Option Investor

Daily Newsletter, Thursday, 5/18/2017

Table of Contents

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

Market Wrap

Dead Cat Bounce

by Thomas Hughes

Click here to email Thomas Hughes


US indices bounced back from their deepest sell-off of the year. Is it time to get in or is this just a dead cat bounce? Today's action was not heavy, gains were minimal and breadth was weak. If it is more than a dead cat bounce it's not a very strong signal. While long-term trends remain intact nearer term trends are breaking down as earnings season winds up and we weather the next few weeks without much market moving news expected.

International indices sold off in response to growing political unease in the US. Asian indices were hit hardest, European indices having moderated their losses before the close of the session. In Asia losses were led by the Nikkei with a decline of 1.32%, European markets were led lower by the FTSE which posted a loss of -0.89%. These markets may bounce back in overnight trading but I would expect traders to be cautious and gains to be minimal.

Market Statistics

Futures trading was negative right from the start if a bit choppy throughout the early session. At the low the S&P 500 was indicated to open with a loss near -6 points while at the high it was closer to -1 point. Economic data was fairly robust today and helped to support early trading although it did not lift indices into the green. The open was as expected, the SPX opened with a loss near -4 points and tried to move lower within the first minutes of trading. Buyers were present, just below yesterday's closing prices, and were there to support the market as it opened. The SPX quickly found support and managed to bounce, hitting an early high just after 10:30. This high held for most of the day, the index trend sideways from there, until just before 2:30 when a surprise rally drove it to new highs. The new highs did not hold, the indices retreat into the close but remained firmly positive for the day.

Economic Calendar

The Economy

There was a bit of economic data today, nothing overly important but all pointing to one thing; a healthy economy. First up, initial jobless claims. Seasonally adjusted initial claims fell -4,000 to hit 232,000 from last week's not revised figures. The four week moving average of claims fell -2,750 to hit 240,750. On a not adjusted basis claims fell -4.1% versus an expected -2.4% and are down -15.6% YOY. Despite recent volatility these figures remain in downtrend and show marked improvement over last year. The not adjusted claims in particular have diverged from trend and reveal tightening in the labor market.

Continuing claims fell -22,000 to 1.898 million from last week's revised figure. Last week's figure was revised higher by 2,000. The headline and moving average continuing claims numbers are new lows dating back to 1988 and 1974 respectively. Together and with initial claims figures these numbers show ongoing improvement and tightening in the labor market. There are less people losing jobs and they are finding new work faster than ever.

The total number of Americans receiving unemployment benefits fell a surprising -95,874 to 1.891. The number is not surprising in that it fell, it is surprising in that it fell so much. The total number of claims has basically reached my lower target for spring declines and looks like it could decline further. On a year over year basis it is down nearly -11% and consistent with ongoing labor market tightening, declining unemployment and rising employment.

The Philadelphia Federal Reserve Manufacturing Business Outlook Survey jumped 16.8 points, well ahead of expectations, to hit 38.8. This is the 2nd highest reading this year, the 2nd highest reading in more than 10 years and the 10th consecutive month of growth. Within the report shipments gained 16 points, new orders fell 2. Delivery and unfilled orders were both positive as well and have been positive for 7 months. The employment index fell by -3 but remains positive showing growth slowed in the past month. Looking forward the 6 month outlook is also strongly positive, but down significantly from the previous month.

The Conference Board Index of Leading Indicators was released at 10AM and shows continued expansion in the US economy. The index gained 0.3% after gaining 0.3% in March and 0.5% in February. This is the 8 month of positive reading in the index and, according to Conference Board economists, could indicate acceleration or even a cyclical pick-up in the economy later this year. The Coincident Index also rose 0.3% as did the Lagging Index.

The Dollar Index

It took a few hours to sink in but today's data helped to alleviate fear of economic slow-down and strengthen the dollar. The Dollar Index gained nearly 0.4% in a rebound from yesterday's decline but did not regain the upper side of previous support now turned resistance. The index has fallen below support targets in the $98.50 to $99.00 region and in danger of falling further. The indicators are both pointing lower and suggest further downside is possible, stochastic is showing weakness as well with a bearish crossover of the lower signal line. Today's action suggests that there may be support at the $97.50 level, a break below that would be bearish. In the near-term Trump scandal may add downward pressure to the index while we wait for the next round of central bank meetings.

The Gold Index

Gold prices were up in early trading but reversed those gains later in the day on hopes President Trump would avoid further entanglement with former FBI director Comey. A video of him testifying to congress led traders to believe he would not implicate Trump in trying to curb investigations. Whether or not its true is yet to be seen, the testimony was not unequivocal in support of Trump's innocence. Spot gold gave up nearly a full percent and fell below the $1,250 level. This level is a resistance target and could cap gains into the near-term. Short to long-term direction is more likely dictated by the FOMC/ECB/BOJ balance than it is by political scandal. Economic data remains on track for the FOMC to raise interest rates in June (more than likely at 74%), any positive surprises from the economy or political arena could reinforce that expectation and send the dollar back above resistance and gold to recent lows.

The Gold Miners ETF GDX fell a little more than -0.60% in a move that confirms near-term resistance. Today's action formed a red candle moving down from yesterday's close beneath resistance. Resistance is the 38.2% retracement level and the mid-point of a short-term trading range. If resistance holds this will the third peak in a series of lower peaks within this range with a possible focus on the FOMC meeting next month. If so we can expect to see the ETF continue to trend sideways until then. Resistance is $23.75, support is $21.

The Oil Index

Oil prices edged higher today on growing signs the OPEC/Russia production cap would be extended. A number of member nations have signaled support for the deal which is expected to pass at the Vienna meeting later this month. WTI gained nearly a half percent on the news to trade above $49.25.

The Oil Index fell despite today's gains in oil prices but was at least able to recover some of the losses. The index gapped down at the open, fell to hit a 9 day low and bounced back to close with a loss of only -0.20%. The indicators are mixed and give little indication of longer term direction, consistent with range bound trading. I remain bullish on the sector due to forward earnings outlook but the near to short-term is cloudy. Price action is showing some signs of possibly bottoming in the range of 1,125 to 1,150 but this support could easily break if oil prices don't stabilize at high enough levels. In the near-term expect news driven volatility.

In The News, Story Stocks and Earnings

Retail remains in the spotlight as earnings season enters its final days. This morning news was dominated by positive reports from both Wal Mart and Ralph Lauren. Wal Mart reported growth in revenue but missed expectations. Earnings of $1.00 beat expectations by 4 cents led by growth in online sales which increased by 63% in the YOY comparison. US comps were also positive if not as strong. Shares of the stock moved higher in the premarket session, gapped by roughly 2% at the open and moved higher from there to set a 2 year high.

Ralph Lauren beat on the top and bottom lines although revenues fell from last year. Positives in the report include expanding margins and lower operating expenses, negatives include a -11% decline in comp store sales. Shares rallied on the news in the premarket session and gapped up at the open. The good cheer was short lived as sellers quickly stepped in to drive prices down to an 8 year low.

The Retail Sector SPDR XRT was able to post small gains in today's session. The ETF gained about 0.20% in a move that created a small spinning top just above yesterday's close and the bottom of a long-term trading range. Price action suggest that the ETF has hit support levels, today's candle forms a a harami with yesterday's long red candle. The indicators however remain weak and suggest that support will be tested further. Support is near $40.50, has been in play for more than 12 months and tested 5 times previously. After hours reports from Gap and Ross Stores were better than expected and may add support to the sector in tomorrow's trading.

The Indices

The indices were mixed today. Action was positive but tentative, near-term fears are still present. The days leader is the NASDAQ Composite. The tech heavy index rose 0.73% in a move up from support at the short-term moving average. Today's candle is long, green and confirms support at the moving average but not overly strong. The indicators have both confirmed bearish signals within an uptrend, consistent with correction/consolidation, so downward movement in prices may not be over. Support is at the 6,000 level, a break below here would be bearish in the near-term with downside target near 5,800 and a pair of long-term up trend lines.

The Dow Jones Transportation Average comes in second today with a gain of 0.40%. The transports created a small green candle near the bottom of yesterday's long red one but does not suggest much in the way of support. The index remains below the short and long-term moving averages with downward pointing indicators suggesting further correction is possible. If support at today's open does not hold downside target is near 8,500 and my long-term up trend line.

The S&P 500 posted the third largest gain in today's session, 0.36%. The broad market created a small green bodied candle above the 2,350 support target but below the short-term moving average. The indicators are pointing lower after confirming bearish signals and suggest that support will be tested again. A break below support would be bearish with downside target near the long-term moving average at 2,300.

The Dow Jones Industrial Average posted the smallest gains today, only 0.27%. The blue chips created a small bodied green candle with long upper shadow confirming resistance at the short-term moving average. The index has entered a consolidation/correction and the indicators suggest it could move lower. Both stochastic and MACD are pointing lower following bearish entry signals and consistent with lower prices. Near-term support is 20,500, a break below there could go as low as 20,000 and the long-term moving average.

The market was hopeful today but not decisive in its approach. The indices moved higher but the gains were muted, volume was low and resistances were hit. Near term political concerns are weighing on sentiment, with us entering a period void of substantial economic or earnings news they stand a good chance of dragging the market the market down. If so, it will likely turn out to be the next great entry point for long-term positions.

I remain bullish long-term for two reasons. Economic and earnings growth remain in the forecast, and both have a growing chance of accelerating in the second half of the year. So long as this remains true I see no reason for market reversal or bear market conditions, any weaknesses are dips to be bought. Nearer-term I am more cautious, sitting on the sidelines watching and waiting to see if today was just a dead cat bounce. There is no scheduled economic data tomorrow and very little in the way of earnings.

Until then, remember the trend!

Thomas Hughes

New Plays


by Jim Brown

Click here to email Jim Brown
Editor's Note

We dropped -2% on Wednesday and rallied 0.25% on Thursday. That is called a dead cat bounce. A dead cat bounce means there was no upside excitement and no follow through to an early rebound. Volume the last two days has been very heavy at more 8.15 billion each. With that kind of volume we should have seen a bigger bounce. That means there were still a lot of sellers.

Friday could be a pivotal point in the market's future. The rebound today was lackluster and closed well off its highs. After a major market decline, investors want to see a major rebound. When that did not happen the indexes began to fade into the close. Given the weekend event risk and the sudden change in market sentiment Friday could be a make or break day. If the afternoon weakness carries over into selling on Friday, there could be a race to the exits. Traders are uncertain of direction and they will have their finger on the sell button. No new plays today.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews


by Jim Brown

Click here to email Jim Brown

Editors Note:

The rebound after the major market crash was uninspiring and suggests Friday could be volatile. The major indexes traded only barely positive most of the day until mid afternoon when a brief surge appeared. That was quickly sold and the markets finished well off their highs.

This is not the kind of rebound traders want to see because it does not inspire confidence that it will continue. The VIX only declined slightly from the 48% spike on Wednesday and that suggests traders were buying puts because they are afraid the selling is not over. We did not lose any positions today. Let's hope we can say the same thing tomorrow.

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

IWM - Russell 2000 ETF
The long option position was entered at the open.

STM - ST Microelectronics
The long stock position was reentered at $16.25.

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 gain.

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

Update 5/4/17: TechCrunch reviewed the new BlackBerry phone and said it was the one they should have introduced 10 years ago. CNBC also did an article on it. Read it Here

Update 5/15/17: Blackberry is actually profiting from the WannaCry malware. The company pivoted to a software security firm a couple years ago and they offer security for both mobile and enterprise applications.

Update 5/16/17: Blackberry is working with at least two automakers on security software that would monitor the car's operating system and warn the driver if the system has been hacked. This is going to be very important in the future as self-driving cars become more plentiful. The system is currently being tested by Aston Martin and Range Rover. The virus software would cost drivers $10 a month. Blackberry software is already running in millions of cars. Shares exploded higher.

Update 5/17/17: Blackberry announced new mobile software to allow crisis managers, police forces, fleet managers, etc, to always know where their personnel are located. The AtHoc Account is an authorized solution for Federal government FedRAMP applications. The software merges inputs from managers, call center operators, data streams from HR and travel systems as well as self reporting by individuals.

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.

HZNP - Horizon Pharma - Company Profile


No specific news. Minor decline in a mixed market.

Original Trade Description: May 15th.

Horizon Pharma Public Limited Company, a biopharmaceutical company, engages in identifying, developing, acquiring, and commercializing medicines for the treatment of orphan diseases, arthritis, pain, and inflammation and inflammatory diseases in the United States and internationally. The company's marketed medicine portfolio consists of ACTIMMUNE for the treatment of chronic granulomatous disease and malignant osteopetrosis; RAVICTI and BUPHENYL/AMMONAPS to treat urea cycle disorders; PROCYSBI for the treatment of nephropathic cystinosis; QUINSAIR for the treatment of chronic pulmonary infections due to pseudomonas aeruginosa in cystic fibrosis patients; and KRYSTEXXA to treat chronic refractory gout. Its products also include RAYOS/LODOTRA for the treatment of rheumatoid arthritis, polymyalgia rheumatic, systemic lupus erythematosus, and multiple other indications; DUEXIS to treat signs and symptoms of osteoarthritis and rheumatoid arthritis; MIGERGOT for the treatment of vascular headache; PENNSAID 2% to treat pain of osteoarthritis of the knees; and VIMOVO for the treatment of signs and symptoms of osteoarthritis, rheumatoid arthritis, and ankylosing spondylitis. The company has collaboration agreements with Fox Chase Cancer Center to study ACTIMMUNE in combination with PD-1/PD-L1 inhibitors for use in the treatment of various forms of cancer; and Alliance for Lupus Research (ALR) to study the effect of RAYOS on the fatigue experienced by systemic lupus erythematosus (SLE) patients. Company description from FinViz.com.

Horizon reported earnings of 21 cents that missed estimates for 25 cents. Revenue of $220.9 million rose 8% but missed estimates for $253 million. They guided for full year revenue of $1.0 to $1.035 billion, down from $1.26 billion. Analysts were expecting $1.4 billion. Shares were crushed for a 39% drop from $15.50 to $9.50.

Earnings July 31st.

However, the company said the declines in earnings and revenue were due to a change in business practices and how they contract with pharmacy benefit managers. To combat this change the company is changing its cost and pricing structure to better match the new contract requirements.

Secondly, they said they were expsnding investments in the drug Krystexxa and they raised sales expectations from $250 million to $400 million for the full year. They also signed a deal to acquire River Vision and its Thyroid Eye Disease drug for $146 million and the acquisition will close immediately. They also received approval from a supplemental New Drug Application (NDA) for Ravicti, a drug for urea cycle disorders in children.

Horizon has a portfolio of orphan drugs with more on the way. The shares were hammered but they are already rebounding strongly on what some investors are seeing as a buying opportunity.

Position 5/16/17:

Long HZNP shares @ $10.75, see portfolio graphic for stop loss.

Optional: Long June $11 call @ 55 cents, see portfolio graphic for stop loss.

IWM - Russell 2000 ETF - ETF Profile


The rebound was lackluster across all markets. Friday could be volatile.

Original Trade Description: May 17th.

The iShares Russell 2000 ETF seeks to track the investment results of an index composed of small-capitalization U.S. equities. Description from iShares.com

The Russell 2000 has been moving sideways since early December and has tested both sides of its range multiple times. The spike to a new high at the end of April was sold when the cat fight started in Washington. Fund managers were concerned the tax reform package would be delayed.

Unfortunately, that happened and the political headlines turned deadly with the selling climax on Wednesday.

Now that a special prosecutor has been appointed many months will pass before there is any material news out of that office. For all practical purposes the press and the democrats have lost a rallying cry. Now they have to wait like the rest of us. The market should rebound.

However, there could be volatility on Thr/Fri as margin calls are covered and weekend event risk causes traders to take profits in a shaky market.

I am bringing back the IWM option trade we tried to put on in the middle of April but could not get an entry point. I am recommending we go long at the open on Thursday and hang on through the volatility.

Position 5/18/17:

Long IWM July $138 call @ $2.00, no initial stop loss until next week.

STM - STMicroelectronics - Company Profile


No specific news. Shares rebounded to touch 16.25 intraday and our trigger to reload the stock position.

Original Trade Description: May 6th.

STMicroelectronics N.V., together with its subsidiaries, designs, develops, manufactures, and markets semiconductor products, and subsystems and modules worldwide. The company offers a range of products, including discrete and standard commodity components, application-specific integrated circuits, full-custom devices and semi-custom devices, and application-specific standard products for analog, digital, and mixed-signal applications, as well as silicon chips and smartcards. It also provides subsystems and modules, including mobile phone accessories, battery chargers, and ISDN power supplies for the telecommunications, automotive, and industrial markets; and in-vehicle equipment for electronic toll payment. The company sells its products through its distributors and retailers, as well as through sales representatives. Company description from FinViz.com.

STM is Europe's third largest semiconductor maker. They posted a surge in revenue growth after six years of declines thanks to IoT, phones, automotive and industrial demand. Revenue is expected to grow 12.3% in Q2 and the company said it was on track to meet 2017 objectives. The CEO said, "Entering the second quarter, we continue to see healthy demand, with strong booking trends across all our product groups and regions."

They reported revenue of $1.821 billion that rose 12.9% and matched analyst estimates. Earnings of 12 cents missed estimates for 14 cents. The company said it would webcast its Capital Markets Day on Thursday.

Earnings July 27th.

Shares closed at a new high on Friday and the turnaround excitement is building. A positive analyst day on Thursday could send it higher. Shares rallied from November through February and then went dormant in Mar/Apr. Now that the consolidation is complete, they are surging again.

Position 5/08/17: Long July $17.50 call @ 65 cents, no initial stop loss.

Position 5/18/17: Long STM shares @ $16.25, see portfolio graphic for stop loss.

Previously closed 5/17/17: Long STM shares @ $16.34, exit $16.25, -0.09 loss.

USO - US Oil Fund ETF - ETF Profile


Headlines suggest OPEC will agree next week to a production cut extension through March 2018.

It is only a matter of time before we begin to see dramatic inventory declines as we approach the summer driving season.

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.

Update 5/8/17: Saudi's oil minister, Khalid al-Falih, said "after conversations with participants, I am confident the production cut agreement will be extended for another six months and possibly beyond." The OPEC meeting is May 25th and we should be getting almost daily headlines ahead of that event.

Position 4/24/17:

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

WLL - Whiting Petroleum - Company Profile


No specific news. Only a minor drop with the market.

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.

WTW - Weight Watchers - Company Profile


No specific news. Only a minor gain but new support appeared at $23.50.

Original Trade Description: May 13th.

Weight Watchers International, Inc. provides weight management services worldwide. The company operates in four segments: North America, United Kingdom, Continental Europe, and Other. It offers a range of products and services comprising nutritional, activity, behavioral, and lifestyle tools and approaches. The company also engages in the meetings business, which presents weight management programs, as well as allows members to support each other by sharing their experiences with other people experiencing similar weight management challenges. In addition, it offers various digital subscription products, including Weight Watchers OnlinePlus and a weight management companion for Weight Watchers meeting members to digitally manage the day-to-day aspects of their weight management plan, as well as provides interactive and personalized resources that allow users to follow weight management plan. Further, the company provides Personal Coaching, an online subscription product that offers one-on-one telephonic, e-mail, and text support and personalized planning from a Weight Watchers-certified coach, as well as offers access to other online tools. Additionally it offers various products, including bars, snacks, cookbooks, food, and restaurant guides with SmartPoints values, Weight Watchers magazines, SmartPoints calculators, and fitness kits, as well as third-party products, such as activity-tracking monitors. The company also licenses the Weight Watchers brand and other intellectual property in frozen foods, baked goods, and other consumer products, as well as endorses selected branded consumer products; and engages in publishing magazines, as well issues other publications, such as cookbooks, and food and restaurant guides with SmartPoints values. It offers products through its meeting and franchisee business, as well as online. Weight Watchers International, Inc. was founded in 1961. Company description from FinViz.com.

Weight Watchers posted a Q1 profit of 16 cents compared to estimates for a 4-cent loss. Revenue of $329.1 million rose 7.2% and beat estimates for $323 million.

Subscribers rose 16% to 3.6 million. Subscribers have now risen for 5 straight quarters. This is the first time since 2011 that they gained subscribers for a full year. The company raised guidance for the full year to $1.40-$1.50. Analysts were expecting $1.27. They said they were off to a strong start thanks to the Oprah Effect. The TV personality joined the brand late in 2016.

Earnings August 1st.

The stock has been a rocket since Oprah began pitching for the brand but it is showing no signs of fading. The post earnings spike to $25 saw some post earnings depression but shares are already moving back to that post earnings level. I believe female investors are betting on the Oprah Effect to continue driving profits. Even at this level the stock is not overly expensive with a PE of 17.

I am recommending it because it has refused to decline in a weak market. The risk is less with the option position.

Position 5/15/17:

Long WTW shares @ $24.48, see portfolio graphic for stop loss.
Optional: Long July $26 call @ 90 cents, see portfolio graphic for stop loss.

BEARISH Play Updates

ERA - Era Group - Company Profile


No specific news.

Original Trade Description: May 8th.

Era Group Inc. provides helicopter transportation services primarily to the oil and gas exploration, development, and production companies. Its helicopter services include emergency response search and rescue; air medical services; Alaska flightseeing tours; and other services, as well as utility services to support firefighting, mining, VIP transport, power line, and pipeline survey activities. The company also leases helicopters to third parties and foreign affiliates; engineers, manufactures, and distributes after-market helicopter parts and accessories; and provides classroom instruction, flight simulator, and other training services. As of December 31, 2016, the company owned, leased, or managed a total of 136 helicopters, including 13 heavy helicopters, 49 medium helicopters, 33 light twin engine helicopters, and 41 light single engine helicopters. It also serves cruise line passengers. Company description from FinViz.com.

Era reported a loss of 27 cents on revenue of $54.5 million. This was the second quarterly revenue decline but revenues have been weakening for the last two years. The last quarter they posted positive earnings was June 2016 and the losses are growing. In this table from Capital Cube all the numbers look terrible.

Earnings August 1st.

I am frustrated because I almost recommended them in the weekend newsletter. I decided to wait until support broke at $11.50. That support failed today with a big drop. I believe the shares are going to retest the November lows at $7.50. After looking at that table above would you buy this stock?

Position 5/9/17:

Short ERA shares @ $10.69, see portfolio graphic for stop loss.

No options recommended because of wide spreads.

VXX - Volatility Index Futures - ETF Description


No material decline because traders are worried about Friday.

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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