Option Investor

Daily Newsletter, Tuesday, 1/26/2016

Table of Contents

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

Market Wrap

Pre Fed Announcement Drift

by Jim Brown

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The historical trend for a positive market the day before a Fed announcement was in full bloom today and helped by positive earnings from Dow components 3M, JNJ and PG.

Market Statistics

The positive earnings from Dow components and another short squeeze in oil prices helped to overpower the major losses from Asia overnight. Chinese economics plunged again and the impact was very negative. Data showed that steel exports fell to a four-year low. China's rail freight volume declined -11.9% in 2015 compared to -3.9% in 2014.

The World Bank slashed price estimates for 80% of the world's commodities due to declining demand. For 37 of the 46 commodities the bank monitors, they revised the estimates lower for 2016. Metals are expected to decline another -10% after a -21% drop in 2015. They cut their oil price forecast for 2016 from $51 to $37 and they may still be higher than most analysts.

Fortunately, investors were focused on a flood of U.S. economic reports and earnings. Case Shiller home prices rose +5.8% for November, up from +5.5% in October. Offsetting that was a drop in the FHFA Purchase Price Index from +6.1% in October to 5.9% in November. I believe as all know that housing prices are rising because there is a shortage of inventory so those reports should not have come as a surprise.

On the downside, the Richmond Fed Manufacturing Survey declined from +6 in December to +2 in January. That equates to a reading of 53.2 on the ISM Manufacturing Index. The positive numbers were a rebound from negative numbers in the prior three months. With the headline number for January, dropping to +2 it is not very far from negative territory again. The Richmond Fed Services Survey rose from zero to 10.

New orders declined from 8.0 to 4.0 and backorders rose from zero to +4.0. Employment declined from 12 to 9. However, the gap between new orders and inventory declined from +19 to -20. That means inventories are rising sharply compared to sales.

The Texas Service Sector Outlook Survey for January fell from 3.3 to -10.4 and well into contraction. This comes after the Manufacturing Outlook Survey fell from -20.1 to -34.6 on Monday. That is the lowest reading since the financial crisis. All of the internals on the manufacturing and services surveys declined.

Texas business activity is crashing as a result of the continued decline in the energy sector and all the businesses that support and supply that sector.

Texas Manufacturing Survey

The final Consumer Confidence for January came in at 98.1, up from 96.5 in the prior release. This is the second month of gains and likely driven by the sharp drop in gasoline prices with the national average at $1.83 today. Oklahoma has the lowest average at $1.50.

The confidence internals showed that present conditions were flat at 116.4 while the expectations component rose from 83.0 to 85.9. Those respondents planning on buying a car rose from 11.3% to 12.2%. Homebuyers rose from 6.2% to 6.6% and appliance buyers rose from 51.5% to 52.4%.

The big event on the calendar for Wednesday is the Fed announcement at 2:PM. There is no post meeting press conference. The Fed is expected to try and calm markets by suggesting they could wait on further rate hikes until June. If they stick with their measured pace, four hikes in 2016, which suggests a March rate hike the market will probably be disappointed.

The GDP on Friday is also important with Atlanta Fed GDPNow real time forecast at only +0.7%.

Thank you 3M (MMM). The company reported earnings of $1.80 that easily beat estimates for $1.66. Revenue of $7.3 billion beat estimates for $7.23 billion. The company said the impact of the dollar on the revenue of their various segments was very strong. Revenue declined in Health Care (-0.8%) as a result of the dollar, Consumer (-2.4%), Industrial (-6.3%), Safety and Graphics (-5.3%) and Electronics and Energy (-11.7%).

3M affirmed guidance for $8.10-$8.45 in earnings for 2016 and they plan to accelerate their stock buyback. 3M shares rose $7.21 on the news to add about 50 Dow points.

Johnson & Johnson (JNJ) posted earnings of $1.44 compared to estimates for $1.42. Revenue of $17.81 billion missed estimates slightly for $17.9 billion. The company said stronger than expected demand for blockbuster drugs like Remicade for arthritis and psoriasis drug Stelara. This was the 20th consecutive earnings beat by JNJ. The company provided guidance for $6.43-$6.58 per share for 2016 with revenue of $70.8-$71.5 billion. That would appear to be another strong year. Shares rose $4.78 to add more than 30 Dow points.

Dow component Procter & Gamble (PG) posted earnings of $1.04 that beat estimates for 98 cents. Revenue declined -9% to $16.9 billion and barely missing estimates of $16.94 billion. The revenue was hurt by weaker currencies in Russia, Brazil, Mexico and elsewhere. Gross margins rose by +170 basis points and expenses fell by -180 basis points. The company warned the continued strong dollar would pressure 2016 revenues. Shares rose +2 points to add about 14 points to the Dow.

Dow component DuPont (DD) reported earnings of 27 cents that beat estimates for 26 cents but that was a decline from the 63 cents earned in the year ago period. Revenue of $5.299 billion missed estimates for $5.409 billion with the dollar a major factor. The company said it saw no hurdles for the merger with Dow and no need for asset sales. Shares rose 47 cents.

Freeport McMoran (FCX) posted a loss of $3.47 per share but that included $3.45 in charges. The adjusted loss was 2 cents compared to estimates for a 14-cent loss. The loss for the full year was 8 cents compared to estimates for a loss of 14 cents. Revenues declined -27.5% to $3.795 billion and missed estimates for $4.003 billion. Freeport said it would reduce its debts by $5-$10 billion through asset sales or joint ventures. Freeport has consolidated debt of $20.4 billion. Shares rallied 7% but that was only 26 cents.

After the bell, Apple (AAPL) reported earnings of $3.28 compared to estimates for $3.23. Revenue of $75.9 billion missed estimates for $76.54 billion. The strong dollar had a $5 billion impact to revenues, which in a constant currency basis would have been over $80 billion and a growth rate of +8% instead of 2%. The company said it sold 74.8 million iPhones and missing expectations for 75.46 million. They sold 74.5 million in the year ago quarter so a minor beat. Sales of iPads were 16.1 million compared to expectations for 17.93 million. Macs sold 5.3 million compared to estimates for 5.8 million.

CEO Tim Cook said "extreme conditions unlike anything we have experienced before just about anywhere we look" impacted commodity prices and weakened currencies. About two thirds of Apple's revenue is generated outside the USA and currency fluctuations have a "very meaningful impact on our results." Cook said they saw a record number of switchers from Android devices and they had their best quarter by far for Apple TV. Apple watch sales hit a new record, not hard since it is a brand new product, and customers spent billions with Apple Pay.

Cook warned for Q1 for revenue in the range of $50-$53 billion compared to already lowered analyst estimates for $55.61 billion. That is well below the $58 billion in Q1-2015. This will be the first ever decline in iPhone sales. A Nikkei report said production of iPhones was down -30% in the January-March quarter. Apple's lowered guidance suggests Q1 iPhone sales of 45-50 million, down from 61.2 million in Q1-2015. There are currently more than 1 billion active Apple devices.

Cook said the company is "long term and very optimistic" about its business in China. They are opening their 33rd Apple store in China this week. However, Cook said they are beginning to see some economic softness in China, most notably in the Hong Kong area. Revenue in China rose +14% over the prior year but 47% quarter to quarter. More than 24% of Q4 revenue came from China. Back in the Q3 earnings Cook said they saw no signs of economic slowdown in China so conditions are changing.

Shares of Apple declined -$3 in afterhours to $97.33 and S&P futures opened down -13. Nasdaq futures crashed -36 at the open. The odds are good that we are going to see lower lows on Apple in the coming days. The comments about weakness in China were probably as destructive as the warning on sales.

The big names out tomorrow with earnings are EBAY, JNPR, QCOM, ANTM, BA and UTX. Wednesday is a big day for earnings and hopefully some positive results can overcome the negative sentiment from Apple.

Crude oil rebounded again to $32.41 intraday after a report broke that there was a potential deal brewing between OPEC and Russia to cut global production. The actual report quoted the oil minister from Iraq saying Saudi Arabia and Russia are "showing signs of flexibility" on reducing the current oil glut. "We have seen more flexibility from the brothers in Saudi and a change in tone from Russia."

Russia has never previously agreed to cutting production or even discussing a production cut. Saudi has routinely said they would not cut production alone, which would cede market share to rivals, including Russia. The challenge would be how to verify production cuts from Russia. You cannot just take Putin's word for it.

Just the thought of a possible change in tone from Russia triggered another short squeeze that lifted oil from under $30 to the high of $32.41. Late in the day additional news headlines suggested the comment was overblown and not to expect an agreement in the near future and prices declined. The next OPEC production meeting is in June.

After the bell the API inventory report showed a monster gain of +11.4 million barrels for last week. The EIA report on Wednesday morning is also expected to show a giant increase.

Goldman's Jeffery Currie, global head of commodities research, warned that crude storage is near capacity restraints. Cushing Oklahoma, the delivery point for WTI, is at record levels and only has about 3 million barrels of capacity. They actually need that for operational reasons as they blend different grades of oil to ship to the coast. The lack of storage means speculators cannot buy oil and store it in hopes of higher prices in the months ahead. If there is nowhere to store it, nobody is going to buy on speculation.

Satellite tanker trackers have reported movement from the tankers storing oil for Iran in the Persian Gulf. Some of them have started moving toward the open ocean indicating the oil has been sold or is at least in play as it steams toward ports of likely buyers.

Hess Corp (HES) reported it was cutting capex spending by 40% for 2016, which is another 20% decline from the levels reported in October. The company is maintaining its forecast for production between 330,000-350,000 bpd in 2016. Hess spent $4 billion in 2015.

The constant stream of new capex cuts after a year of prior cuts shows that major companies are expecting crude to be lower for longer.

Wells Fargo (WFC) declared a dividend after the close of 37.5 cents and said the company would increase its stock buyback authorization to $17.5 billion. That is an increase of about 350 million shares to be repurchased. WFC has 5.1 billion shares outstanding. Shares did not move in afterhours trading.


The S&P recovered from its Monday plunge to 1,875 with a rebound to resistance at 1,907. This has turned into a material problem with that being the high point for the last three days. With the S&P futures at 1,888 overnight we will open well under that psychological 1,900 level as well.

There is a battle in process and indecision is extreme. The rebound from the three weeks of selling has settled into a very right range and we have had three days of 200-point moves in opposite directions on the Dow. The sellers keep trying to force it back down and the two short squeezes have lifted it back up.

Unfortunately, the 1,907 level on the S&P is not really the critical level. That belongs to 1,950 and should be a much harder level to cross.

For tomorrow the Fed announcement at 2:PM is going to be the potential turning point. Typically, we see a slight melt up ahead of the announcement, severe volatility after the announcement and then some sort of directional move. Since the Fed decision is assumed to be no hike and attempt to calm the waters we may not get any post Fed move if that comes to pass. Anything else could be disappointing for the market.

Normally when someone tries to predict post Fed market action there is always some unknown headline or twist on the Fed news that sends the market off in the opposite direction. I am not going to predict the direction but I do expect Thursday and Friday to be directional. That means we should break out of our current range and see several days in that direction.

The Dow has two components reporting earnings before the open. Those are Boeing and United Technologies. Since Boeing was up so strong, +$4.00 today on an announcement about a new rocket, I doubt their earnings will power them much higher but I could be surprised. United was in the middle of the pack but even a big surprise may not give them a big lift.

The wildcard is Apple with the big decline in afterhours. Most investors do not trade in afterhours. They will read the news tonight that Apple sales will decline in Q1 and revenue is going to be way down and many will believe the decade of growth is over and begin to liquidate positions. While Apple is still a monster company with strong earnings and mountains of cash the growth expectations have been damaged. This could cause Apple to be a drag on the Dow for the next few days.

The Dow is fighting its own battle with 16,000 and has traded on both sides for the last four days. The close at 16,168 would take a material decline to put us back under that level but the Dow futures are down nearly -100 and that could be the start of Wednesday's troubles.

Initial resistance is 16,180 where we have been stalled for the last six days. Support is 15,850.

On the Nasdaq resistance is 4,590 and 4,605 with initial support at 4,503 followed by 4,468. The big tech earnings are after the bell on Wednesday leaving the index to be knocked around by Apple during the day.

The biotech sector was down again today. Investors in that sector are schizophrenic and do not know who they are from day to day. The volatility there has been very heavy and today's drop barely saw any dip buyers. The $BTK has support at 3,000 and closed at 3,116. If the biotechs are not in rally mode, the Nasdaq will find it tough to mount any gains even if Apple is not crashing.

The Russell 2000 posted a strong gain of +20 points but failed at the same relative level as the rest of the broader indexes. That is 1,020 on the Russell. I am encouraged that the Russell stocks are no longer dragging the market lower but are participating in the rebounds.

It would appear that we are headed lower at the open on Wednesday. The pending FOMC announcement at 2:PM could provide some lift if the "Pre FOMC Announcement Drift" is still in play. However, any new positions would just be a coin toss until we see what happens after the announcement. There is no harm in waiting until Thursday to launch new positions. Hopefully we will then have a direction that is tradable.

The advertising for the EOY subscription special is over. However, we still have SEVEN sets of mouse pads and books left over so I will leave the link open until those are gone in case anyone wants to take advantage of the savings.

Enter passively, exit aggressively!

Jim Brown

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New Plays

Juggling Hand Grenades

by Jim Brown

Click here to email Jim Brown
Trying to bet on market direction over the next 36 hours is more dangerous than juggling hand grenades.

With Apple warning on earnings and missing on revenue the Dow and Nasdaq will likely open the day lower on Wednesday. The S&P futures are down -11 as I type this. Add in the Fed announcement at 2:PM and there is a significant chance of high volatility in both directions.

The market has had trouble finding its way since the big decline last Wednesday. The last three trading days have seen Dow moves of over 200 points each and in opposite directions.

There is no reason for an intelligent investor to try and enter the market with the traffic moving so quickly in both directions. I am not recommending any new plays until Wednesday evening and only then if the market appears it may go directional.


No new bullish plays


No new bearish plays

In Play Updates and Reviews

Get Shorty!

by Jim Brown

Click here to email Jim Brown
Editors Note:

The market rallied again on the back of another short squeeze after positive earnings from 3M and big gains in JNJ, GS and BA.

With four Dow components reporting earnings before the open the Dow received a sentiment boost and the +7 point gain by MMM added 50 Dow points.

Whether the market continues higher depends on earnings and economics the rest of the week plus the commentary from the Fed on Wednesday afternoon. This is a very uncertain market with alternating 200 point gains/losses on the Dow as the S&P wanders around just under resistance at 1900-1910.

We have not yet picked a direction after the three-week decline to start the year.

Current Portfolio

We are changing the format slightly this week. The entry date, earnings date, current price, change for the day and stop loss are all in the portfolio graphic. They will no longer be listed in the individual play descriptions. Everything you need is now available in a single location.

Current Position Changes

KRE - Banking ETF

The short entry on KRE was entered at the open today.

Stop Loss Updates

Check the graphic above for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline.

BULLISH Play Updates

SWHC - Smith & Wesson

Company Description


S&W continues to fight resistance at $21.25. The spike at the open on Monday was sold but shares inched up once again today. Once over that resistance we should be good to go until it test the $22.65 level.

Original Trade Description: January 21st.

Smith & Wesson is a gun manufacturer. Business has been very good but they announced this week they are looking for some acquisitions in other outdoor areas so their business is not so tied to the cycles in gun sales. Whenever an administration begins talking about more gun control measures their sales soar. When there are no politicians trying to ban guns we see sales decline.

The current administration has been the best for gun sales since the Clinton assault weapons ban. The FBI said the increase in the number of background checks for gun purchases has been so strong that their system is overloaded and they have had to halt appeals for denials until they can add some more personnel.

December saw a record of 3.3 million background checks, which was more than 500,000 above the prior record for December in 2012. On Black Friday alone there was a record 185,345 checks and a new single day record.

While this surge in gun sales has powered Smith & Wesson to record profits the company realizes that the election of a pro gun administration will slow those sales. For this reason S&W announced this week they were looking into getting into the $60 billion outdoor sporting goods market. They will likely be trying to acquire brands that they can add to their lineup that are not directly related to guns.

S&W said they were on the hunt for candidates but did not have any announcements at the current time.

This is a good move for S&W for obvious reasons. By branching out into other products, it will also help widen the S&W brand even if those new products have their own brand names.

Shares spiked to record highs over $26 when they reported earnings in early January. The post earnings depression appears to be over and shares dropped back to support at the 100-day average. This is a good spot for people to launch new long positions and once the current market weakness is over the small cap stocks like S&W with strong growth will be in demand.

Earnings March 8th.

Position 1/25/16:

Long SWHC shares @ $21.35, see portfolio graphic for stop loss.


Long June $23 call @ $1.75, see portfolio graphic for stop loss.

UFPI - Universal Forest Products

Company Description


Nice rebound on UFPI with a $2 gain but still fighting resistance at $67.50. We need to break through that level to really add some gains on short covering.

Original Trade Description: January 16th

UFPI recently experienced a -20% pullback from its December 2015 highs but shares are still trading at levels not seen for almost ten years. More importantly it appears that the correction is over.

UFPI is in the industrial goods sector. According to the company, "Universal Forest Products, Inc. is a holding company with subsidiaries throughout North America and in Australia that supply wood, wood composite and other products to three robust markets: retail, construction and industrial. The Company is headquartered in Grand Rapids, Mich., and is celebrating its 60th year in business."

The big surge in the stock in mid October was a reaction to the company's Q3 earnings report. It was a record-breaking quarter for UFPI in spite of a -17% drop in the lumber market. Here is an excerpt from the company's earnings press release:

"UFPI announced record-breaking 2015 third-quarter results. The Company posted the best third-quarter earnings in its history with net earnings attributable to controlling interests of $25.6 million, an increase of 32.9 percent over the same period of 2014. It also posted the highest year-to-date net earnings in its history, at $61.7 million. Earnings per diluted share were $1.26 in the third quarter of 2015, up from $0.96 in the third quarter of 2014. Net sales of $762.3 million for the third quarter were up 6.8 percent over the same period of 2014."
The stock has been trading very technically with investors keying in on support and resistance levels. Shares of UFPI did see a rough December after a downgrade on December 8th. However, after a -20% pullback investors started buying UFPI last week. That is noteworthy since the broader market was crashing lower last week. You'll notice on the daily chart that UFPI found support at its simple 200-dma and delivered a pretty good gain for the week.

We think this bounce continues and want to hop on board. There is very short-term resistance at $67.00. Tonight we are listing a trigger to launch bullish positions at $67.15. Investors may want to limit their position size to reduce risk since UFPI has proven itself to be somewhat volatile.

FYI: UFPI does have options but the spreads are too wide to trade them.

Position 1/19/16:

Long UFPI stock @ 67.37, see portfolio graphic for stop loss.

BEARISH Play Updates

KRE - SPDR S&P Regional Banking ETF


The short squeeze powering the markets today also lifted the regional banks ahead of the FOMC meeting. If the Fed does not hike and tries to calm the market with dovish talk about future hikes we could see the banks decline again.

Original Trade Description: January 25th

We were knocked out of the long position on this ETF with the drop below support this morning. The keywords in that sentence were "drop below support." Typically, when long-term support breaks we are looking at a continued decline that could be material.

Regional banks are tanking because of their loans to energy companies and to firms that service those energy companies. That includes restaurants, service stations, apparel stores, mom and pop businesses of all types that catered to the families of the 150,000 energy workers that have been laid off.

In addition, the U.S. manufacturing sector is in recession. With energy, manufacturing, transportation already in recession the odds are increasing that the country is going to be headed in that path as well.

Today, the Texas Manufacturing Outlook Survey for January fell from -20.1 to -34.6 and the lowest level since 2008. The outlook for the U.S. economy is not good and that means regional banks could be facing rising defaults.

I hate to go straight from a long position to a short position but in this case, the situation appears to be right. We entered the long position on a dip to support at $35. There was an immediate rebound but then that support failed today based on economic news.

I am recommending we short the KRE ETF with a tight stop at $36.45.

Position 1/26/16:

Short KRE @ $34.38, stop loss $36.45.


Long March $33 put @ $1.15, stop loss $36.45

OIH - Oil service Index

ETF Description


Another short squeeze in WTI faded in late afternoon and the OIH is moving lower. Wednesday is inventory day and a big gain in inventories could push crude lower.

Original Trade Description: January 20th

The OIH ETF represents 25 oil service stocks including Schlumberger, Halliburton and Baker Hughes. Once you get past those three largest holdings the rest of the pack has little balance sheet strength and we could easily see multiple bankruptcies or credit defaults. The bottom of the list contains Tidewater (TDW), Carbo Ceramics (CRR), Seadrill (SDRL), etc. The risk of default is high for the bottom half of the list. View Full List

The "perceived" bounce in oil prices by shifting to a new contract at $28.81 instead of the $26.55 close may cause some investors to buy energy stocks in a knee jerk reaction. Do not be fooled. The bottom in oil prices is still ahead.

The API Inventory report tonight after the close showed a larger than expected gain of 4.6 million barrels of oil and 4.7 million barrels of gasoline. The more accurate EIA inventory report comes out at 10:30 on Thursday.

The inventory build season runs from January 6th to the end of April. Last year inventories rose a whopping +106 million barrels to record levels during that period. There is not likely to be another rise like that because there is very little available storage capacity in the USA. Canadian oil is now selling for $15 below WTI because all the Midwest storage locations are virtually full. Bakken oil is selling for $8-$10 below WTI prices for the same reason plus transportation is expensive to other locations.

I believe we will see WTI at $25 or below over the next two months and possibly even $20 because of the price pressure from the Iranian oil sales. They have about 50 million barrels stored on tankers and that oil is now available for sale. Prices are going lower.

This will probably drag the equity market lower as well but eventually there will be a disconnect between equities and oil prices at some level. The constant headlines about lower oil prices will eventually become old news. Of course, key levels like $25, $22, $20 could cause some additional market weakness.

Energy stocks will continue to react to the low oil prices because every dollar of decline is very painful and impacts their ability to service debt and keep the doors open. Analysts claim as many as 50% of the U.S. producers could default or worse if prices remain low for very long.

I am recommending we short the OIH and expect to hold the position until April. The plan will be to close it about the time inventories top out in early April. We could see a minor uptick at the open on Thursday because of the new front month contract. When inventories are announced at 10:30 we should see a decline in WTI if they are high as expected.

Position 1/21/16:

Short OIH shares @ $21.26, see portfolio graphic for stop loss.


Long July $20 put @ $1.92, see portfolio graphic for stop loss.

SSYS - Stratasys Ltd

Company Description


Big $2 drop at the open but also a big recovery. The stock was downgraded by JP Morgan from buy to neutral. JPM said demand for the parts that DDD and SSYS make is dying and competition is fierce. They cut the price target to $19. UBS cut expected earnings in half for SYS to 30 cents. The bank cut the rating to sell and price target to $16.

Original Trade Description: January 22nd.

Stratasys is a maker of 3D printing systems and parts. The company makes parts for other equipment using its proprietary 3D printing systems. They manufacture for sale production systems under the Dimension, Objet,Fortus, Polyjet, SolidScape and MakerBot brands.

While the 3D printing business is expanding in scope and acceptance all around the world the excitement over 3D stocks has faded. XONE, DDD and SSYS shares have been fading since their peaks back in 2013. Stratasys closed at a new six-year low on Friday despite a minor rebound with the rest of the market.

I debated which 3D stock to short and picked SSYS because of the identifiable trend and it has farter to fall than competitor 3-D Sys Corp (DDD). That stock is cheaper at $7.41 if you would rather have less at risk.

The decline in Stratasys accelerated since mid December. There have been two small rebounds along the way. I see the rebound from the 6-year lows last week as an opportunity for a short at a higher level. This gives us an obvious stop loss at $19.50 and the odds are good we will see a new low in the weeks ahead.

Earnings are March 2nd.

Position 1/26/16:

Short SSYS shares @ $17.45, initial stop loss $19.50


Long March $15 put @ 95 cents, initial stop loss $19.50

VXX - VIX Futures ETF


VXX declined slightly because market fade in the afternoon lifted volatility slightly ahead of the Fed. Be patient. The volatility will eventually die.

Original Trade Description: August 24, 2015

The U.S. stock market's sell-off has been extreme. Most of the major indices have collapsed into correction territory (-10% from their highs). The volatile moves in the market have investors panicking for protection. This drives up demand for put options and this fuels a rally in the CBOE volatility index (the VIX).

You can see on a long-term weekly chart that the VIX spiked up to levels not seen since the 2008 bear market during the financial crisis. Moves like this do not happen very often. The VIX rarely stays this high very long.

How do we trade the VIX? One way is the VXX, which is an ETN but trades like a stock.

Here is an explanation from the product website:

The iPath® S&P 500 VIX Short-Term Futures® ETNs (the "ETNs") are designed to provide exposure to the S&P 500 VIX Short-Term FuturesTM Index Total Return (the "Index"). The ETNs are riskier than ordinary unsecured debt securities and have no principal protection. The ETNs are unsecured debt obligations of the issuer, Barclays Bank PLC, and are not, either directly or indirectly, an obligation of or guaranteed by any third party. Any payment to be made on the ETNs, including any payment at maturity or upon redemption, depends on the ability of Barclays Bank PLC to satisfy its obligations as they come due. An investment in the ETNs involves significant risks, including possible loss of principal and may not be suitable for all investors.

The Index is designed to provide access to equity market volatility through CBOE Volatility Index® (the "VIX Index") futures. The Index offers exposure to a daily rolling long position in the first and second month VIX futures contracts and reflects market participants' views of the future direction of the VIX index at the time of expiration of the VIX futures contracts comprising the Index. Owning the ETNs is not the same as owning interests in the index components included in the Index or a security directly linked to the performance of the Index.

I encourage readers to check out a long-term chart of the VXX. This thing has been a consistent loser. One market pundit said the VXX is where money goes to die - if you're buying it. We do not want to buy it. We want to short it. Shorting rallies seems to be a winning strategy on the VXX with a constant trend of lower highs.

Today the VXX spiked up to four-month highs near $28.00 before fading. We are suggesting bearish positions at the opening bell tomorrow. The market volatility is probably not done yet so we are not listing a stop loss yet.

Position 8/25/15:
Short VXX @ $21.82, no stop loss.

Second Position 9/2/15:

Short VXX @ $29.01, no stop loss.

Trade History
11/07/15 adjust exit target to $16.65
11/02/15 adjust exit target to $16.50
10/19/15 add an exit target at $16.25
10/15/15 planned exit for the October puts
10/14/15 if you own the options, prepare to exit tomorrow at the close
09/02/15 2nd position begins. VXX gapped down at $29.01
09/01/15 Double down on this trade with the VXX's spike to 6-month highs
08/25/15 trade begins. VXX gaps down at $21.82

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