Option Investor

Daily Newsletter, Monday, 2/5/2018

Table of Contents

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

Market Wrap

And The Correction Deepens

by Thomas Hughes

Click here to email Thomas Hughes


The market correction deepens as profit taking takes control of the market. That's what it has to be, profit taking because economic and earnings outlook remains robust. Today's data shows further expansion in earnings and economics that do little to inspire fear. What I expect to see for the near term is sector rotation as profits are reinvested and new money comes to play, longer term the secular bull market is likely to resume the uptrend. Articles published over the weekend in the Financial Times and Wall Street Journal report equity fund inflows on the rise and hitting all-time highs as forward outlook brightens and investor sentiment improves. With these conditions in play, market reversal doesn't make sense.

Asian markets saw deep declines on their first trading day of the week. The Nikkei led with a drop of -2.5% followed by -1% drops for most others. The move was driven on Friday's Wall Street decline but losses were not universal. The mainland Chinese Shanghai index rose nearly a full percent by the end of the day on optimism for growth. Elsewhere in the region Australia and New Zealand are both preparing for central bank policy statements that are not expected to produce much change.

European markets also fell although the losses were muted relative to Asia and the US. Likely due to their closing time and more specifically because that time coincides with the timing of the US markets test of resistance which occurred mid-morning. The CAC led with a loss near -1.50% with most others close behind.

Market Statistics

Today's trading is brought to us by the letters V, C and the number 5. The V is for volatility, today's action saw the broad market index make several high volume swings of 0.75% (or more). These moves took it down as much as -5% at the low of the day and left it down more than -3.0% at the close and -8% from the recent all-time highs.

The C is for correction as in the market is in the first real correction it has seen in 2 years. This move is not a trend breaker but could result in a period of consolidation and volatility for the market. The 5 is for 5% because that is how deep today's move took the broad market and blue-chip indices.

Economic Calendar

The Economy

Today's single economic release is the ISM Non-Manufacturing Index. The headline index came in at 59.9% and well ahead of expectations. Within the report Activity, New Orders and Employment all saw strong gains in January with growth better than 5 points from the previous month. Activity came in at 59.8, New Orders at 62.7 and Employment at 61.6; all indicative of accelerating growth. Backlogs and delivery times also rose in an indication of growing demand that will help sustain the economy in the coming months.

Moody's Survey of Business Confidence came in at 35 and unchanged from the previous month. The index is trending near long-term highs and well above recent lows, consistent with positive and stable business sentiment. Mr. Zandi says that global businesses are upbeat but there is particular strength in the US which he characterizes as "cheery". The forward outlook remains strong with most businesses saying conditions will be better in 6 months than they are now.

Earnings season is officially half over with reports in from 50% of the broad market S&P 500. Of that, 75 % have beaten EPS estimates and 80% have beaten revenue estimates, both above average. If the percent of companies beating revenue estimates remains unchanged it will be a high dating back more than a decade. The blended rate of growth is 13.4%, down a bit from last week but still quite strong and above any expectation. All 11 sectors are producing earnings growth, 10 of them are beating estimates with the 11th likely to fall in line by the end of the season.

Forward earnings expectations remain robust although a small kink has emerged. Now that tax reform is getting factored into growth estimates are rising but created a situation in which that growth is tilted toward the first three quarters of the year. Estimates for the 1st, 2nd and 3rd quarter have revised up to 16.9%, 18.3%, and 19.8% while the 4th quarter was revised down to 14.2%. It is important to note that these estimates are still heavily skewed by the energy sector which is expected to see earnings growth slow from triple digits to only high double digits this year.

The Dollar Index

The Dollar Index firmed in today's session, gaining about 0.33%, but remains within a narrow near-term range. The near-term range is at a support target that, if broken, could lead to significantly more downside. If however, it is confirmed as support, as it looks like it is, it could easily move back up. Based on this last round of central bank meeting I think the latter scenario is more likely. Nothing has happened to firmly alter current outlook but there has been enough to shift the balance of power into the dollar's favor. The ECB and BOJ were both less hawkish in their tone than what the market was looking for while the FOMC was a bit more. Resistance may be found at $89, a break above there may go to $90.20 and the short term moving average. Short to long-term range-bound trading is likely to persist.

The Gold Index

Gold prices remain under pressure as the dollar firms and the outlook for growth remains stable. The metal has seen some support due to dollar weakness and geopolitics but the conditions that led to that move are evaporating. The dollar looks poised to move up within a long-term trading range while geopolitical hurdles have not led to major fallout. Today's action left spot prices trading flat and below the $1,340/$1,350 resistance zone but also above support at the short-term moving average. The metal appears to be in reversal within its trading range and if so could go as low as $1,280 or $1,260. The indicators are consistent with a fall from resistance and test of support and both are gaining strength. The short-term EMA is the target for support at this time, a break below that would be bearish.

The Gold Miners ETF GDX continues to move lower within its long-term trading range. The ETF created a long red candle shedding more than -1.0% and closing just above support at the midpoint of the range. The indicators are both consistent with a possible move lower although I would expect support to be strong at $22.60. A break below $22.60 would be bearish within the rage with targets near $21 and then $22.00.

The Oil Index

Oil prices fell more than -2.0% as profit taking is spurred on by rising rigs and output. The latest data shows US output rising above 10 million barrels and to levels that offset to a large degree the impact of OPEC's production cut. Add to this the latest rig count data and there is little reason to think supply or capacity is dwindling and that is eroding near-term support. The number of US rigs fell by -1 but that was more than made up for by 4 new rigs in Canada and another 24 elsewhere in the world. Today's action left WTI trading near $64 with a chance of moving lower.

The Oil Index fell more than -3% on oil's decline in price as forward earnings growth and sustainability come into question. The index moved down to my support target at 1,300 where it bounced. The indicators remain bearish so further testing of support is likely in the near term. Longer term, oil prices remain high relative to the past 2 years and at levels fueling earnings growth. If growth outlook remains stable the index should recover from this correction and move back up to test the recent highs. The risk is the oil price outlook, oil prices are expected to fall back to $52mlater this year. When that happens the index is likely to fall with it.

In The News, Story Stocks and Earnings

Wells Fargo made headlines they didn't want. The bank has come under fire from a Federal Reserve which has just today sworn in its new chairperson. The Fed has chosen to curtail Wells' growth outlook and remove four of the current board members. The move comes in the wake of the Fed calls "widespread consumer abuses and compliance breakdowns" and was taken well by the market. The bank, Wells Fargo, once a darling of the market and now fallen from grace, fell more than -8% on the news.

Lululemon announced in the after-hours session that its CEO was stepping down. The move is due to his failure to meet their standards of conduct AKA he used his position for sexual exploit. In the statement, the company's board said it is already looking for a replacement and reiterated current guidance. Shareholders were not reassured, shares fell more than -2.5% on the news.

The VIX made the single largest one day move I think I've ever seen. It moved more than 33%, breaking past all resistance targets and deep into what I would call correctional levels. Price action closed at the high of the day creating a marubozu candle with a shaven top. The move is consistent with a possible reversal but I really have to question the commitment behind it. Based on past price action in this index, and in light of current market outlook, I would say this is a decent time to fade the market. If it doesn't retreat to lower levels we may have a bigger correction brewing.

The Indices

Today was a down day no doubt about it but it wasn't all selling. There were some signs of buying on the way down and a bottom was hit. How strong the bottom is and how long it lasts are yet to be seen. The Dow Jones Industrial Average led in terms of losses. The blue-chip index shed more than 1,500 points at the low, the biggest one day point drop in history, but bounced back to regain some of that loss by the close. Regardless, today's decline surpassed -5% in total depth and closed with a loss near -4.5%. The candle is long and red, come with strong and growing momentum and plenty of room to move lower. Downside target is the long-term moving average and uptrend line which are both near 23,500.

The S&P 500 comes in second with a decline near -4.10%. The broad market index created a large, strong red candle moving down from the short term EMA in confirmation of Friday's crossover. This move is indicative of change within the short term trend with the possibility of moving lower. The indicators are both consistent with lower prices but neither has signaled a reversal. Downside target is the long-term moving average near 2,600.

The NASDAQ Composite posted the 3rd largest decline, just over -3.75% at the close, and created a long strong red candle. Today's move confirms resistance at the short-term moving average and a change in trend that could take it lower in the near to short term. The indicators are both bearish and gaining strength, consistent with today's decline and lower prices to come. A move lower may find support at the long-term uptrend line or the long-term 150 day EMA both of which are near the 6,800 level.

The Dow Jones Transportation Average comes in last with a decline of -3.15%. The transports created a long, strong red candle with shaven bottom indicative of decisive movement. The indicators are bearish and moving lower, consistent with lower prices, although stochastic is reaching oversold condition. A move lower may find support at the long-term moving average near 10,100 or just below along the long-term uptrend line.

The long awaited and hard to predict correction has arrived. It's been two years since the last and is overdue, to say the least. Now that it is here it is time to watch the charts and wait for bottoming and consolidation... when that happens the charts will give us the signals, and that will be the time to act. In the near term expect volatility to persist, the market to reverse on a dime and headlines to instill to fear. So long as forward earnings and economic outlook remain bullish so will I. I am neutral for the near term, bullish for the short and long.

Futures trading hit new lows in the after-hours session, there could be some big declines in the morning.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Flash Crash II Buying Opportunity

by Jim Brown

Click here to email Jim Brown

Editors Note:

If you bought the first flash crash in 2015 and sold a week later you were a winner. In May 2010 the first flash crash erased -1,000 points off the Dow and then rebounded sharply over the next five days. We just had the second flash crash with a -1,600 point intraday dip on the Dow.

There is no guarantee the market will explode higher on Tuesday and actually we could move lower once again at the open. There is no guarantee that it will even rebound this week but more than 80% of the time, whenever there is a very big volatility event, the market does rebound sharply in the days that follow.

The Dow is now -2,271 points below its record high on January 26th. That is an 8.5% decline. Historically, when the indexes hit the 10% level there is a strong rebound on the idea that the "correction" is over.

Buying good companies on a market dip is normally a sound strategy. There is always risk that the dip could continue lower. Buying companies with good relative strength tends to reduce losses if the markets continue to decline. I am recommending some high risk positions today.


These are not going to be a regular play setups. I am going to recommend quite a few in a short form and I will add in all the boring details after the smoke clears tonight. It was very tough trying to find something to buy. It was not because great stocks were not down significantly but the option prices were obscene.

As an example, a stock at $150 could be showing an April $160 call for $10 with a $4 bid. Market makers and investors do not know what is going to happen so they are offering to buy and sell options at what they believe is a ridiculous number just in case somebody decides to trade in those options.

I looked at option montages on more than 100 stocks and the stocks listed below are the only ones I could find that were anywhere close to reasonable.

I wanted to sell a call spread on the VIX but the premiums were impossible. The first graphic is the call premiums for the VIX for March. The bid ask spreads were ridiculous. So I looked at buying puts. The second graphic is the put premiums starting at the $27 strike and they were worse than the calls.

Strike, bid, ask

$27 strike on top.
Strike, bid, ask

I looked at buying some calls on the QQQ and those premiums were also crazy. This is the March call montage with the QQQ at $158. It might be worth buying the $162 call at $5.19 but not with the bid at $2.25. If you wanted to use a stop loss you would lose 60% of the premium on the stop.

Strike, bid, ask

I elected to just use equities. Even the premiums on the SPY were crazy. Everyone knows all these stocks so I am not going to give a big description of the underlying. I am betting the 8.5% decline in the market is going to reverse over the next couple days. We could dip again on Tuesday with the futures up +15 at the beginning of the afterhours session but down -20 as I type this. There could be a big move at the open and a retest of the Monday lows. Anything is possible.

The Hong Kong Hang Seng Index opened -3.2% lower as the sell off spread across the ocean.

There will not be stop losses on these positions so be aware we are flying naked until the volatility evaporates.

I tried to cover multiple sector and mostly Dow stocks. I would expect the Dow to rebound the strongest and drag all the components along for the ride. It may not be on Tuesday but then it could happen at any time.

Don't play all of these recommendations. These are high-risk entries with high premiums. Just pick a couple and take a ride on the wild side.

CAT - Caterpillar - Company Profile

CAT declined to the 100-day average and bounced significantly. They had good relative strength on Friday and I would expect them to rebound significantly as soon as the market turns positive.

Buy APR $160 Call, currently $5.40, no initial stop loss.

FB - Facebook - Company Profile

Facebook fell -$9 or -$14 from the record high last week. This is an earnings juggernaut and unlike most other stocks it has not even reached its near term support yet.

Buy Mar $190 Call, currently $5.00, no initial stop loss.

WMT - Walmart - Company Profile

Walmart declined to rest on the support of the 50-day average at $100. Until today the stock was showing great relative strength.

Buy Apr $105 Call, currently $2.99, no initial stop loss.

INTC - Intel - Company Profile

Intel soared to a new high after earnings but has retraced -10% in the weak market. Their outlook is good and support at $43 should hold on any further market weakness.

Buy Apr $47 Call, currently $1.60, no initial stop loss.

HD - Home Depot - Company Profile

This Dow stock has been rock solid up until last week. Home Depot and Boeing have the most buy recommendations of any other Dow stock. Support at $181 should hold.

Buy Apr $190 Call, currently $6.35, no initial stop loss.

MCD - McDonalds - Company Profile

McDonalds rebounded $10 from the intraday lows. Their business is strong and they are the leader in their sector. Recent guidance was very positive.

Buy Apr $170 Call, currently $4.30, no initial stop loss.

MRK - Merck - Company Profile

McDonalds rebounded $10 from the intraday lows. Their business is strong and they are the leader in their sector. Recent guidance was very positive.

Buy Apr $60 Call, currently $1.05, no initial stop loss.

MSFT - Microsoft - Company Profile

Microsoft has declined nearly 10% from its strong earnings and the stock normally respects the support of the 50-day average. Microsoft will sell significantly more windows software as users upgrade to get away from the Meltdown and Specter hacks in the older processors. Expect a surge in software sales for Q1.

Buy Apr $90 Call, currently $3.40, no initial stop loss.

V - Visa - Company Profile

Visa did not get a big bump from earnings but the business is still booming and the global economic expansion is increasing card purchases overseas. The stock fell back to rest on the 50-day average with additional support at $112.

Buy Mar $120 Call, currently $2.75, no initial stop loss.


No New Bearish Plays

In Play Updates and Reviews

Biggest Decline Ever

by Jim Brown

Click here to email Jim Brown

Editors Note:

The markets posted their biggest decline ever without a single negative headline. There was nothing for market commentators to blame for the decline. This was purely profit taking and the Nasdaq closed at the low for the day with a -273 point drop and the Dow closed +425 points off the lows but still lost -1,175. There are no words to describe the carnage. I warned about the extreme overbought conditions for the prior two weeks and for the last months I warned that the first full week of February could be volatile. This is not exactly what I had in mind but given the overbought conditions, I am not that surprised.

I am backing up the proverbial truck in new plays tonight. I am postponing the new play update schedule until the volatility passes.

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

NKE - Nike Inc
The long call position was entered at the open.

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

QQQ - Powershares QQQ
The long put position was closed at $162.

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

NKE - Nike Inc - Company Profile


Justin Timberlake's halftime show at the Superbowl may have been lackluster but he was wearing Nike Air Jordan III sneakers and that was a definite win for Nike.

Shares did not decline as much early in the sell off but that final flush at the close was a killer. I believe this is going to be a winner when the market rebounds.

Original Trade Description: February 3rd

NIKE, Inc., together with its subsidiaries, designs, develops, markets, and sells athletic footwear, apparel, equipment, and accessories worldwide. It offers NIKE brand products in nine categories: running, NIKE basketball, the Jordan brand, football, men's training, women's training, action sports, sportswear, and golf. The company also markets products designed for kids, as well as for other athletic and recreational uses, such as cricket, lacrosse, tennis, volleyball, wrestling, walking, and outdoor activities. In addition, it sells sports apparel; and markets apparel with licensed college and professional team and league logos. Further, the company sells a line of performance equipment, including bags, socks, sport balls, eyewear, timepieces, digital devices, bats, gloves, protective equipment, and other equipment under the NIKE brand for sports activities; various plastic products to other manufacturers; athletic and casual footwear, apparel, and accessories under the Jumpman trademark; action sports and youth lifestyle apparel and accessories under the Hurley trademark; and casual sneakers, apparel, and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron, and Jack Purcell trademarks. Additionally, it licenses agreements that permit unaffiliated parties to manufacture and sell apparel, digital devices, and applications and other equipment for sports activities under NIKE-owned trademarks. The company sells its products to footwear stores, sporting goods stores, athletic specialty stores, department stores, skate, tennis and golf shops, and other retail accounts through NIKE-owned retail stores and Internet Websites, mobile applications, independent distributors, and licensees. The company was formerly known as Blue Ribbon Sports, Inc. and changed its name to NIKE, Inc. in 1971. NIKE, Inc. was founded in 1964 and is headquartered in Beaverton, Oregon. Company description from FinViz.com.

Expected earnings March 22nd.

Nike has defied gravity recently after being severely depressed back in October. There are multiple reasons. They have received upgrades based on their decisions to reduce their SKUs, limit their number of distributors and require retailers to merchandise more effectively. It did not hurt that Bill Ackman took a minority position and is recommending changes. Lastly, all the Olympic athletes, except for the North Koreans, will be wearing Nike clothes and sports gear. Nike will get a big advertising boost from the games.

Nike shares did not decline materially last week when the Dow was imploding. This suggests they should rise again in a positive market. I am picking an inexpensive option and we will not use a stop loss over the first several days just in case the market volatility continues.

This is a risky position because of the market instability. Do not enter this position if you cannot afford to risk the $2.

Position 2/5/18:
Long April $70 call @ $1.94, see portfolio graphic for stop loss.

PYPL - PayPal - Company Profile


Shares were only down about 19 cents at 3:PM but cratered with the market at the close.

Original Trade Description: February 3rd

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. PayPal Holdings, Inc. was founded in 1998 and is headquartered in San Jose, California. Company description from FinViz.com.

Paypal shares were crushed last week after Ebay said they were going to phase out the payment processor by 2023. Ebay is going to become the merchant of record (MOR) and handle payments through Dutch payment processor Adyen after 2020. Paypal sold off hard despite the long term transfer.

This is 2018. Nothing is changing for the next two years. In 2021 Ebay will be the "default" payment processor but Paypal will remain an option in the checkout process. Customers with Paypal accounts will more than likely continue to process their payments through Paypal. For Ebay the conversion process is going to take years. Paypal is guaranteed to remain an option on checkout through 2023 or 5 years from now. In reality they will probably always be a payment option on Ebay.

Paypal has more than 200 million users and 18 million retailers that accept Paypal. Ebay cannot just turn them off or purchasers on Ebay would revolt.

The Paypal CEO put it this way. Ebay is 13% of our total payment volume (TPV) and growing at 4% per year. The other 87% of our TPV is growing at 23% per year.

On the positive side once the agreement with Ebay expires in 2020, Paypal can then become the MOR for any number of other retailers. They are currently prohibited from doing that now. The CEO said there are at least 10 top global marketplaces that process tens of billions of TPV per year where Paypal could become the primary MOR. These would be far more valuable than the slow growing Ebay revenue at 4% per year.

The CEO said retailers could now begin to see Paypal take on a more aggressive posture now that the split with Ebay is finally winding down.

Paypal guided for 2018 for revenue growth of 15-17% and earnings growth of roughly 25%. There is nothing wrong with Paypal and the stock was punished unfairly.

Position 2/5/18:
Long April $80 call @ $2.52, see portfolio graphic for stop loss.

BEARISH Play Updates (Alpha by Symbol)

DIA - Dow SPDR ETF - ETF Profile


I dropped the DIA put from daily updates last month but recommended leaving it open just in case disaster struck. I think we can call Monday's market drop a clear disaster. The put is a March $230 and I seriously doubt we are going much lower. I am recommending we close this position at the open on Tuesday.

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.

HOG - Harley Davidson - Company Profile


No specific news. Shares have fallen to support at $46 and the decline today was anemic. I am recommending we close the position.

Original Trade Description: January 31st.

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.

Position 2/1/18:
Long March $47.50 put @ $1.99, see portfolio graphic for stop loss.

NTNX - Nutanix Inc - Company Profile


No specific news. Only a minor decline but closed at a 2-month low.

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.

QQQ - Powershares QQQ - ETF Profile


The QQQ hit our profit stop at $162 and this position is closed.

Original Trade Description: January 31st.

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.

Position 2/1/18:
Closed 2/5: Long March $166 put @ $3.13, exit $6.25, +$3.12 gain.

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