Option Investor

Daily Newsletter, Wednesday, 2/6/2019

Table of Contents

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

Market Wrap

Optimistic Market Treads Water

by Thomas Hughes

Click here to email Thomas Hughes


Equity indices barely budged as trade optimism grows. The top headline, among a host of big news, is word from Secretary of State Steve Mnuchin. Mnuchin says progress is being made on key issues between the US and China and that he is going to China next week. The trip is the third in a series of progressively important meetings leading up to the anticipated Trump/Xi face-off now scheduled for later this month. The face-off will not likely bring an end to trade disputes but it will likely lift sentiment and unleash global economic activity; assuming, of course, there is a positive conclusion to said meeting.

Mnuchin also went on the record saying the Trump economic agenda was working. His remarks were aimed at what he describes as a worrying socialist trend among lawmakers and come with the ultimatum we're not going back to socialism.

Market Statistics

The State of the Union Address was much as I had anticipated, a lot of Trump applauding himself ad some jabs at Congress intended to get them working. Trump says it's time for Congress to be great or be gridlocked, to put aside politics and get things done for the American people, but I don't think anyone heard him. The issues that have long plagued America are probably not going to get fixed by this mixed, divided, partisan Congress and that is too bad. Immigration, infrastructure, and trade are America issues, not just planks in Trump's platform.

Moving on to business news, earnings season continues to roll on and the results continue to be mixed if generally better than expected. Topping the list of reports released before the bell are GM and Spotify. GM reported revenue beat by $2 billion and EPS of $1.43 by nearly a quarter on strong sales, pricing, mix, and cost-controls. Shares of GM were up as much as 4.0% in the pre-market session but shed some of those gains after the open.

Spotify sank -7% in early trading but bargain hunters were there to scoop up the deal. Spotify barely missed on revenue and earnings while acquiring two new podcasts. Fourth quarter monthly active users grew more than expected and are projected to at least meet consensus in the coming year. Other metrics were positive as well, barely missing expectations in most cases, and point to sustained user growth and usage. The move to podcasts seems to be working, Spotify is planning on buying two more podcast producers this quarter.

Economic Calendar

The Economy

There were quite a few economic reports that could have come out today but most didn't, delayed by the government shutdown. Because the next shutdown could start as early as next week it may be a while before we get caught up on the affected data. The market will be flying blind.

Mortgage applications fell -2.5% in the last week. The drop in applications is unexpected because rates have been falling but may be due to the large numbers of applications submitted last month. Regardless, mortgage apps are -10% from this same time last year and point to a much cooler real estate market in 2019.

In trade news, economic news, US exports fell slightly in the last month but were outpaced by a much larger decline in imports. The decline in imports was enough to shrink the trade balance for the first time in five months but not enough to offset increases over the last year. On a YOY basis, the trade balance is up more than 10.0%. Because last year's run-up in trade imbalance, and this month's decline, is due in large part to tariffs the trade balance may continue to shrink this year. If the trade-talks result in renewed trade ties and Trump gets what he wants, the trade balance will shrink more and that will drive positive GDP growth for the US.

The Dollar Index

The Dollar Index moved higher as central bank outlook becomes entrenched. Both banks are expected to hold off on policy tightening for the foreseeable future although the FOMC is the only bank to confirm this view. The ECB is holding off in fear of setting a policy path ahead of this years change in leadership that will determine the new leader's actions.

Janet Yellen appeared in an interview today and delivered a very dovish statement. The former head of the FOMC and a still-influential person says the next move for the FOMC is a rate cut if global slowdown continues.

Other central banks have also indicated a shift in thinking, most notably the Reserve Bank of Australia, which just indicated a possible rate cut later this year. The DXY is likely to move up in the near-term and could reach $96.50 or $97.00 this week. The ECB's Economic Bulletin and Forecasts are due out tomorrow, weak updates and outlook from the EU would help send the dollar higher.

The Gold Index

Gold prices were able to hold relatively steady for most of today's session despite the stronger dollar. Later in the session, that changed, gold prices began to fall and wound up shedding about -0.60 by the end of the session. The move confirms resistance at the $1,320 level and may lead spot price down to retest support at the $1,300 level.

The Gold Miners ETF GDX looks like it is at resistance and may not move higher. The ETF is confirming resistance with today's candle and the indicators confirm the peak so some sideways to down movement is expected. A move lower would be bearish and could take the ETF down to $21.50 or lower. A move sideways could result in a continuation of the recent uptrend but it's too soon to bet on that.

The Oil Index

Oil prices were a little volatile in today's session as supply concerns begin to build up. Now, along with OPEC, the market is balancing sanction against Venezuela, and signs of tightening in the US. On the OPEC front, data from Platts shows OPEC production has fallen to a near 3-year low. This week's EIA inventory data was weaker than expected in almost all aspects due to tightening efforts; crude and gas supplies rose less than expected and distillates fell more than expected. WTI had been moving lower and testing support at $52.50 in early trading but bounced on the news and regained all of today's losses. It looks for now like the market is moving higher, oil may accelerate its move if more signs of tightening emerge.

The Oil Index was relatively steady in today's session, it posted a loss of -0.50% but created a very small spinning top doji in the process. The index is still consolidating beneath the 1,300 resistance and waiting on cues from oil. The indicators are bullish and suggest a move higher is possible, the indicators are also diverging from the recent high which suggest resistance at 1,300 may hold. Even if resistance at 1,300 is broken the long-term moving average would need to be broken before getting bullish on this sector.

In The News, Story Stocks and Earnings

Electronic Arts reported weaker than expected revenue and earnings this morning and had the entire gaming complex moving lower. The company says digital revenue was mostly in-line with consensus but other revenues, about 33% of the total, were far shy of estimates. The company was forced to lower guidance for bookings and adjusted profits. TakeTwo Interactive also reported a mixed quarter that missed expectations for many metrics. Both EA and TakeTwo were down more than -12.0% on the news and drug Activision down with them. Activision moved lower by -10.0%, it reports earnings next week.

Chipotle Mexican Grill served up a sizzling top and bottom line earnings beat. The company says that revenue grew by 10.8% over the last year and adjusted EPS of $1.72 beats consensus by $0.32. Comp-store sales increased by 6.1% versus the expected 4.9% and were driven by the successful use of online sales/marketing. The company says digital revenue grew 66% over the same time last year and accounts for 12% of total revenue this quarter. Restaurant level margins improved as well, decreasing the overall labor cost to 27.1%. The outlook for 2019 is favorable, sans food-bourne illnesses, and helped drive shares up more than 10% in after-hours trading.

GoPro reported revenue grew 12.7%. The strength sales delivered a solid beat on GAAP and non-GAAP earnings. In the release, Nick Woodman says efficient execution, improved margins, and a strong product line-up helped drive results. Shares surged 11% in after-hours trading.

iRobot reported earnings after the bell and swept past the estimates. The company, a consumer products/automation technology innovator, reports revenue grew nearly 18% over the last year and delivered EPS nearly double the expectations. Results were driven by strength in the US and International sales and, more importantly, show little impact of tariffs. The outlook for 2019 is for growth in the high teens, shares surged more than 17%.

The Indices

The index action was a bit weak despite growing trade optimism, not-as-bad-as-expected earnings, and a dovish Fed outlook. Today's moves were not large but they were largely negative and led by the NASDAQ Composite. The NASDAQ Composite shed about -0.50% in the session to create a small red candle to the side of, and equal to, the previous day's upward movement. The candle, the candles, look like a small consolidation move, a little market slip, within the uptrend and the indicators so far agree. Both stochastic and MACD are bullish and suggest upward movement in the index is to be expected. If so, a move up to 7,500 is likely, a move higher possible. If the index slips further my first target for support is the long-term moving average.

The S&P 500 closed with a loss near -0.30% after trading in a tight range all day. The index slipped from its fresh high but is still trending upward and may resume its rise over the next few trading days. The indicators are bullish and suggest a move higher is possible but there is a risk. The indicators are also diverging from the fresh highs which suggest a weakening market. Upward movement is expected, just don't expect too much of it if it comes, my target for resistance is near 2,775. Support is near 2,700 should the index move lower.

The Dow Jones Industrial Average posted a small loss, less than -0.10%, in a day of light trading. The index moved within a very tight range near the top of the previous candle and above a potential resistance target. This target is an uptrend line that has provided support/resistance numerous times in the past. The indicators are bullish and suggest a move up is possible, the caveat is that resistance exists near another uptrend line a few hundred points above today's close.

The Dow Jones Transportation Average also closed with a loss less than -0.10%. The transports created a tiny doji spinning top smack against the 150-day EMA where it may have reached a make-or-break moment. Momentum is waning so sell-side pressure at the 150-day EMA could stall the rally or cause reversal. A move above the EMA would be bullish, my targets would be 10,500 and 10,750, a fall from this level could be bearish but I'd wait a few days to see if a consolidation develops.

The market has been moving higher as FOMC, earnings, and trade-related headwinds subside. The lift provided by those factors is limited in that trade, arguably the single most important aspect of the equation is still in question. Janet Yellen says her dot plot today would should a wide range of possibility to the amount of risk in the market. She didn't say it outright but fixing trade with China means one outcome, an outcome with rising rates, and not fixing trade another, an outcome with declining rates and slackening economic growth. In either case, the outlook for growth is positive so I am firmly bullish because there is so much risk tied to the trade situation I am only cautiously bullish for the near term.

Until then, remember the trend!

Thomas Hughes

New Plays

Love Those Orphans

by Jim Brown

Click here to email Jim Brown
Editor's Note

Getting an orphan drug approved by the FDA is a home run. Epizyme is on track to submit two drug approvals on this new cancer drug. One form has no current drug therapy.


New positions are only added on Wednesday and Saturday except in special circumstances.


EPZM - Epizyme - Company Profile

Epizyme, Inc., a clinical stage biopharmaceutical company, discovers and develops novel epigenetic medicines for patients with cancer and other diseases in the United States. Its product candidates include tazemetostat, an inhibitor of the EZH2, which is in Phase II clinical trial for patients with relapsed or refractory non-hodgkin lymphoma (NHL); Phase II clinical trial for relapsed or refractory patients with mesothelioma; Phase I dose-escalation and expansion study for children with INI1-negative solid tumors; Phase II clinical trials for patients with relapsed or refractory diffuse large B-cell lymphoma (DLBCL); Phase Ib/II clinical trial in elderly patients with DLBCL; and Phase II clinical trial for relapsed or refractory patients with mesothelioma characterized by BAP1 loss-of-function,; and Phase Ib/II clinical trial for the treatment of patients with relapsed or refractory metastatic non-small cell lung cancer, as well as Phase II clinical trial in adult patients with ovarian cancer. The company is also developing additional programs, such as pinometostat, an intravenously administered small molecule inhibitor of DOT1L for the treatment of acute leukemias; and PRMT5 inhibitor that is in Phase I clinical trial for patients with solid tumors and NHL. Epizyme, Inc. has collaboration agreements with Celgene Corporation; Genentech Inc.; Glaxo Group Limited; Roche Molecular Systems, Inc.; Eisai Co. Ltd.; Lymphoma Study Association; and Boehringer Ingelheim. The company was founded in 2007 and is headquartered in Cambridge, Massachusetts. Company description from FinViz.com.

In early January, Epizyme said it was planning to file for approval of its leading drug candidate, Tazemetostat, later this year. This drug is a late-line treatment for follicular lymphoma with EZH2 mutations. There are approximately 25,000 cases diagnosed annually. The Phase 2 data, showed an objective response rate (ORR) of 71% and complete remission of 11%. The ORR for patients with the wild-type EZH2 mutation saw a 6% remission.

The company said the completed Phase 2 data could serve as a new drug application in Q2 for use in epitheloid sarcoma, a cancer without a drug therapy.

Obviously, it takes some time for FDA approval but once approved this could be a very large cash flow in the hundreds of millions of dollars annually.

Shares popped on the initial announcement in January then suffered a relapse on profit taking. This week EPZM has rebounded out of that dip and made a new 5-month high.

Earnings March 12th.

Buy EPZM shares, currently $11.71, stop loss $10.45.
Optional: Buy March $12.50 call, currently $1.20, stop loss $9.85.


No New Bearish Plays

In Play Updates and Reviews

No Headlines

by Jim Brown

Click here to email Jim Brown

Editors Note:

A lack of material headlines from any source kept the markets dormant. No material declines and each index remained stuck right at Tuesday's closing levels. The lack of movement means no real selling. Every little dip was bought. This could change overnight but today was just a pause to consolidate on a lack of market moving headlines from the SOTU.

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

SFIX - StitchFix
The long position was stopped out at $21.85.

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

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3-6 month Option Trades = Ultimate Investor

Full updates on all plays on Wednesday and Saturday. Only closed plays are updated on other days.

BULLISH Play Updates

BOX - Box Inc - Company Profile


Goldman initiated coverage with a buy rating and $31 price target. Shares spiked over $23 on Tuesday and held those gains today.

Original Trade Description: Jan 19th.

Box, Inc. provides a cloud content management platform that enables organizations of various sizes to manage and share their enterprise content from anywhere or any device. The company's Software-as-a-Service platform enables users to collaborate on content internally and with external parties, automate content-driven business processes, develop custom applications, and implement data protection, security, and compliance features. Box, Inc. offers its solution in 23 languages. It serves healthcare and life sciences, financial services, legal services, media and entertainment, retail, education, and energy industries, as well as government sector primarily in the United States. The company was formerly known as Box.net, Inc. and changed its name to Box, Inc. in November 2011. Box, Inc. was founded in 2005 and is headquartered in Redwood City, California. Company description from FinViz.com.

Earnings February 27th.

Box is a provider of cloud content management services to enterprise customers. Procter & Gamble and GE are two of its largest customers. Over the last several weeks there has been a persistent rumor they will be acquired. Google has been a rumored acquirer but it is more likely Microsoft or even Hewlett Packard could be interested.

Entering a position on acquisition rumors is rarely a good move. More than 90% of the time nothing happens. In this case revenue is growing in excess of 25% for 2018 and they guided for 20%+ for 2019. They also guided for their first quarterly profit in Q4 since they went public in 2015.

Their customer retention rate is close to 100% and they had more than 90,000 customers at the end of Q3. Box has enough scale that it makes sense to be acquired rather than a large company trying to replicate their product and service and spend years stealing market share. Buying Box now would be an instant add on to profits.

Shares broke over three-month resistance on Friday and the next material level is $24.

Position 1/22/19:
Long BOX Shares @ $19.74, see portfolio graphic for stop loss.
Optional: Long March $21 Call @ $1.00, see portfolio graphic for stop loss.

INFN - Infinera - Company Profile


Shares have declined slightly from the 17% spike on Friday. There was never any news on the Friday move.

Original Trade Description: Jan 5th.

Infinera Corporation provides optical transport networking solutions, equipment, and software and services worldwide. The company's product portfolio consists of Infinera DTN-X Family of terabit-class transport network platforms, including the XTC Series, XTS Series, and XT Series; Infinera DTN-X XTC series multi-terabit packet optical transport platforms that integrate digital OTN switching and optical WDM transmission; and Infinera DTN-X XT series for terrestrial applications and XTS series for subsea applications. It also provides Infinera XTM Series packet-optical transport platform that enables high-performance metro networks with service-aware, application-specific capabilities; and Infinera Cloud Xpress Family designed to meet the varying needs of ICPs, communication service providers, Internet exchange service providers, enterprises, and other large-scale data center operators. In addition, the company offers Infinera FlexILS open line system platform that connects various Infinera and third-party terminal equipment platforms over long-distance fiber optic cable providing switching, multiplexing, amplification, and management channels. Further, it provides software solutions, including Xceed Software Suite that address long-haul, subsea, and metro networks, as well as a range of support services for all hardware and software products. The company also serves telecommunications service providers, Internet content providers, cable providers, wholesale and enterprise carriers, research and education institutions, enterprise customers, and government entities. It markets and sells its products and related support services primarily through its direct sales force. The company was formerly known as Zepton Networks. Infinera Corporation was founded in 2000 and is headquartered in Sunnyvale, California. Company description from FinViz.com.

Earnings Feb 5th.

Infinera is a global supplier of terabyte speed network equipment. They are in nearly every country. Their products handle long haul data transmission even in undersea links.

Shares collapsed back in early November when they reported earnings. The CEO said the company had seen a pause in sales as buyers evaluated the combined company. They had just purchased Coriant. The CEO said revenue in Q4 would increase by 50% because of the acquisition but they would post a bigger loss on acquisition expenses.

For Q3 they lost 4 cents and analysts were expecting a 5-cent loss. The guidance for Q4 was a loss of 26-30 cents because of the acquisition.

Shares fell to $3.50 post earnings. Over the last week they have recovered to $4.25 and appear to be accelerating higher. Resistance is $5.

This is not a fast mover, but all the bad news is now priced into the stock.

Readers have been requesting more low dollar stock recommendations and this would fit that scenario.

Update 1/10: The Australia to Japan undersea cable completed a major upgrade of the 12,700 kilometer cable system using Infinera ICE4 devices allowing multi terabit capacity.

Position 1/7/19:
Long INFN shares @ $4.22, stop loss $3.75.

Optional: Long April $5 Call @ 31 cents, no stop loss.

NUAN - Nuance Communications - Company Profile


No specific news. Nuance will report earnings after the bell on Thursday. We need to close this position at the open tomorrow.

Original Trade Description: Jan 16th.

Nuance Communications, Inc. provides voice recognition and natural language understanding solutions worldwide. It operates through five segments: Healthcare, Automotive, Enterprise, Imaging, and Other. The Healthcare segment offers clinical speech and clinical language understanding solutions, such as Dragon Medical, a dictation software that allow physicians to capture and document patient care in real-time; transcription solutions, which enable physicians to streamline clinical documentation with a transcription platforms; clinical document improvement and coding solutions; diagnostic solutions that allow radiologists to document, collaborate, and share medical images and reports; and professional and personal productivity solutions to business users and consumers. The Automotive segment provides branded and personalized virtual assistants and connected car services for automotive manufacturers and their suppliers. The Enterprise segment offers On-Premise solutions and services, an automated customer service solution that comprise automated speech recognition, voice biometrics, transcription, text-to-speech, and dialog and analytics products; and On-Demand multichannel cloud, a platform, which offers enterprises the ability to implement automatic customer service. The Imaging segment provides multi-function printer (MFP) scanning and document management solutions; MFP printing and document management solutions to capture and automate paper to digital work flows; and PDF and OCR software for capturing, creation, and management of document work flows. The Other segment offers voicemail transcription and other value-added services to mobile operators; and speech recognition solutions and predictive text technologies for handset devices. The company was formerly known as ScanSoft, Inc. and changed its name to Nuance Communications, Inc. in October 2005. Nuance Communications, Inc. was founded in 1992 and is headquartered in Burlington, Massachusetts. Company description from FinViz.com.

Multiple positive headlines over the last three weeks plus an appearance at the JP Morgan healthcare conference last week has brought new life to Nuance.

In mid November the company announced the spinoff of its automotive unit and shares tanked in an already down market. The spinoff will be completed before the end of 2019 so it is not anything that should impact price today.

Their expertise in voice recognition software is being married with a new AI background to bring this technology to a wide range of applications. Organic revenue rose 12%.

Shares have rebounded from $12.50 to $15.20 in three weeks and could easily retest their November highs near $18 on the new business applications. Fund managers are looking for beaten down small cap stocks as we move into 2019.

Earnings February 19th.

Buy NUAN shares, currently $15.20, see portfolio graphic for stop loss.

Optional: Long Apr $16 call @ 90 cents, see portfolio graphic for stop loss.

RDUS - Radius Health - Company Profile


No specific news. No material movement.

Original Trade Description: Feb 2nd.

Radius Health, Inc., a biopharmaceutical company, develops and commercializes endocrine therapeutics in the areas of osteoporosis and oncology. The company markets TYMLOS for the treatment of postmenopausal women with osteoporosis. It is also developing abaloparatide transdermal patch, a short-wear-time patch formulation of abaloparatide that is in Phase III clinical trial to treat postmenopausal women with osteoporosis; RAD1901, a selective estrogen receptor down-regulator/degrader, which is in Phase I clinical trial for the treatment of metastatic breast cancer; and RAD140, a non-steroidal selective androgen receptor modulator that is in Phase I clinical trial to treat breast cancer. The company has collaborations and license agreements with 3M; Ipsen Pharma SAS; Eisai Co. Ltd.; Duke University; and Teijin Limited, as well as research and development agreements with Nordic Bioscience Clinical Development VII A/S. Radius Health, Inc. was founded in 2003 and is headquartered in Waltham, Massachusetts. Company description from FinViz.com.

A week ago, Radius took advantage of the JP Morgan Healthcare Conference to raise guidance for the full year 2018. Sales of their lead drug, Tymlos, surpassed the upper range of $95-$98 million. This is for osteoporosis in postmenopausal women. This is the only anabolic drug in the US market that is increasing its market share. Share rose from 20% at the beginning of 2018 to 27% at the end of the year. In December, market share of new anabolic patients was 40%.

They announced an accelerated late stage clinical pipeline for two drugs with blockbuster potential ($1 billion a year). These are elacestrant (breast cancer) and abaloparatide-patch (osteoporosis in postmenopausal women.)

For the full year 2019 they expect revenue of $155-$175 million and year-end cash of more than $100 million.

Earnings February 28th.

Since the JP Morgan conference three weeks ago, Radius has moved steadily higher. If shares can move over $20 the rally should accelerate.

Position 2/4/19:
Long RDUS shares @ $18.70, see portfolio graphic for stop loss.
Optional: Long March $20 call @ $.90, see portfolio graphic for stop loss.

SFIX - Stitch Fix - Company Profile


No specific news. Resistance won the battle and there was just enough decline today to stop us out.

Original Trade Description: Jan 23rd.

Stitch Fix, Inc. sells a range of apparel, shoes, and accessories through its Website and mobile app in the United States. It offers denim, dresses, blouses, skirts, shoes, jewelry, and handbags for men, women, and kids under the Stitch Fix brand. The company was formerly known as rack habit inc. and changed its name to Stitch Fix, Inc. in October 2011. Stitch Fix, Inc. was founded in 2011 and is headquartered in San Francisco, California. Company description from FinViz.com.

Stitch posted Q3 earnings in early December of 10 cents compared to estimates for 3 cents. Revenue rose from $295.6 million to $366.2 million and beat estimates for $358 million. They guided for Q4 for revenue of $360-$368 million. Analysts were expecting $363 million.

Shares sank because the expected growth was nearly flat. The company said it was changing its focus to quality long term customers rather than short term customers that are more costly. This is a great move but short sighted investors sold the stock.

They want to move away from customers that continually return everything in their box creating headaches for the company. They want to keep customers that actually buy some or all of the items in their box because that generates the profits. They don't want to add customers at a breakneck speed just to please analysts.

Shares rebounded from the December earnings drop and market crash to a two-month high on Friday. This week has seen a pullback, which could be an entry point.

Position 1/24/19:
Closed 2/6: Long SFIX shares @ $21.82, exit $21.85, +0.03 gain.
Closed 2/6: Long March $23 call @ $1.88, exit $1.61, -.27 loss.

BEARISH Play Updates

VXXB - Barclays VIX Futures ETN - ETN Description


Minor decline in VXXB despite the weak market. If the markets are not crashing the biggest decline days for the VXXB are Thr/Fri ahead of the weekend futures decay.

Original Trade Description: Nov 17th.

The investment seeks return linked to the performance of the S&P 500 VIX Short-Term Futures Index TR. The ETN offers exposure to futures contracts of specified maturities on the VIX index and not direct exposure to the VIX index or its spot level. The index is designed to provide investors with exposure to one or more maturities of futures contracts on the CBOE Volatility Index. Company description from FinViz.com.

The VXXB is a short-term volatility ETN 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 ETN. 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, the prior VXX ETN had done five 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 VXXB and its predecessor the VXX always decline long term.

Unfortunately, put options are expensive with a volatility instrument at this price level. The only recommendation is to short the ETN and forget it. 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 may put a trailing stop loss on it. We will take profits and then look for a bounce to get back in. We could keep this play in the portfolio on a trading basis permanently.

The VXXB will be hard to short. The shares are out there and being traded because the volume on Thursday was 22.1 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.

Position 2/1/19:
Short VXXB shares @ $35.33, see portfolio graphic for stop loss.

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