Option Investor

Daily Newsletter, Tuesday, 11/21/2017

Table of Contents

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

Market Wrap

Gobble, Gobble

by Jim Brown

Click here to email Jim Brown

Investors went on a feeding frenzy today and gobbled up stocks across the board.

Market Statistics

The buying started in Asia with the Hong Kong Hang Seng Index surging +1.91% and lighting a fire in both the Asian and European markets. The equity rally continued into the US markets and all the major indexes surged to new highs. Thanksgiving week is normally bullish and this one is definitely off to a good start.

A final flurry of earnings reports were also helping to lift the market. Medtronic (MDT) reported earnings of $1.07 that beat estimates for 99 cents. Revenue of $7.05 billion beat estimates of $6.98 billion. Hurricane Maria cut $55-$65 million from revenue. The company made a point of complaining about the three hurricanes and the California fires as impacts to sales. Their manufacturing operations in Puerto Rico were significantly challenged because of flooding and power. They guided for revenue growth in 2018 of 4% to 5% and earnings growth of 9% to 10%. Shares rose 5% on the news.

Lowe's Cos (LOW) reported earnings of $1.05 that rose 15.9% and beat estimates for $1.02. Revenue rose 6.5% to $16.77 billion and beat estimates for $16.568 billion. Same store sales of 5.7% beat estimates for $4.6%. The company said hurricanes increased demand both before and after the storms. The company guided for full year revenue to rise about 5% and same store sales to grow 3.5%. Full year earnings guidance was $4.20-$4.30. Shares closed fractionally lower after trading up intraday.

Dollar Tree (DLTR) reported earnings of $1.01 that rose 9.6% and beat estimates for 90 cents. Revenue of $5.32 rose 6.3% and beat estimates for $5.28 billion. Same store sales rose 3.3% system wide and Dollar Tree branded stores rose 5.0%. The Family Dollar brand rose only 1.5%. They guided for the current quarter for revenue of $6.32-$6.43 billion and analysts expected $6.36 billion. For the full year they guided for earnings of $4.64-$4.73 per share on revenue of $22.20-$22.31 billion. Last week Goldman Sachs called them the "top pick" in food retailing. Shares rallied 2.4% to a new closing high.

Campbell Soup (CPB) reported earnings of 92 cents that missed estimates for 97 cents. Revenue of $2.16 billion missed estimates for $2.18 billion. Full year revenue is expected to decline -2% and earnings decline 1% to 3%. Prior guidance was full year earnings of $2.95-$3.02. Shares fell $4 to support at $45.

Signet Jewelers (SIG) was crushed after disappointing on revenue and guidance. The company reported earnings of 15 cents that matched estimates. Revenue of $1.16 billion missed estimates for $1.17 billion. Same store sales fell -5% and total sales declined -2.5%. The company blamed the sales decline on the hurricanes and unexpected disruptions to their credit services. The company guided for the full year for earnings of $6.10-$6.50 per share, down from $7.16-$7.56. Shares fell 30% on the disappointing guidance.

Shoe retailer DSW Inc (DSW) reported earnings of 45 cents that missed estimates for 53 cents. Revenue of $708.3 million missed estimates for $709.6 million. Same store sales fell -0.4%. The company guided for the full year for earnings of $1.40-$1.45, down from $1.45-$1.55. The company blamed the hurricanes and warm weather that kept their "cold weather products from gaining anticipated traction." DSW shares failed to gain traction as well and fell -13%.

After the bell, Hewlett Packard Enterprise (HPE) reported earnings of 31 cents, down from 61 cents that beat estimates for 28 cents. Revenue of $7.66 billion missed estimates for $7.77 billion. There were some divestments that skewed the numbers. The company guided for Q4 earnings of 20-24 cents compared to estimates for 27 cents. The guidance was bad but shortly thereafter, another press release said Meg Whitman was resigning from the role of CEO effective Feb 1st and would be replaced by long time employee Antonio Neri. Shares fell up to 8% on the news to close at $13.25.

HP Inc (HPQ) reported earnings of 44 cents that matched estimates. Revenue of $13.9 billion rose 11% and beat estimates for $13.4 billion. They guided for 40-43 cents for the current quarter and gave 2018 estimates for $1.75-$1.85. Analysts were expecting 42 cents and $1.79. Shares fell 4% on the report.

Gamestop (GME) reported earnings of 54 cents that easily beat estimates for 43 cents. Revenue of $1.99 billion also beat estimates for $1.96 billion. Same store sales rose 1.90% and beat estimates for 1.15%. The company guided for full year earnings of $3.10-$3.40. Shares spiked $2 on the news.

Salesforce.com (CRM) reported earnings of 39 cents that beat estimates for 37 cents. Revenue of $2.68 billion beat estimates for $2.65 billion. Deferred revenue of $4.39 billion rose 26% and beat estimates for $4.18 billion. However, the company guided for Q4 earnings of 32-33 cents and revenue of $2.80-$2.81 billion and analysts were expecting 34 cents and $2.79 billion. For the full year they guided for revenue of $10.43-$10.44 billion, up from $10.35-$10.40 billion. Earnings guidance rose slightly to $1.32-$1.33. Current quarter guidance for billings was $5.00-$5.07 billion and analysts were expecting $5.37 billion. Shares were volatile in the afterhours session with a high of $112 and low of $106 and they closed the session with a loss of $1.

This concludes the earnings for the week with the exception of Deere (DE) before the open on Wednesday.

Paypal (PYPL) is going to allow customers to buy stocks through app-based micro investor Acorns. The app automatically invests your spare dollars into securities you select. This can be a one-time investment or can be set up as a recurring investment. You can also have the app "round up" your Paypal purchases and invest the change into low cost diversified ETFs. Paypal shares gained another $1.76 to close at a new high.

Uber, is the gift to the news community that keeps on giving. We found out today that Uber was hacked and data on 57 million users and drivers had been stolen. That is not surprising in today's economy. However, what is surprising is that they paid the hackers $100,000 to delete their tracks and Uber did not report the hack. This happened in October 2016. Uber said they believe the information was never used and they declined to identify the hackers. Almost immediately, multiple AGs announced they were going to investigate the hack.

Just last week Uber was fined $9 million for allowing persons in Colorado to drive that had items on their background checks that should have kept them from being a driver.

Last October, two hackers accessed a private GitHub coding site used by Uber software engineers and then use the login credentials they obtained there to access data stored on the Amazon Web Services account that handled company data. From there the hackers discovered an archive of rider and driver information. After copying the data, they emailed Uber asking for a payoff. Uber said they were obligated to report the hack and did not do it. They have since implemented significantly stronger security. The New York AG had previously fined Uber for failing to disclose another breach in 2014.

On the economic front, the existing home sales for October rose from 5.37 million to 5.48 million. That was up 2% from September but down -0.9% from October 2016. The months of supply on the market fell from 4.2 to 3.9 and the lowest level since March. Single-family sales were 4.87 million, up 2.1%, and multifamily sales of 610,000 rose 1.7%.

Single-family home listings declined -2.4% to 1.6 million. Multifamily listings fell -7.4% to 201,000. All cash sales accounted for 20% of the purchases. Sales are booming around areas that were devastated by the hurricanes as homeowners move to higher ground or more secure locations.

The Chicago Fed National Activity Index for October rose from 0.36 to 0.65. This was the first time since late 2014 that the index has posted positive numbers back to back. It was also the highest reading since Nov 2014.

After the close, the API crude inventories showed a decline of -6.356 million barrels for the week ended last Friday. Analysts were expecting a decline of -2.1 million. Gasoline inventories rose 869,000 barrels and close to estimates for one million. Distillate inventories fell -1.67 million barrels. Refinery utilization rose to 90% last week and that prompted the drop in crude inventories.

Crude prices spiked over $1.50 in afterhours rising from the $56.09 close to $57.65.

The calendar for the rest of the week only has one highlight and that is the FOMC minutes on Wednesday. Unless the minutes claim a fistfight broke out between Fed members at the last meeting, the minutes will probably be ignored.


Today was a shock. Up until this week the markets had been showing declining internals with individual new highs shrinking and the advance/decline lines teetering on the edge of collapse. All of that has been reversed in only four days. The short squeeze on Thursday kicked it off and follow through appeared this week. All the major indexes closed at new highs on Tuesday despite volume being the second lowest day since October 23rd. Monday was the lowest volume at 5.6 billion shares and Tuesday was only slightly higher at 6.18 billion.

Art Cashin has always said ships can still sink in a quiet sea. Apparently, a rising tide even in a quiet sea can float all boats.

Wednesday is likely to be the lowest volume in months and I would be very surprised to see a continued rally like we saw today. The market can continue higher but I doubt we will see major gains. I have been wrong before and I definitely did not expect Tuesday's gains.

Thanksgiving week is normally bullish but we are also facing an extended weekend since there will be nobody at their trading desks on Friday. This is the equivalent of a 4.5-day weekend because most traders will close up shop after the open on Wednesday.

The S&P surged to a new high with a 17-point gain and closed just under round number resistance at 2,600. This is blue sky territory and we are already well above all but the most optimistic analyst estimates for the end of the year.

We are starting to get forecasts for 2018 and they are off the charts. I should have a graphic in the next week or two. UBS is targeting 2,900 in 2018. Goldman Sachs is targeting 2,850 with 3,000 in 2019 and 3,100 in 2020. Trying to forecast that far out is mostly wishful thinking. Morgan Stanley is projecting 3,000 in 2018 and then 2,000 in 2019. Yes, 2,000 because they expect a recession.

BMO Capital Markets is projecting a bull case for 2018 at 3,250, base case at 2,950 and bear case for 2,200. That pretty much covered all the bases for them. Regardless of what happens they can say they called it.

With only 5-weeks left in 2017, we should be nearing an exhaustion top for the rally. Whether that is 2650, 2700 or even 2800 is just a guess today. However, with every point we move higher we are getting that much closer to a decent correction. I expect it in January but negative tax headlines could trigger it at any time when lawmakers return to work next week.

It was a big day for the Dow with only 5 decliners and a lot of nice gains. Apple, 3M, Home Depot and Boeing led the list. All of which are positions in the LEAPS Newsletter.

The Dow stalled at round number resistance at 23,600, which was also the intraday high back on November 7th. While the Dow may go higher, it is still in the grip of that consolidation pattern from the last four weeks. We need at least one more good move to break free.

There was no doubt about the breakout on the Nasdaq. The index ran for 72 points and closed at the highs for the day. The big cap techs were on fire and that powered the index through that round number resistance at 6,800. This is the kind of move we need to see on the Dow, to stimulate a new round of price chasing.

The Russell 2000 small caps have been exploding higher for the last four days. The index has rallied 54 points or +3.7% in just four days! I wrote on Monday that a Russell breakout to a new high could set the market on fire and one more day like today and anything is possible by year-end.

I am shocked and thrilled to see the markets close at new highs. This is supposed to be a bullish week but this exceeded expectations and there are two days to go. Not having the constant headlines about the potential failure of the tax bill in the senate has been a positive factor. Sometimes traders have short memories. Out of sight, out of mind. Unfortunately, that worry will return next week. There were some positive comments on the various Sunday shows suggesting the GOP leaders were ready to capitulate on anything just to get the tax reform passed. Without it they could lose their majority in the 2018 elections and that would be a disaster for the party. They have to get this passed or die trying.

I would not chase prices here. I do not like buying explosive new highs because they can implode just as fast as they explode. Besides, options premiums are significantly inflated from levels we saw last week. You have my permission to shut down your PC and take the next five days off. Do something constructive like build a snowman with your kids or go shopping with your wife. I guarantee the market will still be here on Monday.

Enter passively, exit aggressively!

Jim Brown

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New Plays

Bearish Capitulation in Progress

by Jim Brown

Click here to email Jim Brown
Editor's Note

While the bulls are giving thanks for their unexpected good fortune, the bears have been banished to the woods. The market is surging and any stock that has posted big gains over the last four days is in danger of a retracement come Monday. This is not a market to go shopping today. I recommend we watch from the sidelines and cheer for any further gains that benefit our existing positions.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

Consolidation Over?

by Jim Brown

Click here to email Jim Brown

Editors Note:

It looks like the four-weeks of consolidation are over with new highs all around. Even the Russell 2000 blew out to a new high after an even longer consolidation period. The Dow closed at resistance but it was still a new closing high. Thanksgiving week is normally bullish and this one is definitely off to a good start.

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

DLTH - Duluth Holdings
The long position was entered at the open.

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

AMD - Advanced Micro Devices - Company Profile


No specific news. Continued minor gains but very slow.

Original Trade Description: November 4th

Advanced Micro Devices, Inc. operates as a semiconductor company worldwide. Its primarily offers x86 microprocessors as an accelerated processing unit (APU), chipsets, discrete graphics processing units (GPUs), and professional graphics; and server and embedded processors, and semi-custom System-on-Chip (SoC) products and technology for game consoles. The company provides x86 microprocessors for desktop PCs under the AMD A-Series, AMD E-Series, AMD FX CPU, AMD Athlon CPU and APU, AMD Sempron APU and CPU, and AMD Pro A-Series APU brands; and microprocessors for notebook and 2-in-1s under the AMD A-Series, AMD E-Series, AMD C-Series, AMD Z-Series, AMD FX APU, AMD Phenom, AMD Athlon CPU and APU, AMD Turion, and AMD Sempron APU and CPU brand names. It also offers chipsets with and without integrated graphics features for desktop, notebook PCs, and servers, as well as controller hub-based chipsets for its APUs under the AMD brand; and AMD PRO mobile and desktop PC solutions. In addition, the company provides discrete GPUs for desktop and notebook PCs under the AMD Radeon brand; professional graphics products under the AMD FirePro brand name; and customer-specific solutions based on AMD's CPU, GPU, and multi-media technologies. Further, it offers microprocessors for server platforms under the AMD Opteron; embedded processor solutions for interactive digital signage, casino gaming, and medical imaging under the AMD Opteron, AMD Athlon, AMD Sempron, AMD Geode, AMD R-Series, and G-Series brand names; and semi-custom SoC products that power the Sony Playstation 4, Microsoft Xbox One, and Xbox One S game consoles. Company description from FinViz.com.

Expected earnings Jan 23rd.

Nvidia (NVDA) shares were rocked again last week after news broke that Tesla was looking at options other than Nvidia for the chips to power the autonomous driving functions. The initial headline saw AMD spike and Nvidia decline. The actual story is that AMD and Nvidia are partnering on creating a chip solution for Tesla. It is no surprise that AMD is in the mix because Tesla hired Jim Keller to lead development of Autopilot. Keller previously worked at AMD and led the development of the Zen architecture and the new Ryzen processors.

AMD announced a new embedded GPU requiring less power and capable of driving five simultaneous 4K displays. The GPU requires less than 40 watts TDP and comes in a smaller, thinner package. The chip has a 1.25 TFLOPS speed and comes in three form factors including MCM, MXM and PCI Express. The 4K and 3D support works for games, medical imaging, advertising signage and industrial uses. The GPU has 4 GB of GDDR5 memory.

AMD reported earnings of 10 cents compared to analyst estimates for 8 cents. Revenue of $1.64 billion rose 25.7% and beat estimates for $1.51 billion. Shares collapsed in afterhours after the company guided for a 12% to 18% decline in Q4 revenue to around $1.34-$1.44 billion and analysts were expecting $1.34 billion. Based on analyst expectations that lower guidance was not that bad but it is the principle of lower guidance that sends investors running for the exits.

The new CEO for AMD, Lisa Su, said in an interview last week that with 10 major product launches this year, AMD has completely restructured its product portfolio. "This shift is perhaps one of the most ambitious product ramps that has been done, certainly in AMD's lifetime."

The new Ryzen Mobile combines the best points of the Zen processor and the best of the Vega product and the most recent graphics architecture into a single product. No other company has been able to combine premium processor cores from both categories and merge them into a single chip that runs in an ultra-thin notebook.

HPQ, Lenovo and Acer have announced products that will ship this quarter in time for holiday shopping. AMD products have found new popularity in the key retailer market. Su said they had captured 50% of sales at Amazon and Newegg, the two biggest online computer marketplaces. Processor revenue rose 74% in the latest quarter. Their new AI product, MI25, is already shipping in quantity to data centers around the world and acceptance was accelerating.

I think analysts were wrong on the Q3 earnings. I believe AMD is right on the edge of a resurgence that will make the company a real competitor again.

I am using the April options to get us past their January earnings. When we exit before the event the options will still have an expectation premium.

Update 11/6/17: AMD and Intel could have waited one more day before announcing a partnership to combine AMD's graphics chip with an Intel processor and High Bandwidth Memory to create a thinner and lighter chip for laptops with top tier visual performance. This was rumored several weeks ago but Intel denied it at the time. On Oct 10th, I wrote this.

AMD shares rallied after a processor conference and upgrade to Nvidia. Yesterday there was an article with a picture of a new Intel processor with "Vega Inside" but it has disappeared today. Intel has previously denied any licensing with AMD but the picture showed a mobile processor with Intel Outside, Vega Inside, which would mean AMD's Vega graphics on an Intel chip. This was for a mobile processor for a notebook or tablet. Apparently, Intel was not ready for the world to see that internal graphic and the article was removed from circulation. If/when Intel does announce a deal with AMD the stock is going to soar.

Update: I was able to go back and find the link I had saved even though it was no longer referenced on the website. Vega Inside

Update 11/8/17: AMD's head of the graphics chip unit, Raja Kordui, announced his resignation. This creates big sentiment problems for AMD. He said he was leaving to spend more time with his family but why would a highly successful department head exit right on the eve of a major product expansion? Of course AMD said this would not impact their direction and future goals but Kordui was credited with making AMD GPUs competitive with Nvidia and kept Nvidia from dominating the space. CEO Lisa Su will assume Kordui's role until a replacement is named. She is by far the most intelligent and dynamic CEO the company has ever had and she is more than capable of occupying both positions.

Position 11/6/17:

Long AMD shares @ $12.04, see portfolio graphic for stop loss.
Alternate position: Long April $12 call @ $1.50, see portfolio graphic for stop loss.

BOTZ - Global X Robotics AI - Company Profile


Since this is a long-term slow moving ETF position, there will not be daily commentary.

Original Trade Description: October 4th.

The investment seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Indxx Global Robotics & Artificial Intelligence Thematic Index. The fund invests at least 80% of its total assets in the securities of the underlying index. The underlying index is designed to provide exposure to exchange-listed companies in developed markets that are involved in the development of robotics and/or artificial intelligence as defined by Indxx, the provider of the underlying index. The fund is non-diversified. Company description from FinViz.com.

Robots of every description are taking over the manufacturing sector, service sector, etc. Drones are automated. Autos are becoming autonomous.

Even more important to this ETF is the sudden arrival of Artificial Intelligence or AI. That is the buzzword for everything. Everybody is trying to get into the AI business.

This ETF took off last January and while there have been several mild hiccups along the way, the chart is nearly vertical as investors become aware of it.

I am going to lag back on the stop loss because this could be a long-term position.

Update 10/26: Shares of BOTZ fell 50 cents for the biggest one-day drop since the ETF began in September 2016. There was no news but volume of 4.16 million shares was the largest ever and well over the 964,000 historical average.

Position 10/5/17:

Long BOTZ shares @ $22.10, see portfolio graphic for stop loss.
Alternate position: Long Mar $23 call @ 80 cents, see portfolio graphic for stop loss.

DLTH - Duluth Holdings - Company Profile


No specific news. Company opened its 29th store in Grandville Michigan.

Original Trade Description: November 20th

Duluth Holdings Inc. markets clothing, tools, and accessories under the Duluth Trading brand via Website and catalogs for contractors and serious do-it-yourselfers in the United States. It offers shirts, pants, casual wear, workwear, underwear, outerwear, footwear, accessories, and hard goods for men and women. The company markets its products under the various trademarks, trade names, and service marks, including Alaskan Hardgear, Armachillo, Ballroom, Bucket Master, Buck Naked, Cab Commander, Crouch Gusset, Dry on the Fly, Duluth Trading Company, Duluthflex, Fire Hose, Longtail T, No Polo Shirt, and Wild Boar Mocs. It also operates six retail stores and an outlet store across Minnesota, Iowa, and southern Wisconsin. The company was formerly known as GEMPLER'S, Inc. and changed its name to Duluth Holdings Inc. Duluth Holdings Inc. was founded in 1989 and is headquartered in Belleville, Wisconsin. Company description from FinViz.com.

Duluth reported Q2 earnings of 13 cents and beat estimates for 10 cents. Revenue of $86.2 million also beat estimates for $82.8 million. The company guided for the full year for earnings of 66-71 cents and revenue in the range of $455-$465 million.

Shares traded sideways to slightly higher for the last two months. On November 1st, BMO Capital downgraded the company from outperform to market perform and lowered their price target to $20. The analyst said they were seeing increased fall promotions and early season specials by brands they considered to be peers to Duluth.

Whether this will impact Duluth or not is unknown until they report earnings on Dec 7th. Shares have ticked up over the last three days as investors buy retailers ahead of the holiday season.

I also see Duluth as an acquisition target but that is not likely over the next three weeks.

This is going to be a short play. We are going to exit before the Dec 7th earnings. I am looking for a continued rise to $20 over the next three weeks.

Position 11/21/17:

Long DLTH shares @ $18.26, see portfolio graphic for stop loss.
Alternate position: Long Jan $20 call @ $1.10, see portfolio graphic for stop loss.

We could hold the call over earnings depending on stock movement over the next three weeks.

INVA - Innoviva Inc - Company Profile


No specific news. Shares closed at a 4-week high.

Original Trade Description: November 15th

Innoviva, Inc. engages in the development and commercialization of bio-pharmaceuticals. Its portfolio of respiratory products include RELVAR/BREO ELLIPTA, (fluticasone furoate/ vilanterol, FF/VI) and ANORO ELLIPTA (umeclidinium bromide/ vilanterol, UMEC/VI). The company, under its the Long-Acting Beta2 Agonist (LABA) collaboration agreement and the strategic alliance agreement with Glaxo Group Limited (GSK), is entitled to receive royalties on the sales of RELVAR/BREO ELLIPTA; and a 15% of any future payments made by GSK under its agreements relating to the combination FF/UMEC/VI and the Bifunctional Muscarinic Antagonist-Beta2 Agonist program, as monotherapy and in combination with other therapeutically active components. It has LABA collaboration agreement with GSK to develop and commercialize once-daily LABA products for the treatment of chronic obstructive pulmonary disease and asthma. The company was formerly known as Theravance, Inc. and changed its name to Innoviva, Inc. in January 2016. Innoviva, Inc. was founded in 1996 and is headquartered in Brisbane, California. Company description from FinViz.com.

Expected earnings January 24th.

Innoviva reported earnings of 21 cents ($23.8 million) compared to estimates for 33 cents. Revenue was $48.6 million. Yes, earnings were nearly 50% of revenue. Adjusted EBITDA rose 39% to $46.0 million. Cash onhand was $168.2 million. They received $51.9 million in royalties from Glaxo Group (GSK).

Shares crashed nearly $3 on the earnings miss despite very positive business comments from the company. Their new drugs now being marketed by Galxo were dowing well. The sales of Relvar/Breo Ellipta rose 40% to $297.4 million. Sales of Anoro Ellipta rose 51% to $111.9 million. They received a positive opinion in September from the EU Medicine Agency for Trelegy Ellipta for COPD. They received approval for the same drug from the FDA. Read further business updates in their release HERE.

Everything looks bright for INVA and their strong relative strength in a weak market suggests they will do well when the market recovers.

Position 11/16/17: Alternate position: Long March $15 call @ 60 cents, see portfolio graphic for stop loss.

ON - ON Semiconductor - Company Profile


No specific news. Still holding at the highs.

Original Trade Description: November 7th

ON Semiconductor Corporation manufactures and sells semiconductor components for various electronic devices worldwide. It operates through three segments: Power Solutions Group, Analog Solutions Group, and Image Sensor Group. The Power Solutions Group segment offers discrete, module, and integrated semiconductor products for various applications, such as power switching, power conversion, signal conditioning, circuit protection, signal amplification, and voltage reference. The Analog Solutions Group segment designs and develops analog, mixed-signal, and logic application specific integrated circuits and standard products, as well as power solutions for a range of end-users in the automotive, consumer, computing, industrial, communications, medical, and aerospace/defense markets. This segment also provides trusted foundry, trusted design, and manufacturing services, as well as integrated passive devices technology. The Image Sensor Group segment offers complementary metal oxide semiconductors and charge-coupled device image sensors, as well as proximity sensors, image signal processors, and actuator drivers for autofocus and image stabilization for a range of customers in automotive, industrial, consumer, wireless, medical, and aerospace/defense markets. The company serves original equipment manufacturers, distributors, and electronic manufacturing service providers. Company description from FinViz.com.

Earnings Feb 6th.

ON continues to power higher on a surge of new products as the IoT boom continues. The company completed the acquisition of Fairchild Semiconductor in September.

A major factor in the boom is the Advanced Driver-Assistance Systems. This market is expected to reach $42 billion by 2021 according to MarketsandMarkets. This is giving ON a tremendous boost in earnings and forecasts.

In October ON and Fujitsu announced an agreement where ON will purchase 40% of Fujitsu's 8-inch wafer fabrication plant in Aizu-Wakamatsu. The purchase will be completed by April 1st. ON already had a 10% share and will acquire another 30%. ON said it planned to increase ownership to 80% in the second half of 2018 and 100% in the first half of 2020. By scaling into the ownership it will allow ON to add capacity as demand increases.

The company reported earnings of 30 cents that missed estimates for 40 cents. Revenue of $1.39 billion beat estimates for $1.37 billion. They guided for the current quarter for revenue of $1.33-$1.38 billion. They missed the estimates but that was a 976% rise in profits and 46% increase in revenue. Shares fell sharply at the open to stop us out but rebounded sharply in the afternoon. I am recommending we reenter this position using only the April option. This is the first available option series after their Feb 6th earnings. We will not hold it until April but being after their earnings the option will retain its premium better for when we do decide to exit. I am also listing the December $20 put because it is cheap and ON has been rising for 2 months. If the rally dies this would be cheap insurance.

Position 11/8:

Long Apr $22 call @ $1.60, see portfolio graphic for stop loss.
Optional position: Long Dec $20 put @ 20 cents, see portfolio graphic for stop loss.

STM - ST Microelectronics - Company Profile


No specific news. Shares moving with the markets.

Original Trade Description: November 11th

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. STMicroelectronics N.V. was founded in 1987 and is headquartered in Geneva, Switzerland. Company description from FinViz.com.

STM reported earnings of 28 cents rose 136% on revenue of $2.14 billion, which rose 19%. Analysts were expecting 24 cents and $2.09 billion. Earnings were boosted by multiple products in the Apple product line. All product groups reported double-digit revenue growth with strong demand across all geographies. The CEO said "we continue to see strong demand in Q4 across all products and all geographies with strong booking activity and the expected acceleration of growth serving wireless applications. Revenue should increase 10% in Q4."

Expected earnings January 25th.

Demand is surging for their new "time of flight" sensors, which Apple is buying as a proximity or motion detector for the iPhones.

Last week STM announced a new, faster wireless charging QI extended power chip for phones and tablets. The chip supports the very latest QI standard for faster charging. By raising the power from 5W to 15W phones can charge three times faster.

I have looked at playing STM a dozen times over the last several months and kept waiting for a pullback that never came. Shares dipped on Thursday with the chip sector but immediately rebounded. I believe the chip sector will remain hot and STM will continue higher. With the earnings beat and strong guidance there should be nothing holding it back.

Position 11/13/17:

Long STM shares @ $23.56, see portfolio graphic for stop loss.
Alternate position: Long April $25 call @ $1.70, see portfolio graphic for stop loss.

April is the only option series that allows us to exit before earnings but still have the expectation in the option price.

SYNT - Syntel - Company Profile


No specific news. Shares posted a minor gain and are near the recent high.

Original Trade Description: November 18th

Syntel, Inc. provides digital transformation, information technology (IT), and knowledge process outsourcing (KPO) services worldwide. The company operates through Banking and Financial Services; Healthcare and Life Sciences; Insurance; Manufacturing; and Retail, Logistics, and Telecom segments. It offers managed services, including software applications development, maintenance, and digital modernization testing, as well as IT infrastructure, cloud, and migration services. The company also provides a range of consulting and implementation services built around enterprise architecture; data warehousing and business intelligence; enterprise application integration; and SMAC technologies, including social media, Web and mobile applications, big data, analytics, and Internet of things. In addition, it offers KPO services that provide outsourced solutions for knowledge and business processes; and business intelligence, enterprise resource planning, and business and technology consulting services. The company offers its products to various companies in the banking and financial services, healthcare and life sciences, insurance, manufacturing, retail, logistics and telecom, and other industries. Syntel, Inc. was founded in 1980 and is headquartered in Troy, Michigan. Company description from FinViz.com.

Syntel reported earnings of 51 cents that beat estimates for 41 cents. Revenue of $231.3 million also beat estimates for $218.2 million. For the full year they guided for earnings of $1.81-$1.88 and revenue of $890-$902 million. They ended the quarter with $109 million in cash.

Business is good and a highly qualified labor force has allowed them to reduce their employee coult from 23,055 last year to 21,928 at the end of Q3. The CEO said the demand for digital services was robust and the insurance segment continued to post healthy growth.

Shares spiked from $19 to $25 on the earnings in mid October. After a month of post earnings depression the uptrend has returned with the stock back at $25.

Because the stock is a few pennies over $25 the next available option strike is the $30 level. There is no open interest in Dec/Feb series. I am going to reach out to May where there is open interest of 415 contracts and there is actually a bid and ask quote. We do not have to hold the position until May but should we get lucky and Syntal makes a breakout, the long dated options will inflate relatively quickly.

Position 11/20/17:

Long SYNT shares @ $25.00, see portfolio graphic for stop loss.
Alternate position: Long May $30 call @ $1.05, see portfolio graphic for stop loss.

BEARISH Play Updates

IWM - Russell 2000 ETF - ETF Profile


The Russell blew through resistance at 1,508 and 1,513 and closed at a new high. The market could be off to the races if these gains hold past Thanksgiving week. The IWM missed our stop loss by 21 cents.

Original Trade Description: November 16th.

The Russell 2000 ETF is reflective of 2,000 small cap stocks. Financials have the largest weighting at 18.3%, technology 17.1%, industrial 15.0%, healthcare 14.8% and consumer discretionary 12.0%. This is the primary way for individual investors to participate in the direction of the Russell 2000.

I am going to make this as simple as possible. The Russell rebounded 23 points on Thursday in a massive short squeeze after closing at a 2-month low the day before. It is very overbought from the rebound that began in August. Today's spike is sure to be sold. It is due for a rest.

The earnings cycle is over. Post earnings depression is here. The short squeeze is likely to fail. The tax plan faces an uphill battle and January could see a major market decline. It has been over 500 days since the market had a 5% decline and we average twice a year. We are due.

This is highly speculative. I am using February options because I want to have as much time as possible for this scenario to play out and I expect a market decline in Janaury, if not before then.

This is an option only position.

Position 11/17:

Long Feb $145 put @ $3.63, see portfolio graphic for stop loss.
OPTIONAL: Short Feb $135 put @ $1.51, see portfolio graphic for stop loss.
Net debit $2.12.

VXX - Volatility Index Futures - ETF Description


Since this is a long-term slow moving ETF position, there will not be daily commentary.

Original Trade Description: September 18th.

The VXX is a short-term volatility ETF 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 five reverse splits occurred at $13.11 (11/2010), $8.77 (10/2012), $12.84 (11/2013), $9.52 (8/8/16), $12.77 (8/22/17). The prospectus says it can reverse split anytime it trades under $25 for a prolonged period and the splits will always be 1:4.

We know from experience that the VXX always declines. The last two times we shorted this ETF we had a $7.23 and $5.98 gain.

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 into year-end we could see a sharp decline in the VXX over 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.

The VXX is hard to short. Shortsqueeze.com says there are 19.9 million shares short out of 26.7 million shares outstanding. The shares are out there and being traded because the volume on Monday was 29.6 million. You have to tell your broker you really want to short it and make them find the shares. Sometimes it takes days or even a week before your broker will find you the shares. Trust me, be persistent and it will be worth the effort.

I had held off after the 1:4 reverse split because the options were expensive and I was expecting volatility in September from the budget battle and debt ceiling hurdle. With those issues pushed out into December, the volatility is dropping like the proverbial rock. Several readers have already emailed me asking when I was going to put this position back in the portfolio.

Position 9/19/17:

Short VXX shares @ $40.95, see portfolio graphic for stop loss.

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