as QQQ or the NASDAQ- 100 Index Tracking Stock, is an exchange-traded fund based on the Nasdaq-100 Index. The Fund will, under most circumstances, consist of all of stocks in the Index. The Index includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market based on market capitalization. The Fund and the Index are rebalanced quarterly and reconstituted annually. ETF description from Powershares.

The chart on the QQQ has shown several failures lately at the $170 level and the volatility is increasing. Rising volatility (strong reversals) is typically a sign of investor indecision see at market tops and bottoms.

If the tech sector decides to take profit from the nearly 10% gain in 2018, the drop could be significant. Uptrend support is around $162.

This is a speculative position on the potential for a post earnings depression decline over the next three weeks.

Buy March $166 put, currently $2.93, no initial stop loss.

28,060 were traded today. That is half the existing open interest.


HOG - Harley Davidson - Company Profile

Harley-Davidson, Inc. primarily manufactures and sells cruiser and touring motorcycles. The company operates through two segments, Motorcycles & Related Products, and Financial Services. The Motorcycles & Related Products segment designs, manufactures, and sells wholesale on-road Harley-Davidson motorcycles, as well as motorcycle parts, accessories, general merchandise, and related services. It offers motorcycle parts and accessories, such as replacement parts, and mechanical and cosmetic accessories; general merchandise, including MotorClothes apparel and riding gears; and various services to its independent dealers comprising motorcycle services, business management training programs, and customized dealer software packages. This segment also licenses the Harley-Davidson name and other trademarks. It sells its products to retail customers through a network of independent dealers, as well as ecommerce channels in the United States, Canada, Latin America, Europe, the Middle East, Africa, and the Asia-Pacific. The Financial Services segment provides wholesale and retail financing services; and insurance and insurance-related programs primarily to Harley-Davidson dealers and retail customers in the United States and Canada. This segment offers wholesale financial services, such as floorplan and open account financing of motorcycles, and motorcycle parts and accessories; and retail financing services, including installment lending for the purchase of new and used Harley-Davidson motorcycles. It also operates as an agent providing point-of-sale protection products, including motorcycle insurance, extended service contracts, credit protection, and motorcycle maintenance protection. Harley-Davidson, Inc. was founded in 1903 and is based in Milwaukee, Wisconsin. Company description from FinViz.com.

Harley-Davidson (HOG) reported earnings of 54 cents compared to estimates for 46 cents. Revenue of $1.05 billion beat estimates for $1.01 billion. These numbers were up from 27 cents and $933.0 million in the year ago quarter. That is where the good news ends. The company said it was going to incur consolidation costs of $170-$220 million and $75 million in capital costs over the next two years. The consolidation of plants would save them $65-$75 million annually after 2020.

The company said Q4 sales declined 9.6% year over year with sales down -11.1% in the USA. Industry sales were down -6.5%. Overall shipments by Harley in 2017 were the lowest in six years. The company said the customer base was getting older and younger customers were lukewarm to the brand. They lowered 2018 guidance for shipments of 231,000-236,000 motorcycles, down from actual shipments in 2017 of 241,498 and its prior 2018 forecast of 241,000-246,000. Shares fell 8% on the lowered guidance.

The outlook is negative. Higher costs, lower earnings, falling shipments. This should be a cloud over the stock for weeks to come.

Buy March $47.50 put, currently $1.89, initial stop loss $52.25.



In Play Updates and Reviews

-287 Point Reversal

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Dow posted nearly a 300-point reversal for the fourth time in the last couple of weeks. The Dow spiked to a +262 point gain at the open and then faded to a -25 point loss shortly before the close. A minor burst of late day buying succeeded in flipping the direction back to a gain. However, I suspect investors are starting to become anxious about the increasing volatility. The Nasdaq closed -43 points below its intraday high and barely posted a gain. The Russell 2000 closed with an 8-point loss.

If it were not for the 114 point contribution by Boeing the Dow would have been down nearly 50 points or more. Since Boeing kept the Dow positive most of the day, that kept the ETFs from being sold. Thursday will be a different day without the Boeing boost.

Facebook fell -$10 after the close despite beating earnings. Users spent 50 million hours less on the site as a result of FB changes to their news feed. That means far fewer ads served in Q1.

After the volatility over the last several days we are down to only three positions. I will be adding new plays tonight but I would caution about jumping in if the market opens lower on Thursday.



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


CNI - Canadian National
The long put position was stopped at $80.25.



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

DLTR - Dollar Tree - Company Profile

Comments:

No specific news. Shares fighting resistance and not giving up any ground despite a weak retail sector.

Original Trade Description: January 27th

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

In late November, DLTR reported earnings of $1.01 that beat estimates for $90 cents and was well above the 70 cents reported in the year ago quarter. Revenue of $5.32 billion beat estimates for $5.28 billion. For the current quarter, they guided for revenue in the range of $6.32-$6.43 billion and analysts were expecting $6.26 billion. Full year earnings guidance was $4.64-$4.73 and $22.2-$22.31 billion. That is up from $4.44-$4.60 in prior guidance. Analysts were expecting $4.69.

Same store sales (SSS) for the system rose 3.3% and beat estimates for $2.4%. Dollar Tree SSS rose 5.0% and Family Dollar sales rose 1.5%. Next earnings Feb 20th.

After earnings, Moffett Nathanson initiated coverage with a buy. Two weeks ago Guggenheim initiated coverage with a buy rating and $125 price target. The Guggenheim buy rating saw the shares spike from $110 to $115 and then traded sideways to down for a week as traders took the unexpected profits.

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 operated 14,334 stores. This is a retail powerhouse and even if the economy weakens, their business will thrive because of the low price point.

Last week Oppenheimer started DLTR with a buy rating and $130 price target. The analyst said the company is going to grow earnings at a double-digit rate on low single-digit comps. They will benefit significantly from the lower taxes and from consumers having more money in their pocket. The acquisition of Family Dollar in 2014 is still being integrated and the company is remodeling all the old stores using "multiple improvements in merchandising and other improvements that will drive up profitability long term" according to the analyst. They currently have about 14,500 stores and management said they can grow to 25,000 stores.

I believe DLTR is going to break out to a new high.

Position 1/29/18:
Long March $120 call @ $3.27, see portfolio graphic for stop loss.


FLIR - FLIR Systems - Company Profile

Comments:

No specific news. Market related decline from the record high close on Friday.

Original Trade Description: January 10th.

FLIR Systems, Inc. develops, designs, manufactures, and markets thermal imaging systems, visible-light imaging systems, locater systems, measurement and diagnostic systems, and threat-detection solutions worldwide. The company operates in six segments: Surveillance, Instruments, Security, OEM and Emerging Markets, Maritime, and Detection. The Surveillance segment provides enhanced imaging and recognition solutions for various military, law enforcement, public safety, and other government customers for the protection of borders, troops, and public welfare. This segment also develops hand-held and weapon-mounted thermal imaging systems for use by consumers. The Instruments segment offer devices that image, measure, and assess thermal energy, gases, electricity, and other environmental elements for industrial, commercial, and scientific applications. The Security segment develops and manufactures cameras and video recording systems for use in commercial, critical infrastructure, and home monitoring applications. The OEM and Emerging Markets segment provides thermal and visible-spectrum imaging camera cores and components that are utilized by third parties to create thermal, industrial, and other types of imaging systems. The segment also develops and manufactures intelligent traffic systems; imaging solutions for the smartphone and mobile devices market; and thermal imaging solutions for commercial-use unmanned aerial systems. The Maritime segment develops and manufactures electronics and imaging instruments for the recreational and commercial maritime market under the FLIR and Raymarine brands. The Detection segment offers sensors, instruments, and integrated platform solutions for the detection, identification, and suppression of chemical, biological, radiological, nuclear, and explosives threats for military force protection, homeland security, first responders, and commercial applications. The company was founded in 1978 and is headquartered in Wilsonville, Oregon. Company description from FinViz.com.

The short description is that FLIR makes night vision equipment for the military. They are the primary provider of these high tech night vision systems and they are very expensive. With the military budget being greatly expanded in 2018 and probably 2019, FLIR is going to be getting a lot more contracts for new equipment and for replacement equipment and parts.

For Q3, FLIR reported earnings of 52 cents that beat estimates for 48 cents. Revenue of $464.7 million rose 14.7% and easily beat estimates for $446 million. The surveillance segment revenues rose 7.6%, instruments rose 10.5% and OEM and emerging markets revenues rose 39.1%. Detection systems revenues rose 18.9%. The security segment sa revenues rise 16.5%. The marine segment was the slacker with only a 4.2% increase. Order backlogs rose 10.1% to $709 million.

The company guided for full year earnings of $1.83-$1.88 up from $1.81-$1.91 with revenue of $1.78-$1.83 billion.

Earnings February 14th.

Shares rallied last week to close at a new high at $48.25 and just over two-month resistance at $47.90. They spiked again on Monday when they announced a high-resolution camera kit for self-driving cars. If this breakout continues, it should produce some short covering given the long period of consolidation after the spike from Q3 earnings in October.

I am recommending an inexpensive February ATM option with earnings on the 13th. I intend to hold this position over earnings unless we have profits to protect by that date.

This is also a longer-term position in the LEAPS newsletter.

Position 1/11/118:
Long Feb $50 call @ $1.55, see portfolio graphic for stop loss.



BEARISH Play Updates (Alpha by Symbol)

CNI - Canadian National - Company Profile

Comments:

No specific news. Shares rebounded with the Dow transports and stopped us out.

Original Trade Description: January 25th.

Canadian National Railway Company engages in rail and related transportation business. The company transports cargo, serving exporters, importers, retailers, farmers, and manufacturers. It operates a network of approximately 20,000 route miles of track spans Canada and mid-America connecting the Atlantic, the Pacific, and the Gulf of Mexico. The company serves the cities and ports of Vancouver, Prince Rupert (British Columbia), Montreal, Halifax, New Orleans, and Mobile (Alabama), as well as the metropolitan areas of Toronto, Edmonton, Winnipeg, Calgary, Chicago, Memphis, Detroit, Duluth (Minnesota)/Superior (Wisconsin), and Jackson (Mississippi) with connections to various points in North America. Canadian National Railway Company was founded in 1919 and is headquartered in Montreal, Canada. Company description from FinViz.com.

CN reported Q4 earnings of 94 cents that missed estimates for 98 cents. Revenue of $2.57 billion also missed estimates for $2.61 billion. Earnings rose only 1.1%. Rail freight revenues per carload declined -4%, petroleum and chemicals declined -4%, grain and fertilizer -1% and intermodal volumes declined -5%. Operating income declined -7%. Higher fuel and labor costs were blamed. Free cash flow declined from $777 million to $457 million Canadian. Debt declined slightly to $11.306 billion. They did hike the dividend by 10% to 45.5 cents Canadian payable March 29th to holders on March 8th. They plan to spend $3.2 billion in 2018 on track repair and upgrades and 60 new locomotives and increase that to 200 over the next three years.

Next earnings are April 24th.

Earnings were Jan-23rd and shares began to decline immediately. They have broken support at $78.75. I am recommending we buy an April put option with a wide stop loss.

Position 1/26:
Closed 1/31: Long Apr $75 put @ $1.35, exit .92, -.43 loss.


NTNX - Nutanix Inc - Company Profile

Comments:

No specific news. Only a minor rebound and closed well off the highs.

Original Trade Description: January 29th.

Nutanix makes infrastructure invisible, elevating IT to focus on the applications and services that power their business. The Nutanix Enterprise Cloud OS software leverages web-scale engineering and consumer-grade design to natively converge compute, virtualization and storage into a resilient, software-defined solution with rich machine intelligence. The result is predictable performance, cloud-like infrastructure consumption, robust security, and seamless application mobility for a broad range of enterprise applications and services. Company description from FinViz.com.

Expected earnings March 1st.

Nutanix is a good company. They have a great software product. Their challenge is a lot of competition and a rapidly evolving market place. They are faced with educating potential customers about the long-term benefits of the products and then convincing them to lay out a lot of money to change the way they run their server farms.

They are moving into a new layer of software development that will converge all factors of enterprise computing and cloud operations. JP Morgan said that moving to a "new software-oriented model" could "create near-term business disruption" give that it will require operational adjustments for new and existing customers alike. The analyst also warned a recent change to the leadership team might be disruptive as well. Given the recent 4-month rally in NTNX shares, there could be some material impact from implementing the new model.

Shares closed at a two-month low on Monday.

Position 1/30/18:
Long March $30 put @ $2.49, see portfolio graphic for stop loss.




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