Option Investor

Daily Newsletter, Thursday, 1/18/2018

Table of Contents

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

Market Wrap

Government Shutdown Looms, Again

by Thomas Hughes

Click here to email Thomas Hughes


Another government shutdown is looming over the market but even that hasn't put a damper on earnings. It's still early in the season but so far the signs are good; earnings are beating expectations and companies are talking about the positive impacts of tax reform. The shut down, it's a blip on the radar that will pass and likely pass quickly. When it does we'll still have economic and earnings growth on the horizon. Today's data was positive, in line with trends and points to continued expansion into the short term.

Asian indices were mixed. The Nikkei finished the day down, shedding nearly -0.45%, after moving up to touch a 23 year high. China meanwhile moved up by nearly a full percent on better than expected GDP. Official data shows the country grew at a pace of 6.9% for 2017 and ahead of expectations. European indices were largely higher on positive earnings although gains were muted by weak action on Wall Street. The DAX led with a gain of 0.74%, the FTSE lagged with a loss of -0.32%.

Market Statistics

Futures trading was flat for most of the morning. The trade edged up to just above break even going into the open resulting in a mildly positive open. The S&P 500 held above break even for the fist half hour or so and then dipped to just below it shortly after 10AM. The better part of the day was spent with the indices in the red but losses were marginal. Around 2:30PM the market started to drift higher resulting in a move back above break even for the SPX. This move was short lived, the index dipped back below break even by late afternoon to close near the low of the day.

Economic Calendar

The Economy

Initial claims for unemployment fell by -41,000 to hit 220,000. This is a new low dating back to February of 1973 and a much better read than what was expected. The previous week's data was not revised. The four week moving average of claims fell -6,250. On a not adjusted basis claims fell -10.8% versus an expected gain of 6.0% and are up 2% from last year.

The number of continuing claims for unemployment jumped by 76,000 from an upward revision of 7,000 to hit 1.952 million. The four week moving average of claims gained 4,000 to hit 1.921 million. Despite the gains the figure remains low relative to trend and consistent with labor market health.

The total number of claims jumped a whopping 236,753 to hit 2. 341 million. This jump is above expectation but in line with seasonal and long term trends. Now that the post holiday spike has occurred we can expect to see this figure begin receding as soon as next week. Looking forward the total claims figure should hit a new seasonal and long term low sometime in May.

Building permits fell by -0.1% in December but remain up over the last year. The December figure is up 2.8% over the same time last year. Single family homes made up the bulk of gains, up 1.8% in the month and 4.7% for the year. Housing starts fell by -8.2% in December and are down 6% YOY. Single family starts fell 11.8% in the month but are up 2.4% YOY.

The Philly Fed's Manufacturing Business Outlook Survey shows expansion continues in the manufacturing sector but at a slower pace than in the previous month. Manufacturers also report a rise I prices at both the input and output levels, suggesting inflation is rising systemically. The headline activity index fell to 22.2 from last month's upwardly revised 27.9. Even so, activity remains high as does forward outlook. Most sub indices remained positive although all declined from previous levels. Unfilled orders is the only to turn negative suggesting a decline the back log of orders. Looking forward the 6 month outlook index also fell but remains high and consistent with continued expansion.

The Dollar Index

The Dollar Index tried to move higher in today's session but gains were capped and reversed. The day's candle is small and red although losses were negligible, the index holding steady at break even. Regardless, the index is now below my support target and looks like it will continue to drift lower. While the dollar is supported by US economics and FOMC outlook other world currencies are seeing similar updrafts for similar reasons; data from the UK, the EU, China, Japan and elsewhere suggests accelerating growth among global economies. With risk on sentiment driving the market the index could easily move down to lows not seen since before the FOMC began to taper.

The Gold Index

With the dollar falling gold should be rising but this is not the case. The metal shed close to -0.85% as risk-on appetite caused traders to leave the safe haven asset in favor of other investments. Spot gold is now falling from possible resistance at the $1,345 level with a possibility of moving lower. First target for support is $1,330, a break below that may move to $1,315 or 1,300. Over the next 2 to 3 weeks there is a fair amount of inflation related data culminating in the January FOMC meeting. The bank is still not expected to raise rates at this meeting but it is still expected to hike 3 times this year.

The Gold Miners ETF GDX fell -1.5% on the drop in gold and is confirming the long term trading range. The ETF has created a medium/long red candle falling below the $24.00 support/resistance target and likely to move down to the moving average cluster at least. The moving average cluster, the 30 and 150 day EMA's, are tightly packed near the mid point of a long term trading range at $23. A break below the MA's would be bearish within the range. Longer term this sector is still firmly range bound.

The Oil Index

Oil prices held steady near $64 after a record draw down of US crude supplies. The news was taken with a grain of salt, the draw down is bullish for the market but tighter OPEC supplies are still expectd to increase US production. Even so oil prices are well supported in the near term and likely to remain at or near current levels until data or outlook indicates otherwise.

The Oil Index shed about a half percent from yesterday's close but action was sideways rather than down. The index is trending sideways near long term multiyear highs and forming a likely continuation pattern within an up trend. The up trend is driven by earnings and forward outlook that are currently supported by rising oil prices. The indicators are both moving lower, consistent with consolidation, and setting up for a possible trend following signal. A move up to new highs would be bullish and trend following, upside target is 1,450 in the near term, 1,500 in the short.

In The News, Story Stocks and Earnings

Morgan Stanley reported before the bell and joined the ranks of mega-financial institutions to deliver better than expected results. The company reported a 5.3% increase in YOY earnings that beat estimated by more than $330 million. This resulted in earnings of $0.87 which beat estimates by nearly 10%. The beat was driven by wealth management services which saw a substantial increase revenue, offset by weakness in institutional and trading services. Shares of the stock jumped 2% in the premarket but opened with a gain of only about 1%. The stock proceeded to trade flat from there, just shy of 8 year highs, closing near the high of the day.

JBHunt reported before the bell and delivered an astounding beat. The company says revenue increased by 15% from the last year but earnings are up more than 200%. The EPS gain is well above consensus and driven by the estimated impact of newly passed tax laws. Shares of the stock fell in the premarket session but recovered their mojo by end of day to close with a gain of 0.80% and at a new all time high.

IBM reported after the bell and also beat estimates. The company reports revenue and earnings grew from the previous quarter and YOY period for the first time in 23 quarters. The company is expecting to see revenue growth for all of 2018 despite the expected negative impact of tax reform. The company has also announced plans to suspend the stock buyback plan for the first half of the year. Shares of the stock fell on the news, shedding more than -2% in the after market hours to trade near $165.

The Indices

The indices saw a little bit of volatility from government shut down fears but were able to hold their ground. The one posting the largest decline is the Dow Jones Industrial Average at -0.37%. The blue chips created a small red candle after setting a new all time high but does not appear to have hit major resistance. The indicators remain bullish and in support of higher prices although there is a wee bit of weakness showing in the near term. A fall from this level is not expected at this time but if so, could fall as much as 1,000 points before finding support near 25,000.

The Dow Jones Transportation Average is the only index to close with a gain, 0.03%. The transports created a small doji candle to the side of yesterday's candle and appears to be forming a consolidation pattern with up trend. The indicators are bullish but are a bit mixed in terms of signal; MACD is showing a divergence that is of concern while stochastic points lower. A fall from this level could move down to 11,000 or 10,750 if the first target is broken.

The S&P 500 posted the second largest decline, -0.15%. The broad market index created a small, doji like, red candle to the side of yesterday's candle and at current all time highs. While price action was not bullish, it was not bearish either and part of a near term consolidation. The trends are up and supported by indicators consistent with a trend following entry. A move to new highs would be bullish with target near 2,900 in the near term. A fall from this level might be bearish but more likely a consolidation and entry for bullish positions than a signal of reversal.

The NASDAQ Composite Index posted the smallest decline, -0.02%. The tech heavy index created a small doji spinning top to the side of yesterday's candle and just below the current all time high. The index is forming a small near term consolidation within uptrend and is supported by the indicators. Both MACD and stochastic are convergent with the freshly set all time high and now set up to fire trend following bullish entry signals. A move up to new highs would confirm and bring targets near 7,600 into play.

Today's action was tepid but did not end or reverse current trends. The indices took a pause as earnings season gets underway, and the country watches to see if the our duly elected leaders can agree to fund the government. In the near term it looks like the market is in a consolidation. This could carry on through the earnings cycle, or until enough companies have reported for the market to feel comfortable moving on to the next brick in the wall of worry. I remain firmly bullish for the long term and view any pull backs and corrections that may form as entry points for new positions, I am cautiously bullish in the near term.

Until then, remember the trend!

Thomas Hughes

New Plays

Line in the Sand

by Jim Brown

Click here to email Jim Brown
Editor's Note

Senate lawmakers are facing a line in the sand after the House passed a temporary funding bill. The House passed a short-term spending bill this evening but the democrats claim to have enough votes to block it and shut down the government. Do they force a shutdown or cross the line and vote with the republicans? The senate vote will probably not occur until Friday after all the arguments are presented both for and against. Tonight the senate leaders are claiming they have enough votes to block it and 4 republicans are going to vote against it. It would take 13 democrats to switch sides and vote for passage to avoid a government shutdown.

The market declined today on worries a shutdown will occur. In reality, any market dip caused by a shutdown would be a buying opportunity. However, with both sides as polarized as they are today, we could be looking at a multi day event before they hammer out a compromise.

I continue to recommend no new positions until we see how this plays out. We should not risk new money in front of a potentially negative event.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

Fiscal Fears

by Jim Brown

Click here to email Jim Brown

Editors Note:

The potential for a government shutdown kept the markets in check with another 200-point reversal on the Dow. The Dow was the only big loser with the other major indexes keeping their losses in single digits. The worry is a potential government shutdown Friday night. Should the senate approve the house bill the markets should rise again. We may not know that until late Friday night. Currently the democrats claim they have enough votes to stop the bill in the senate.

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

TEVA - Teva Pharmaceutical
The long position was stopped at $20.75.

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

BB - Blackberry Ltd - Company Profile


No specific news. Shares down in a weak market. We have a $13 put so we are not in danger of a big loss.

Original Trade Description: January 8th.

BlackBerry Limited operates as security software and services company in securing, connecting, and mobilizing enterprises worldwide. The company operates in three segments: Software & Services, Mobility Solutions, and Service Access Fees (SAF). The Software & Services segment offers enterprise software and services, including mobile-first security, productivity, collaboration, and end-point management solutions for the Enterprise of Things through the BlackBerry Secure platform; BlackBerry technology solutions, such as BlackBerry QNX, Certicom, Paratek, BlackBerry Radar, and intellectual property and licensing; AtHoc, which provides secure, networked crisis communications solutions; SecuSmart that offers secure voice and text messaging solutions with encryption and anti-eavesdropping facilities; licensing and services related to BlackBerry Messenger; and cybersecurity consulting services and tools. The Mobility Solutions segment engages in the development and licensing of secure device software and the outsourcing to partners of design, manufacturing, sales, and customer support for BlackBerry-branded handsets. This segment also develops software updates for its legacy BlackBerry 10 platform, and delivers BlackBerry productivity applications to Android smartphone users via the Google Play store; and sells its DTEK60, DTEK50, Priv, Leap, and Passport smartphones and smartphone accessories, as well as offers non-warranty repair services. The SAF segment consists of operations related to subscribers using mobile devices with its legacy BlackBerry 7 and prior operating systems. The company was formerly known as Research In Motion Limited and changed its name to BlackBerry Limited in July 2013. BlackBerry Limited was founded in 1984 and is headquartered in Waterloo, Canada. Company description from FinViz.com

Expected earnings March 21st.

BlackBerry started out as a smartphone manufacturer under the name Research in Motion (RIMM). Over the years they failed to keep pace with Apple and Android and the BlackBerry phones are now just a niche market and they contract with another company to have them made.

BlackBerry has evolved into a software and services company with security software, mobility solutions, and dozens of other categories. The company is now the largest provider of automobile operating systems with tens of millions of cars using their QNX software.

They are using their experience in auto OS to build the next generation of autonomous vehicles. They announced last week that Baidu had chosen them to help develop self-driving technology. Baidu said "by integrating the QNX OS with the Apollo platform, we will enable carmakers to leap from prototype to production systems." BlackBerry radar, an asset tracking solution, is already available at more than 2,800 heavy-duty truck dealerships across North America. This software and equipment tracks trucks, loads, trailers, containers, heavy machinery and other transportation assets. Trucking companies and shippers can track the location of their cargo and vehicles in real time all the time.

Last week they reported earnings of 3 cents that beat estimates for a breakeven quarter. Revenues of $226 million beat estimates for $212 million. The company guided for the full year for revenue of $920-$950 million with software revenue up as much as 15%. This was the second quarter of positive earnings surprises after a long drought of weak results. The company promised positive EPS and cash flow for the future.

There are rumors in the market that BlackBerry could suddenly become an acquisition target because of their small size of $8 billion market cap and vast array of growing software services. Shares spiked to a new 4-year high on the earnings and guidance and the stock is suddenly hot once again. This is not some new fad company. There is history and there is a remarkable turnaround in progress.

I am going out to June with the option to get past the March earnings. There is likely to be some profit taking from the recent gains, so we need to buy some time.

I am going to recommend the stock but I am adding a March put, just in case the rebound fails. I fully expect the stock to be significantly higher a couple months from now but I am recommending a 50 cent insurance policy.

Update 1/16: BlackBerry launched a product called BlackBerry Jarvis. This is anti hacking software for self driving cars. Manufacturers can use it to scan their product before they are released to look for weak points that could be hacked. Tata Motors said the product allowed them to cut the analysis time down from 30 days to 7 minutes.

Position 1/9/18:
Long BB shares @ $14.22, see portfolio graphic for stop loss.
Long Mar $13 put @ 50 cents, see portfolio graphic for stop loss.

Alternate position: Long June $15 call @ $1.30, 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.

IMMU - Immunomedics Inc - Company Profile


No specific news. Shares still consolidating.

Original Trade Description: December 23rd.

Immunomedics, Inc., a clinical-stage biopharmaceutical company, focuses on the development of monoclonal antibody-based products for the targeted treatment of cancer, autoimmune disorders, and other diseases. The company engages in developing antibody-drug conjugate (ADC) products comprising IMMU-132, an ADC that contains SN-38, which is in Phase II trials used for the treatment of patients with metastatic triple-negative breast cancer, and small-cell and non-small-cell lung cancers; IMMU-130, an anti-CEACAN5-SN-38 ADC that is in Phase II trials for the treatment of solid tumors and metastatic colorectal cancer; and IMMU-140 that targets HLA-DR for the potential treatment of liquid cancers. It also develops products for the treatment of cancer and autoimmune diseases, including epratuzumab, anti-CD22 antibody; veltuzumab, anti-CD20 antibody; milatuzumab, anti-CD74 antibody; and IMMU-114, a humanized anti-HLA-DR antibody. The company also provides LeukoScan, a diagnostic imaging product to determine the location and extent of infection/inflammation in bone. In addition, it offers other product candidates for the treatment of solid tumors and hematologic malignancies, as well as other diseases, which are in various stages of clinical and pre-clinical development. The company has a research collaboration with The Bayer Group to study epratuzumab as a thorium-227-labeled antibody. Immunomedics, Inc. was founded in 1982 and is headquartered in Morris Plains, New Jersey. Company description from FinViz.com.

Immunomedics recently announced a blinded trial on breast cancer drug sacituzumab govitecan showed positive results. The drug is an anti-TROP-2 antibody that can target multiple tumor types including breast cancer, lung cancer and colorectal cancers. This would be a holy grail of cancer treatment if the drug continues to post solid results. The drug is being tested to treat triple negative breast cancer, a tough-to-treat indication with limited treatment options. These cases represent 15% of the 246,660 new cases of breast cancer reported each year resulting in 40,450 deaths per year. In the recent trial the "objective response rate" or ORR was 31% or nearly double the historical rate for the standard treatment of these patients. The company plans to file for an accelerated FDA approval in early 2018. An independent study of this drug by an outside firm estimated it could produce $3 billion in annual sales by 2025.

Obviously, there is no guarantee the drug will be approved or be successful in the real world but the outlook is promising and it is lifting the stock price. Shares broke out to a new 15-year high on Friday and could continue to make new highs as long as the research on this drug and others continues to be positive. Seattle Genetics (SGEN) owns 7.3% of the company and executed warrants to acquire 8.6 million shares on December 5th for $42.4 million. They obviously believe the drug has potential.

Hopefully the potential for a blockbuster drug will insulate us from any market negativity in January.

Update 1/8/18: Royalty Pharma bought $75 million of IMMU shares at $17.15 per share, 15% over the current price. They also paid $175 million for the rights to market Sacituzumab Govitecan (IMMU-132) on a global basis. They will pay a royalty of 4.15% on a step down basis until sales reach $6 billion annually then the rate will be 1.75%. The $250 million in cash will allow IMMU to fund its next phase of growth with expenses covered well into 2020. Shares declined slightly since the stock sale added to the shares outstanding.

Position 12/26/17:

Long IMMU shares @ $14.69, see portfolio graphic for stop loss.
Alternate position: Long Feb $16 call @ $1.15, see portfolio graphic for stop loss.

JCP - JC Penny Company - Company Profile


No specific news. Support held.

Original Trade Description: January 10th.

J. C. Penney Company, Inc., through its subsidiary J. C. Penney Corporation, Inc., sells merchandise through department stores. The company sells family apparel and footwear, accessories, fine and fashion jewelry, beauty products, home furnishings, and appliances, as well as provides various services, including styling salon, optical, portrait photography, and custom decorating. As of November 10, 2017, it operated approximately 874 department stores in the United States and Puerto Rico. The company also sells its products through its Website, jcpenney.com. J. C. Penney Company, Inc. was founded in 1902 and is based in Plano, Texas. Company description from FinViz.com.

This is going to be a short play description. JCP had been left for dead as the next retailer to disappear after Sears because they are both anchor tenants in dying malls across America. A funny thing happened on the way to bankruptcy court. JCP actually began to recover.

The company raised guidance last week saying same store sales rose 3.4% thanks to strong demand for home goods, beauty products and jewelry. The company said their ecommerce sales rose double digits. They reaffirmed their full year earnings forecast and the CFO warned Sears, "we are coming after your appliance business." That is pretty cocky and suggests JCP is a long way from dead.

Expected earnings Feb 9th.

Shares are suddenly recovering and the outlook has improved significantly.

The best thing about this position is that the May option is very cheap since investors have not really caught on to the recovery yet. We can slip in and take a position and hold the option over earnings and we could have a big long term winner.

Position 1/11/18:
Long JCP shares @ $3.97, see portfolio graphic for stop loss.
Alternate position: Long May $4 call @ 60 cents, see portfolio graphic for stop loss.

TEVA - Teva Pharmaceutical - Company Profile


BTIG downgraded TEVA from buy to neutral and shares fell $1.25 at the open to stop us out with a small gain. I am going to reenter this position on the next dip.

Original Trade Description: January 6th.

Teva Pharmaceutical Industries Limited develops, manufactures, markets, and distributes generic medicines and a portfolio of specialty medicines worldwide. It operates through two segments, Generic Medicines and Specialty Medicines. The Generic Medicines segment offers sterile products, hormones, narcotics, high-potency drugs, and cytotoxic substances in various dosage forms, including tablets, capsules, injectables, inhalants, liquids, ointments, and creams. This segment also develops, manufactures, and sells active pharmaceutical ingredients. The Specialty Medicines segment provides branded specialty medicines for use in central nervous system and respiratory indications, as well as the women's health, oncology, and other specialty businesses. Its products in the central nervous system area comprise Copaxone for multiple sclerosis; Azilect for the treatment of Parkinson's disease; and Nuvigil for the treatment of excessive sleepiness associated with narcolepsy and certain other disorders. This segment's products in the respiratory market include ProAir, ProAir Respiclick, QVAR, Duoresp Spiromax, Qnasl, Braltus, Cinqair/Cinqaero, and Aerivio Spiromax for the treatment of asthma and chronic obstructive pulmonary disease, as well as Treanda/Bendeka, Granix, Trisenox, Lonquex, and Tevagrastim/Ratiograstim products in the oncology market. This segment also offers a portfolio of products in the women's health category, which includes ParaGard, Plan B One-Step, and OTC/Rx, as well as other products. The company has collaboration arrangements with Attenukine, Procter & Gamble Company, and Regeneron Pharmaceuticals, Inc. Teva Pharmaceutical Industries Limited was founded in 1901 and is headquartered in Petach Tikva, Israel. Company description from FinViz.com

Expected earnings Feb 1st.

Teva is the largest generic drug manufacturer in the world. Unfortunately, that market place is becoming very competitive and the company has to reinvent itself to return to a profitable growth profile.

Fortunately, the company is taking action. They have been selling off noncore assets to pay down debt. They just installed a new CEO, Kare Schultz, and he took immediate action. On his second day on the job, he restructured the management team and said he would present a major restructuring plan in mid December. In early December the stock jumped to a two-month high after news broke they were considering cutting 10,000 of their 57,000 workers in an effort to save $1.5-$2.0 billion a year.

Teva announced in mid December they were cutting 14,000 workers from their 56,000-person workforce. They expect to reduce costs by $3 billion by the end of 2019, with $1.5 billion in cost reductions in 2018. The company also suspended its dividend for ordinary shares and will eliminate bonuses for 2017. They are planning on closing a "significant number" of R&D facilities, offices and other locations around the world. They are going to consolidate offices in the US from 7 locations to only one campus. Teva incurred a lot of debt when they purchased the Allergan generic pharmaceuticals business for $40 billion last year. That was poorly timed just as generic prices were crashing. The company is also reviewing its asset base in order to sell noncore assets. Apparently, the new CEO, Kare Schultz, is determined to turn the company around sooner rather than later. Shares are bouncing back from a 17-year low in November. Shares were upgraded by Morgan Stanley, Goldman Sachs and Credit Suisse after the restructuring news.

Shares fell in early November after the company cut full year guidance for the third time and said they may sell shares to reduce their debt. In early December, they pulled back on the share sale idea saying they have no plans for a secondary offering in the near future.

I believe the worst is over. The reaction to the news over the last four months has been horrendous. Shares had fallen from $32 to $10. Since the new CEO took control, they have rebounded back to $19.

The rebound from the restructuring news lifted Teva back to $19 and just below current resistance. Thursday closed at a 5 month high but Friday saw a slight fade. I expect Teva shares to break through the current resistance and begin to recapture some of their losses.

Update 1/8: Teva announced an agreement with Alder BioPharma in the field of anti-CGRP based therapy. This validated Teva's EU patent #1957106 B1 in relation to anti-calcitonin gene-related peptide (CGRP) antibodies and methods of use. Alder will receive an non-exclusive license to Teva's CGP portfolio and will manufacture and commercialize Eptinezumab globally. Alder will cancel its patent litigation and make a one-time payment of $25 million to Teva. A second $25 million payment will be made on approval of a BLA for that drug. Once the drug is marketed Alder will pay $75 million when sales reach $1 billion and $75 million when sales reach $2 billion annually. They will also pay royalty payments of 5% to 7% to Teva. This was a win for Teva.

Update 1/10: Teva said it had reached an agreement with employees regarding closing two plants in Israel. Workers had been protesting since the closures were announced to occur by the end of 2019. Teva made some concessions to the workers and they are returning to work on Thursday. The closures are part of a restructuring that will save Teva $3 billion a year in expenses, which are currently about $16.1 billion a year. In other news directors agreed to cut their compensation in half. Shares rallied 3.5%.

Position 1/8/17:
Closed 1/18: Long TEVA shares @ $19.31, exit $20.75, +$1.44 gain.
Alternate position: Closed 1/18: Long March $20 call @ $1.32, exit $2.17, +$.85 gain.

BEARISH Play Updates

OHI - Omega Healthcare Investors - Company Profile


No specific news. Wednesday's dividend announcement bounce faded.

Original Trade Description: January 11th

Omega Healthcare Investors, Inc. is a real estate investment firm. The firm invests in the real estate markets of United States. It invests in healthcare facilities, primarily in long-term healthcare facilities in order to create its portfolio. Omega is a real estate investment trust investing in and providing financing to the long-term care industry. As of September 30, 2017, Omega has a portfolio of investments that includes approximately 1,000 properties located in 42 states and the United Kingdom and operated by 77 different operators. Omega Healthcare Investors, Inc. was founded in 1992 and is based in Maryland, United States. Company description from Omega.

When Omega reported Q3 earnings, they also reported that two of their 77 operators (lessees) had fallen behind on their rents. The company had to record a charge of $194.7 million in non-cash impairment charges. The problem is that companies that far behind in their rent are not likely to suddenly catch up and send in a check for the past due. It typically suggests a longer term problem that could be terminal for those companies.

Funds from operations (FFO) were 79 cents and -4.8% below the year ago quarter. The company did raise their dividend to 65 cents for the 21st consecutive quarter. However, with massive delinquencies, that dividend could be in trouble. Shares plunged on the news and actually spiked the yield to 9.1% but you never want to be invested in a rising yield stock because the stock itself is declining. Investors appear to be heading elsewhere rather than risk a loss of capital.

Expected earnings Feb 7th.

Shares closed at a five-year low on Thursday. If a stock cannot rally in this market, it is definitely sick.

I am going to recommend this as an option only position. Because this is a bull market we could see a sudden rebound in OHI as a "value" play because of its decline.

Update 1/17: The company announced its 22nd consecutive quarterly increase in its dividend to 66 cents. Up one cent. The dividend is payable Feb 15th to holders on Jan 31st. Shares gained 52 cents on the news after closing at a new low on Tuesday.

Position 1/12/18L
Long March $26 put @ 85 cents, see portfolio graphic for stop loss.

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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