Option Investor

Daily Newsletter, Tuesday, 5/2/2017

Table of Contents

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

Market Wrap

Apple Misses

by Jim Brown

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The market was very calm ahead of Apple's earnings on fears they would miss and implode.

Market Statistics

Apple reported earnings of $2.10 compared to estimates for $2.02. Revenue rose 4.6% to $52.9 billion to a new Q1 record but missed estimates for $53.02 billion. Revenue from Greater China fell -14.1% to $10.73 billion as lower priced competitors steal market share.

Revenue from the services business rose 17.5% to $7.04 billion and well over estimates for a 13% increase. The "other" category that contains Apple TV, Apple Watch, and Beats headphones saw revenue rise 18% to $7.04 billion.

The problems came from weak iPhone sales. They sold 50.76 million, down from 51.19 million in the year ago quarter and below estimates for $52.27 million. Many buyers are waiting for the iPhone 8 later this year, which is expected to have some significant new features. The average selling price for a phone was $655 and analysts were expecting $666.

iPad sales declined -13% to 8.9 million but Mac sales rose 4% to 4.2 million units.

Apple guided for Q2 revenue of $43.5 to $45.5 billion and analysts were expecting $45.6 billion. The company is expected to sell 42.31 million iPhones in Q2.

In an effort to ease the pain from the revenue miss, Apple said it was boosting its dividend by 10.5% to 63 cents per share and boosted their share buyback authorization to $210 billion. They plan to return $300 billion to shareholders by the end of March 2019. At $13.2 billion in annual dividends, Apple is now the world's largest dividend payer.

I personally do not believe the iPhone sales miss is relative. Everyone knows that many buyers are holding off in order to buy an iPhone 8. There are multiple sources reporting various production delays in components that could push deliveries out until late November or even farther. Some claim the problems are so serious that Apple could skip the model 8 and announce a 7s instead. This would push the 8 into 2018 and it would be a major blow to the stock. Others believe Apple will still announce the 8 but with a long lead-time for delivery. I am sure they do not want a problem like Samsung's exploding battery so they want to get it right the first time. One of the production issues is reportedly overheating with the wireless charging. Since it is too late to remove that feature, they will have to figure out how to make it work and that could mean changes to components.

Apple shares fell from the $147.51 close to $144.40 in afterhours. That will be a 21 point drag on the Dow if the drop carries over into Wednesday's open.

Apple was the only topic of discussion in the news today but there were other events. Auto sales for April rose only slightly from 16.6 million to 16.9 million and missed estimates for 17.3 million. This represents a 3% decline from year ago levels and a -2.3% decline from the recent average. The peak was in December at 18.4 million annualized.

Manufacturers offered record high incentives last month but inventories are still rising. They currently have more than 90 days of inventory in stock and 60 days is the target level. They increased incentives but prices were still up 2% from year ago levels. Raise the price and offer discounts, nothing new there. Incentives averaged $3,500 per vehicle and approximately 10% of the sales price. Light truck & SUV sales were 10.46 million, up from 10.3 million. Sales are running at their slowest pace since last August. Auto sales of 6.42 million were also up slightly from 6.31 million but are running at the lowest rate since November 2011.

With oil prices falling, the low gasoline prices should be with us for a few more weeks and now that the weather is better, the shopping season is just beginning.

The ISM NY headline number declined from 56.4 to 55.8 for April. The quantity of purchase component declined from 57.4 to 48.4 and the employment component fell from 47.7 to 45.1. While the report is still positive, analysts do not like to see declining numbers. Anything over 50 is expansion and under 50 is contraction. That means the two main components above are both in contraction territory. The report was ignored.

Wednesday is a big day for events with the ADP Employment, Fed decision and the ISM Nonmanufacturing Index. The Fed is not expected to make any changes. This will be all about their guidance. The ADP report is expected to show a gain of 180,000 jobs. That is down from the 190,000 estimate at Friday's close.

The Nonfarm Payrolls on Friday are now expected to show a gain of 185,000 jobs and that is up from the 177,500 estimate on Friday. Last month the ADP report was a blowout at 263,000 compared to estimates for 190,000. Everyone raised their estimates for the Nonfarm report to a gain of 190,000 jobs and the actual number came in at 98,000 and that was a shock to the system. What that means is that analysts really do not have any idea what the numbers will be and another low number like last month could be negative to market sentiment.

I took off the government shutdown line for Friday because of the reported compromise deal on the budget. However, it has not been voted on by either the House or Senate and there are still some changes in progress. Until the bill passes and hits Trump's desk there is still a shutdown risk.

President Trump said on Tuesday he was upset with the process and a "government shutdown in September could be a good thing." He is already laying the groundwork for some budget demands that the democrats vetoed in this current agreement. It is going to be a real fight in September.

There were other companies reporting earnings besides Apple but you would not have known it from the news headlines. Dow component Merck (MRK) reported earnings of 88 cents compared to estimates for 83 cents. Revenue of $9.4 billion beat estimates for $9.3 billion. The company guided for 2017 for adjusted earnings of $3.76-$3.88. That was up from prior guidance of $3.72 to $3.87. Analyst estimates were $3.83 per share. Revenue is expected to be $39.1 to $40.3 billion, up slightly from $38.6 to $40.1 billion. Analysts were expecting $39.7 billion. Shares were up fractionally on the news.

Pfizer (PFE) reported earnings of 69 cents compared to estimates for 67 cents. Revenue of $12.78 missed estimates for $13.04 billion. Pfizer expects full year earnings of $2.50-$2.60 and revenue of $52-$54 billion. Shares declined fractionally on the news.

Health insurer Aetna (AET) reported a net GAAP loss of $1.11 (-$381 million) compared to a profit of $2.08 in the year ago quarter. Aetna was forced to drop the bid for Humana after it was blocked by regulators. The earnings miss was due to losses incurred in the aborted transaction. On an adjusted basis, they posted earnings of $2.71 that rose 17% and beat estimates for $2.36. However, revenue of $15.2 billion missed estimates for $15.47 billion. Revenues declined -3.2% because of lower premiums in the health care segment. Aetna ended the quarter with 22.4 million members. They guided for the full year for earnings of $8.80-$9.00. Shares were up sharply to a new high.

CVS Health (CVS) saw profits decline 17% as major customers moved to other vendors and CVS was excluded from some prescription networks. They posted earnings of $1.17 on revenue of $44.51 billion. Analysts expected $1.10 and $44.24 billion. The company guided for 2017 to earnings of $5.77 to $5.93 and analysts were expecting $5.86. They took a charge of $199 million after closing 60 stores. Same store sales fell -4.7% but their PBM business rose 8% to $31 billion. CVX operated more than 9,700 retail locations. Shares declined $3 on the news.

Cummins (CMI) reported earnings of $2.36 compared to estimates for $1.80. Revenue rose 7% to $4.59 billion and easily beat estimates for $4.15 billion. North American sales rose only 1% but international sales rose 17% with strength in China and Europe. Shares rose $9 on the news.

MasterCard (MA) reported earnings of $1.01 compared to estimates for 95 cents. Revenue of $2.7 billion matched estimates. Earnings rose 12.7% and revenue +11.8%. MasterCard and Visa are the perfect business. They have no credit risk but are simply toll takers for every consumer charge.

Facebook and Tesla are the big reports for Wednesday followed by Activision on Thursday. YUM Brands will also generate interest on Wednesday along with Fitbit.

Companies reporting earnings on Monday evening with stocks reacting on Tuesday included Chegg Inc (CHGG). They rent textbooks online, offer study programs to enable students to prepare for tests and move from high school, through college and into the work force. The company reported adjusted earnings of 6 cents compared to estimates for 3 cents. Revenue of $62.6 million beat estimates for $58.4 million. They guided for full year revenue of $235-$240 million and Q2 of $52-%54 million. Shares spiked 28% on the earnings.

Shopify (SHOP) reported an adjusted loss of 4 cents compared to estimates for a 10 cent loss. Revenue of $127.4 million spiked sharply from $72.7 million. Their merchant solutions business saw revenue nearly double to $65.3 million. They raised their full year revenue guidance from $580-$600 million to $615-$630 million. Shares spiked $6 on the news.

Advanced Micro Devices (AMD) reported a loss of 4 cents compared to estimates for 4 cents. Revenue of $984 million missed estimates for $985 million. The company said it experienced a decline in mobile and graphics processor sales. They guided for the current quarter for $1.15 billion and analysts were expecting $1.12 billion. On the call, they guided for gross profits to be flat to slightly lower at 33%. The company said it expects to sell more video chips in Q2 and that will lower overall margins. (They have to sell at a discount to compete with Nvidia.) Inventories also rose sharply and the company blamed it on new products. Shares fell -24% on volume of 268 million shares compared to an average volume of 52 million. Everyone was expecting a big revenue boost from the launch of the Ryzen 7 processor and it did not happen.

Oil prices collapsed again with the loss of $1.22 on growing worries that expanding production from Libya, Canada and the U.S. would offset the OPEC production cuts and prolong the current glut.

After the bell API reported a -4.158 million-barrel decline in inventories and crude is up 48 cents in afterhours. The real key will be the EIA inventories on Wednesday morning.


Nothing happened in the markets today despite volume of more than 7 billion shares powered by AMD and other earnings reports. Decliners barely beat advancers 3,624 to 3,415. Advancing/declining volume was almost dead even at 3.4 billion shares. Everyone was waiting on Apple to report instead of establishing new positions in front of a potential freight train.

That does not appear to be a risk for Wednesday. Nasdaq futures are only down about 13 points, Dow futures are flat and S&P futures are down -1. There is nothing to see here, move along.

The one bright spot was a close at 2,391 by the S&P and just over that pesky 2,388 resistance level that held it back over the last five days. The next challenge is the 2,395 and 2,400 levels and we will likely need a catalyst to make a jump through that resistance. The high close was 2,395.96 on March 1st.

The Dow continues to be boxed in by the resistance at 21,000 but it did post a 36-point gain to recover the points lost on Monday. Apple will subtract 21 points at the open if the decline holds overnight. There are no other Dow components reporting this week. The Cummins earnings should have benefitted Caterpillar but they didn't. Home Depot and Lowe's were upgraded today and that helped to lift HD into the top 5 contributors. MasterCard earnings lifted Visa into the number 2 position.

The high close on March 1st was 21,115 and that looks a long way off tonight. Post earnings depression is starting to settle in and support at 20,900 is looking fragile.

The Nasdaq is suffering from a lack of FAANG movement. Note there are no FAANG stocks in the point gainer list below. The index has risen to long-term uptrend resistance at 6,100 and came to an abrupt halt. Obviously, the impending Apple earnings were the biggest reason for the dormancy but a decline in Apple on Wednesday will also be a drag.

The Nasdaq indexes remains overbought and unsupported with major gaps well below the current levels.

The Russell rebound over the prior two weeks is fading. This may be only temporary or it may be a symptom of a larger problem. As long as the index remains over 1,388 there is hope. A decline below that level would be a sell signal.

The bullish market from early last week has evaporated. We can blame it on multiple things but it is probably just exhaustion. On the positive side, there have not been any material declines. Buyers are still there, only in weaker numbers. I believe everyone is looking for a dip to buy and there is none.

I believe the dip in Apple will be bought because they did not say anything about iPhone production problems and everyone understands the iPhone 8 buzz is sucking all the oxygen out of the iPhone 7 market.

If the Fed does nothing and says nothing about the balance sheet reduction plans, the meeting will be ignored.

The market will be free to find its own level and sometimes that is not a good thing. A two-year old child left unattended can cause all kinds of trouble. A market at its current highs and left without a catalyst could stray into a minefield. Be cautious about adding long positions until the market moves over current resistance levels. Do not ignore the potential for a "Sell in May and go away" event.

Enter passively, exit aggressively!

Jim Brown

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New Plays

Directionally Challenged

by Jim Brown

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Editor's Note

Markets are mixed and choppy while investors try to decide if they want to buy or sell a market top. The markets have failed to extend the gains from early last week and there is no trend. The Nasdaq indexes are at long-term resistance and the Dow, S&P and Russell are just treading water. There is no reason to add positions at market highs with no forward motion. As the Shaolin monk in the 1970s Kung Fu series used to tell Caine, "Patience grasshopper."


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

Small Caps Leading

by Jim Brown

Click here to email Jim Brown

Editors Note:

Unfortunately, the small cap indexes are leading us lower rather than higher. The Russell lost 8 points to make a new post bounce low and the S&P-600 gave back 3 points and retested short-term support at 850. Both indexes are at risk if the Nasdaq rolls over after the Apple earnings.

The Nasdaq big cap indexes had been leading us higher but the Composite Index gained only 3 points today. If Apple's decline in iPhone sales causes the stock to fall, those indexes will follow. I personally do not believe the sales miss was important because everyone is waiting for the iPhone 8 in September.

Wednesday is Fed day and they are not expected to make any changes. If they did mention changes to the balance sheet it would be very negative for small caps.

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

WLL - Whiting Petroleum
The long position was entered at the open.

NTNX - Nutanix Inc
The short position was stopped out at $15.45.

If you are looking for a different type of trading strategy, try these newsletters:

Short term Calls and Puts on equities = Option Investor Newsletter

Credit spreads and naked puts = OptionWriter

Long term option investments = LEAPS Investor

3-6 month Option Trades = Ultimate Investor

Iron Condors = Couch Potato Trader

BULLISH Play Updates

BBRY - Blackberry - Company Profile


No specific news. Minor 5 cent decline.

Original Trade Description: April 28th.

Research In Motion Limited designs, manufactures, and markets wireless solutions for the mobile communications market worldwide. The company was renamed Blackberry Ltd in an effort to change its public identity. The company's products include BlackBerry smartphones and accessories, including bundles, cases, audio and memory products, Bluetooth, chargers, batteries and doors, and card readers; SureType, a keyboard technology, which allows users to compose messages using single-handed operation or two-handed thumb-typing; and SurePress, a touch screen that helps in navigation and typing. Its products provide access to time-sensitive information, including email, phone, short messaging service, and Internet and intranet-based applications. The company's products also enable third party developers and manufacturers to enhance their products and services with wireless connectivity to data. Blackberry Limited markets and sells its products directly, as well as through strategic partners and distribution channels. It has a strategic alliance with Hewlett-Packard Company to deliver a portfolio of solutions for business mobility on the BlackBerry platform. Company description from FinViz.com.

Blackberry has evolved from a hardware vendor to a software company. They no longer produce their own phones and their main product is a secure software interface that is used by security conscious governments and firms everywhere.

Blackberry has moved from just a phone company to multiple product lines including software packages for automobiles. Blackberry just signed a new deal with Ford to use the Blackberry QNX software. The software has been deployed in more than 60 million vehicles. BlackBerry is a mobile-native security software and services company dedicated to securing people, devices, processes and systems for today's enterprise.

The Blackberry phones now run an Android operating system. The Blackberry KeyONE was just launched in the UK with a 4.5 inch screen above a traditional Blackberry keyboard. The device will go on sale in May in the rest of the world. The phone has a Qualcomm Snapdragon 625 chipset, 3gb of RAM, 12MP rear camera, 8MP front camera, Android 7.1 and a 3,505mAh battery for long life. Blackberry phones fill a niche for those who want an actual keyboard and/or greater security than you can get in other phones.

In their recent earnings the CEO said Blackberry was looking at opportunities for branded tablets, wearables, medical devices, appliances, point of sale terminals and other smartphones. The key point is that Blackberry security software will be integrated into all Blackberry branded items even though they will be made by over companies. That makes them low risk, all reward, opportunities.

They announced a couple weeks ago they had been awarded $814 million in royalty overpayments plus attorney's fees and interest from Qualcomm. The arbitration proceeding has been in process for a long time. This is a major infusion of cash for Blackberry.

Shares spiked to $9 on the award. After some initial profit taking they have started to rise again and closed at a new 52-week high on Friday.

Update 5/1/17: CEO was on CNBC this morning talking about accelerating transition to a software service company. Video of interview

Earnings June 30th.

Position 5/1/17:

Long BBRY shares @ $9.34, see portfolio graphic for stop loss.

Optional: Long July $10 call @ 35 cents. No stop loss.

FNSR - Finisar Corp - Company Profile


No specific news. Minor decline in a weak market.

Original Trade Description: April 24th.

Finisar Corporation provides optical subsystems and components for data communication and telecommunication applications in the United States, Malaysia, China, and internationally. Its optical subsystems primarily consist of transmitters, receivers, transceivers, transponders, and active optical cables that provide the fundamental optical-electrical or optoelectronic interface for interconnecting the electronic equipment used in communication networks, including the switches, routers, and servers used in wireline networks, as well as the antennas and base stations used in wireless networks. The company also offers wavelength selective switches, which are used to switch network traffic from one optical fiber to multiple other fibers without converting to an electronic signal. In addition, it provides optical components comprising packaged lasers, receivers, and photodetectors for data communication and telecommunication applications; and passive optical components for telecommunication applications. Finisar Corporation markets its products through its direct sales force, as well as through a network of distributors and manufacturers' representatives to the original equipment manufacturers of storage systems, networking equipment, and telecommunication equipment, as well as to their contract manufacturers. Company description from FinViz.com.

We played Finisar several weeks ago and got caught in the downdraft on China worries. Reports out of the sector suggested orders from China had slowed. Shares crashed from $35 to $21 over the period of about six weeks. Raymond James said the selloff is overdone and the worries over China are overblown.

China is on track to network 120 major cities with populations of more than one million. That will take a lot of networking gear. The directives have been given from the governmental level but the actual orders will come from the provincial level. Bids for routing and wireless components have already been submitted and optical equipment is expected to be next in line.

Raymond James said Finisar has the most upside potential with a target of $39 and is cheap with a PE of only 9 times 2018 earnings estimates.

Shares have rebounded the last two days after the Raymond James note to investors.

Earnings June 8th.

Update 4/26/17: The U.S. government expanded its investigation regarding compliance with sanctions programs against Iran, Cuba, Sudan and Syria. The target is China-based Huawei but OCLR, ACIA, LITE and FNSR have similar operations. Last month ZTE, a peer to these companies, pleaded guilty and faces fines of $1.2 billion. If the government is going name by name in their investigation, investors may reconsider their ownership of these companies. At least one analyst said today's dip on sector related news rather than company specific, was overdone.

Update 4/28/17: Stifel Nicolaus lowered their price targets on LITE, FNSR, FN and OCLR but maintains a buy rating. The new target on FNSR declined from $39 to $33 with shares at $23. The analyst cut the targets based on the slowness in bid requests from China's governments on the 120 city networking project.

Position 4/25/17:

Long FNSR shares @ $23.10, see portfolio graphic for stop loss.


Long June $25 call @ $1.20, see portfolio graphic for stop loss.

PTCT - PTC Therapeutics - Company Profile


No specific news. New 7-week high close.

Original Trade Description: April 19th.

PTC Therapeutics, Inc., a biopharmaceutical company, focuses on the discovery, development, and commercialization of orally administered, small molecule drugs that target post-transcriptional control processes. The company's lead product is Translarna (ataluren), for the treatment of nonsense mutation Duchenne muscular dystrophy in ambulatory patients; and which is in phase III clinical trials to treat cystic fibrosis caused by nonsense mutations. It also develops Translarna, which is in Phase II clinical trials for the treatment of mucopolysaccharidosis type I caused by nonsense mutation, nonsense mutation aniridia, and nonsense mutation Dravet syndrome/CDKL5; and RG7916 that is in Phase I clinical trials to treat spinal muscular atrophy. In addition, the company's product candidate in cancer stem cell program include PTC596, an orally bioavailable and potent small molecule, which has completed phase I clinical trials that targets tumor stem cell populations by reducing the activity and amount of a protein called BMI1. PTC Therapeutics, Inc. has collaborations with F. Hoffman-La Roche Ltd and Hoffman-La Roche Inc., and the Spinal Muscular Atrophy Foundation to develop and commercialize compounds identified under its spinal muscular atrophy sponsored research program; and research collaboration with Massachusetts General Hospital for the treatment of rare genetic disorders resulting from pre-mRNA. Company description from FinViz.com.

PTC suffered two hits in March. The first was a failed drug trial on a Cystic Fibrosis drug. That drop knocked shares down from $13 to $10. Drug trials fail all the time and that is just the risk of owning a drug company.

On March 15th, the company announced it was buying a Duchenne Muscular Dystrophy (DMD) drug named Emflaza from Marathon for cash and stock. Companies buy rare drugs from other companies all the time. This particular drug had just created a hornet's nest of controversy after Marathon priced it at $89,000 per year. There had been a monster uproar over the pricing and even Bernie Sanders got into the act saying it should be $1,000 a year. For PTC to jump into the hornet's nest with a $140 million upfront purchase before the drug even succeeds in the market caused investors to flee the stock.

Here is the key point. The drug is in a class called corticosteroids that are anti inflamatories used all around the world to treat DMD as well as other diseases. The drug can be cross marketed and sold for multiple applications besides DMD.

The drug is new and was just approved by the FDA in February. When Marathon priced it at $89,000 right in the middle of the drug price happenings in Washington, they were forced to pause the launch to re-evaluate the price. PTC arrived on the scene and solved their problem.

Now PTC is evaluating the "correct" pricing for the drug and shares are rebounding from their headline induced crash.

Update 4/20/17: The company announced they had completed the acquisition of Emflaza earlier than expected.

Earnings June 15th.

PTC shares broke through resistance on Wednesday to close at a two month high at $11.39. Resistance is now $14 to give us a potential $2 window.

Position 4/20/17:

Long PTCT shares @ $11.43, see portfolio graphic for stop loss.

No options due to prices and wide spreads.

USO - US Oil Fund ETF - ETF Profile


Crude fell -1.20 on growing worries that increasing production in Libya, Canada and the U.S. could perpetuate the current oil glut despite the OPEC cuts.

Original Trade Description: April 22nd.

The United States Oil Fund LP (USO) is an exchange-traded security designed to track the daily price movements of West Texas Intermediate ("WTI") light, sweet crude oil. USO issues shares that may be purchased and sold on the NYSE Arca.

The investment objective of USO is for the daily changes in percentage terms of its shares NAV to reflect the daily changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the daily changes in price of USO's Benchmark Oil Futures Contract, less USO's expenses.

USO's Benchmark is the near month crude oil futures contract traded on the NYMEX. If the near month futures contract is within two weeks of expiration, the Benchmark will be the next month contract to expire. The crude oil contract is WTI light, sweet crude oil delivered to Cushing, Oklahoma.

USO invests primarily in listed crude oil futures contracts and other oil-related futures contracts, and may invest in forwards and swap contracts. These investments will be collateralized by cash, cash equivalents, and US government obligations with remaining maturities of two years or less.

Oil prices fell -6% last week after Wednesday's inventory report failed to show a significant decline in crude inventories. Complicating the problem was the expiration of crude futures on Thursday. That means everyone long for the EIA report had to dump their position immediately to avoid expiration.

I expect the price of crude to return to $54 over the next several weeks. That equates to $11.25 or higher on the USO ETF. The ETF closed at $10.32 on Friday. I am recommending we buy the $10.50 call, currently 42 cents and plan to double our money and exit.

Oil prices will rise because refineries are restarting production after their normal two-month maintenance period centering on March. Oil inventories will begin to decline sharply in the coming weeks as they begin to fill the system with summer blend fuels before Memorial Day.

You could also just buy the USO ETF for $10.32 but you will get a better return using the option. I would not recommending buying a $10 stock with the intention of making 75 cents.

Position 4/24/17:

Long Jun $10.50 call @ 40 cents, no stop loss.

WLL - Whiting Petroleum - Company Profile


No specific news. R.F. Lafferty reiterated a buy with a price target of $15. Shares were down slightly after a $1.20 drop in oil prices.

Original Trade Description: May 1st.

Whiting Petroleum Corporation, an independent oil and gas company, engages in the development, production, acquisition, and exploration of crude oil, natural gas liquids, and natural gas primarily in the Rocky Mountains region of the United States. It sells oil and gas to end users, marketers, and other purchasers. As of December 31, 2016, the company had total estimated proved reserves of 615.5 million barrels of oil equivalent; and interests in 1,917 net productive wells on approximately 517,200 net developed acres. Whiting Petroleum Corporation was founded in 1980 and is based in Denver, Colorado. Company description from FinViz.com.

Whiting reported an adjusted loss of 15 cents and analysts were expecting a loss of 22 cents. Revenue of $371.3 million beat estimates for $361.4 million. Production of 10.6 million Boe beat guidance of 10.4 million Boe. Lease operating expenses declined from $9.00 to $8.56. General and administrative expenses declined from $3.15 to $2.34 and interest expenses declined from $4.80 to $3.83 per share.

Earnings July 26th.

The company raised guidance for the year for multiple reasons. They just completed a three-well Loomer pad in North Dakota using advanced completion models with longer laterals and 8.9 million pounds of sand in each well. The resulting production suggests each well will produce 1.5 million Boe over their productive life. That is 50% higher than other wells in the area. That equates to roughly $75 million in revenue from each well with an initial cost of about $9 million each.

Whiting plans to apply this completion method to all its 2017 wells while continuing to test and improve on the model.

Also helping Whiting is the recently completed Dakota Pipeline that President Trump approved a couple months ago. That makes it considerably easier to transport oil out of the Bakken and at a lower cost.

Whiting raised full year guidance to 45.2 to 46.2 million Boe but did not raise the capex expectations. The production guidance was raised because of the better completion methods. This will be a 23% increase in production from Q1 start to Q4 end.

Energy companies have been hammer recently with oil prices falling back under $50. This is a temporary situation. The refinery maintenance cycle was longer than normal and the restart just accelerated over the last two weeks. Inventories last week declined -3.6 million barrels and they should continue to decline sharply over the next four months. Prices will rise as the summer driving season begins.

I think the September $9 option is too expensive at $1.13 and the $10 option is expensive as well. The June options are a short fuse with earnings after expiration. The tradeoff suggests the short term June would be the best play.

Position 5/2/17:

Long WLL shares @ $8.55, see portfolio graphic for stop loss.
Optional: Long June $9 call @ 60 cents, see portfolio graphic for stop loss.

BEARISH Play Updates

NTNX - Nutanix Inc - Company Profile


William Blair analyst Jason Ader, reiterated an outperform rating saying current prices represent a compelling opportunity with meaningful upside and little downside risk. He said channel partners are seeing increased interest in HCI offerings where Nutanix is the current leader.

Summit Redstone analyst Srini Nandury reiterated a sell rating saying Nutanix cannot sustain ongoing product investments to remain competitive with the larger players.

Shares spiked $1.36 to stop us out for a minor gain. This was a shame since the play was looking so good after the sharp drop to a new low yesterday.

Original Trade Description: April 26th.

Nutanix Inc provides next-generation enterprise cloud platform that converges traditional silos of server, virtualization and storage into one integrated solution and can also connect to public cloud services. Nutanix makes infrastructure invisible, elevating IT to focus on the applications and services that power their business. The Nutanix Enterprise Cloud Platform 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. Company description from FinViz.com.

While their company description sounds good, they are having trouble conveying that image to the business community and to investors. When they reported earnings back in March they beat on the top and bottom but guided significantly lower for the next quarter.

They reported a loss of 28 cents compared to estimates for a loss of 35 cents. Revenue exploded higher by 77% to $182.2 million and beating estimates for $178.3 million. They added 900 customers to bring their total to 5,380.

They guided for a current quarter loss of 45-48 cents and analysts were expecting a loss of 35 cents. Revenue was only expected to rise to $185 million from the $182.2 million in the prior quarter.

Earnings June 1st.

The company has only been public for 7 months and it closed at a historic low on Wednesday. The short covering in the broader market this week barely had any impact on NTNX shares. Insiders have been selling shares like crazy. Lightspeed Ventures a 10% owner, liquidated their position in early April.

There was a press release at 7:PM tonight about a successful installation at a customer location. I doubt it will have any impact but it may give us the opportunity to short the shares a few cents higher. If the stock gaps up, adjust the stop loss accordingly.

Position 4/27/17:

Closed 5/2/17: Short NTNX shares @ $15.76, exit $15.45, +.31 gain.

VXX - Volatility Index Futures - ETF Description


Gained only a penny from Monday's historic closing low. If the market bullishness continues, the VXX should continue to bleed points. Long term, the VXX always goes down.

Original Trade Description: April 12th.

The VXX is a short-term volatility product based on the VIX futures. As a futures product it has the rollover curse. Every time they roll to a new futures contract, they have to pay a premium and that lowers the price of the ETF. It is a flawed product with a perpetual decline built in from the monthly roll over in the futures contracts.

As evidence of this flaw, they have now done four 1:4 reverse stock splits. The last four reverse splits occurred at $13.11 (11/2010), $8.77 (10/2012), $12.84 (11/2013), $9.52 (8/8/16). The prospectus says it can reverse split anytime it trades under $25 for a prolonged period and the splits will always be 1:4.

The VXX has rebounded $3 over the last week as the volatility returned. The VIX traded over 16 today and could hit 18 if there are any geopolitical events over the Easter weekend.

Unfortunately, put options are expensive with a volatility instrument at this price level. The only recommendation is to short the ETF and forget it. If we do get a prolonged rally as some are expecting we could see strong market gains in the next 2-3 months. This will be a long-term position. This is not a 2-3 week play. I can guarantee you, if history holds, we can play this until it splits 1:4 again at $10. Once we are in the position and profitable I will put a trailing stop loss on it. We will take profits and then look for a bounce to get back in.

We know from experience that the VXX always declines. The last time we shorted this ETF we had a $7.23 gain.

Position 4/13/17:

Short the VXX @ $17.98, no stop loss because it always declines eventually.

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