Option Investor

Daily Newsletter, Saturday, 2/9/2019

Table of Contents

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

Market Wrap

Lucky Seven

by Jim Brown

Click here to email Jim Brown

A nearly 100-point spike in the last three minutes of trading stretched the Dow's winning streak to seven weeks.

Weekly Statistics

Friday Statistics

The Dow gained 93 points in the last three minutes to reduce the loss for the day to only 63 points and give the index a 42-point gain for the week. The Dow's streak stretched to 7 weeks but only by a whisker. A similar 8-point spike on the S&P kept it barely positive with a 1+ point gain for the week.

We know what happened last Monday evening when there was a similar closing spike. The market gapped 185 points higher on Tuesday. While there is no guarantee we will see a continued spike on Monday, I would say the odds are good unless we are hit with a headline storm over the weekend. Last minute buy programs like we see below catch the shorts and technical traders off guard and they are forced to catch up at the next open.

Summarizing Friday's economic reports will be very easy this week. There were none.

One event of note was the surge in the dollar. The Dollar Index rose 1.48 since the January 31st lows. That is a major move and slowed the rise in commodities like gold. With the global economy slowing the US is the place to be and that leads to a strong dollar. It will also reduce S&P earnings in Q1 because 50% of S&P earnings come from overseas and the strong dollar will cause problems bringing those profits back home. It will also weaken sales overseas because local currencies are declining relative to the dollar. This makes goods more expensive.

For next week the NFIB small business sentiment survey will be on Tuesday. There was a sharp decline in Nov/Dec from the peak of 108.8 in August. Small business sentiment is impacted by the shutdown more than the tariffs. This is for January and the 35-day shutdown was in full swing so sentiment could have declined even further.

The consumer price index on Wednesday is the biggest report for the week because of the inflation component. Analysts are not expecting any rise so an unexpected rebound would be market negative if it appeared to be strong enough to wake the Fed and put them back in hike mode.

So far in this earnings cycle, 333 S&P companies have reported. Analysts are predicting 16.8% earnings growth for Q4 and 6.0% revenue growth. Some 71.5% of companies have beaten on earnings and 66.2% have beaten on revenue. There have been 42 negative preannouncements and only 15 positive guidance upgrades. The forward PE is 16.0 and 62 S&P companies will report this week.

Q1 earnings estimates have fallen to -0.1% earnings growth and 5.4% revenue growth. Seeing earnings decline on higher revenue means costs are rising.

Seeing the earnings forecast turn negative has not yet impacted the market materially. It was a factor in the Thr/Fri weakness but at only -0.1% it is not enough to force investors back to the sidelines. When we start seeing 2-3% decline forecasts, market sentiment will change.

We have two Dow components reporting this week with Cisco and Coke. There are multiple chip stocks reporting with Applied Materials and Nvidia leading the list. Nvidia has recovered nearly all the losses from the January 28th guidance warning but I would continue to avoid the stock until it moves back over $160.

Activision Blizzard needs to pull a rabbit out of their hat after announcing the breakup with Bunge. Shares are trading at a two year low after a four-year rally.

Arconic (ARNC) reported earnings of 33 cents that beat estimates for 30 cents. Revenue rose 6% to $3.5 billion to beat estimates for $3.4 billion. They guided for the full year for earnings of $1.55-$1.65 on revenue of $14.3-$14.6 billion. Analysts were expecting $1.59 on $14.4 billion.

Investors were not interested in the earnings. The company announced another restructuring plan to cut $200 million in annual expenses. They are considering the sale of other non-core businesses. However, most companies figured out a long time ago the more you cut the smaller you get and the less room for error. Arconic has been struggling since their creation. They did authorize a $500 million buyback program to be completed by the end of 2020 in addition to completing their prior $500 million program in the first half of 2019. Unfortunately, they cut their dividend from 6 cents to 2 cents. Shares fell 3% on the continued confusion.

Goodyear (GT) lost traction and skidded off the road on Friday. The company reported a drop in earnings from 99 cents to 51 cents that missed estimates for 60 cents. Revenue declined 5% to $3.88 billion and missed estimates for $3.94 billion. Tire volumes declined 3% to 40.7 million units. Tires for new cars declined 10% due to weakness in Brazil, India and China as annual car production slowed. Europe saw a minor gain. Tire replacement sales were nearly flat. Competition over the last 20 years has become fierce. Companies like Big-O and Discount Tire have taken over the tire replacement business and they have their own store brands at significant discounts. Shares fell 9% on Friday but that was just punctuation on a long line of declines.

Ventas (VTR) reported funds from operations (FFO) of 96 cents that beat estimates for 95 cents. This was down from $1.05 in the year ago quarter. Revenues of $923.26 million beat estimates by 1%. Investors were underwhelmed and shares fell 18 cents.

Coty Inc (COTY) reported earnings of 24 cents that beat estimates for 22 cents. Revenue of $2.51 billion declined $130 million but still beat reduced estimates for $2.47 billion. Coty has been so beaten up over the past year that expectations were very low. This is another restructuring story and the chart tells us nobody cared. They did talk up the outlook for the immediate future and that prompted some short covering. Shares spiked 32% on short covering.

ATM operator and money transfer firm Euronet Worldwide (EEFT) reported earnings of $1.37 that beat estimates for $1.27. Revenue rose 7% to $649.4 million but missed estimates for $664 million. However, the company said there was a $35 million charge for a change in accounting rules which means they actually posted a big beat. Transactions rose 15% to 1.08 billion. EFT processing revenue rose 10% to $161.3 million due to a 9% increase in the number of active ATMs. Money transfer revenue rose 15% to $274.1 million. Shares rose 10% on the news.

I see these numbers and can't stop thinking about the potential for Paypal to spoil their party. With the Venmo app consumers can send money to anyone. Venmo is up to about $20 billion a quarter in payments. Currently they can only process for US residents but they will eventually find a way to move overseas. US regulators worry about money laundering when dealing with cross border payments. That does not seem to stop consumers in Europe.

Hasbro (HAS) was hammered at the open after the company missed both earnings and revenue for the first holiday quarter without Toys-R-Us. Adjusted earnings of $1.33 missed estimates for $1.67. Revenue fell 13% to $1.39 billion also missing estimates for $1.52 billion. The company said they were not able to recapture the majority of the Toys-R-Us business during the holidays. Adding to the problem was the liquidation of the Toys-R-Us inventory that diluted the market and forced prices lower. Despite the bad news the company raised its dividend from 63 to 68 cents. I applaud them for that measure in the face of diversity.

Shares recovered by the end of the day on positive comments about new toys coming for "Star Wars: Episode IX," "Captain Marvel," "Avengers: Endgame" and "Frozen 2." They are also introducing a new line of Power Rangers toys this year.

Skechers (SKX) reported earnings of 31 cents that beat the year ago quarter loss of 43 cents and analyst estimates for 23 cents. Revenue of $1.08 billion rose 11.4% and narrowly missed estimates for $1.1 billion. Shares spiked significantly after they guided for Q1 earnings of 70-75 cents and analysts were only expecting 63 cents. Susquehanna raised their price target from $24 to $32.

"Hell hath no fury like a woman scorned." That quotation is from "The Mourning Bride" a play by William Congreve. I think we could change it today to "scorned and embarrassed." I am thinking about Mackenzie Bezos. Her husband was running around behind her back like a sex crazed 17yr old texting nude pictures to his new girlfriend. Now that the entire episode has blown up in Jeff's face and severely embarrassed Mackenzie, what could have been a calm private divorce between two ultra-rich professionals may turn into the biggest divorce disaster in US corporate history.

How does Mackenzie go to her next social party, charity fund raiser, etc without everyone talking behind her back or worse. Even though she did not have any part in the sexcapade she will now be tarnished forever. However, Jeff's lawyers now claim his phones were not hacked so maybe it was Mackenzie that texted those pictures to the National Enquirer. I seriously doubt it because of the embarrassment it would bring to her reputation.

The couple has not yet filed for divorce even though they have said they were divorcing. I would not be surprised if the quiet split of 16% of Amazon's stock is going to turn into a public war as her way of getting back at Jeff.

Normally a CEO divorce does not materially impact the stock price. However, in this case given the high-profile nature and Jeff's position as the undisputed leader of Amazon and Blue Origins, a bitter fight could distract him from company business. Amazon is not a normal business. They have hundreds of projects in the works worth tens of billions of dollars and multiple divisions that could be Fortune 500 companies if they were spun off on their own. There are a lot of management decisions required to run Amazon and fighting with your hostile wife on how to divide your $112 billion fortune could be a significant distraction.

You know the National Enquirer is not going to let this story pass. It will be on the front page in some form for months to come. Add in People, Us and the dozen other supermarket tabloids which are going to be milking this story for all it is worth. Before it is over Jeff will be signing up for one of the SpaceX trips to Mars just to escape the story.

Amazon shares closed at a five-week low on Friday as the story became front page on real newspapers and TV news channels. Obviously, the Amazon business is not going to crash because some nude pictures of Jeff made it out of captivity so any material dip is going to be a buying opportunity. Ideally a dip to $1,350 would be great but without some new headlines on this scandal, I doubt we will see that level.

Crude prices fell unexpectedly as legislation in the House took aim at preventing OPEC from controlling prices. This NOPEC legislation is nothing new. It has been discussed for decades but with Trump in office there is actually a chance it could be passed in 2019.

The current bill would prevent the 14-nation cartel from colluding to manage oil prices. Since that is the only reason the cartel exists, this would be a blow for OPEC. The bill in the House is called the No Oil Producing and Exporting Cartels Act or NOPEC. The bill would make it illegal for foreign nations to work together to limit oil supplies and set prices. The bill would authorize the Justice Department to sue oil producers for antitrust violations by stripping foreign actors of their sovereign immunity protections.

Presidents Bush and Obama both threatened to veto any NOPEC bill that made it to their desks. President Trump has constantly complained that oil prices should be a lot lower and OPEC was "ripping off the USA."

Recently OPEC has warned its members against mentioning oil prices when discussing production policy. The WSJ said OPEC was planning some ads to try and influence US perception of OPEC.

Barclays warned that passage of NOPEC legislation could see the oil market return to a period of instability as production surged and prices collapsed.

The challenge is that US producers need a minimum of $50 oil to remain profitable and maintain capex spending and employment of hundreds of thousands of workers. If OPEC production was allowed to run rampant, prices could fall back to $40 or even lower and a lot of smaller companies would go out of business. We actually need OPEC to manage production and keep prices in the $60 range.

US production is on the verge of 12.0 million bpd and could exceed 12.5 or even 13.0 mmbpd by the end of 2019 thanks to a handful of new pipelines coming online this year that will free up constrained production in the Permian.

Inventories should begin to rise more in the coming weeks as refiners shutdown processes for maintenance and to convert over to summer blend fuels. That should depress prices temporarily, but they always rise sharply ahead of Memorial Day through July as summer driving season shifts into high gear.

The Polar Vortex two weeks ago caused a major 237 Bcf decline in natural gas supplies and after last week's frigid return to the Midwest we should see a similar decline in the numbers reported this coming Thursday. Despite the major decline in supplies to a 52-week low, prices have fallen to a ten-month low. The problem for gas traders is that we have 8 weeks of supply at last week's demand levels but only five more weeks of winter of which several are guaranteed to be mild. If the vortex returned for another couple of weeks, gas supplies managers would begin to sweat.


Even though the major indexes finished with a weekly gain it was miniscule and no reason to get excited. If anything, having the Dow stretch its winning streak to 7-weeks is just one more reason for investors to be cautious because you know there is a real bout of profit taking at some point in our future. It would have been more bullish to give back 200-300 points for the week and have investors believe it was a great buying opportunity.

For weeks I warned that investors were pinning all their hopes on a trade deal with China and once Trump said there was no planned meeting with Xi and Kudlow said there was a long way to go to reach any agreement the wheels came off the rally. In the afternoon the White House reporters indicated the March 1st date for tariffs to increase from 10% to 25% could be extended, the market recovered but was still cautious. This sanctions threat will still exist next week.

In addition, the president is said to be signing an order to forbid any Chinese equipment in the 5G networks in the USA. That is a direct attack on ZTE and Huawei and against Chinese trade. Signing this order as US negotiators head to China this week for additional trade talks could be another carrot and stick tactic. If you agree to these trade rules everything will be ok. If you don't agree we are going to put your two largest networking companies out of business. You must give Trump credit. He is not afraid to ruffle feathers or go where no US president has gone before in negotiations with other countries. He is not your average milk toast president. He is not afraid to use Roosevelt's "big stick."

The S&P traded below 2,700 on both of the last two days but recovered to close over that level. The index is stuck below the confluence of multiple resistance levels with the 200-day at 2,742 the biggest threat. Assuming a lack of bad news over the weekend we could see that level retested next week.

The Dow broke through the cluster of moving averages and was on its way to 25,800 when the weakness began. Now the index is using that prior resistance as support. This is about the right level to rest after trading below 25,000 intraday on Friday. The close was 123 points above the intraday lows and back above resistance. This would be a good spot to launch a new move higher.

The A/D line was dead even on Friday with Goldman the biggest drag.

The Nasdaq fell back into correction territory intraday and closed exactly on that 7,298 level. Amazon was the big drag on the index with a couple biotech companies leading the winners list. The tech sector rebounded with the chip stocks, but that rally has given up ground the last two days. With the majority of the big tech stocks already reported we are headed into the post earnings depression period.

The Russell posted a minor 4-point gain for the week, but it was a fight. The index traded on both sides of the 100-day average multiple times but lost the battle on Friday. This week and next is small cap earnings and there are rarely any market movers. This is a herd mentality. If they majority do well the index will rise.

My emotion wants to say buy the dip, but my brain is telling me to be careful. We are heading into the February expiration cycle and many times this is a turning point for the market. Earnings are fading and investors are thinking about taking money out of the market to pay taxes. February is a weak month and normally it is the second half of the month that produces the losses.

With the potential fading for an end of February trade deal, the global economy slowing, Q1 earnings turning negative and a 10% rally since Christmas, there are plenty of reasons to be cautious in the weeks ahead.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email


"The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money."

Alexis de Tocqueville 1835.

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New Plays

Sell the News

by Jim Brown

Click here to email Jim Brown
Editor's Note

Even when the news is good, sometimes we see it sold. The earnings for 8X8 were fine and the guidance was only fractionally reduced.


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


EGHT - 8X8 Inc - Company Profile

8x8, Inc. provides enterprise cloud communications and customer engagement solutions for small and mid-size businesses, mid-market, and distributed enterprises worldwide. It offers unified communications, team collaboration, conferencing, contact center, analytics, and other services to various business customers on a software-as-a-service (SaaS) model. The company provides 8x8 Virtual Office, a self-contained and end-to-end solution that delivers high quality voice and unified communications-as-a-service; 8x8 Virtual Contact Center, a multi-channel cloud-based contact center solution; and 8x8 Virtual Office Meetings, a cloud-based video conferencing and collaboration solution that enables secure and continuous collaboration with borderless high definition (HD) video and audio communications from mobile and desktop devices. It also offers 8x8 Sameroom, an interoperability platform, which enables cross-team messaging and collaboration within a large organization and between organizations; and Script8, a communications flow and routing engine that offers a scripting environment for routing communications data for specific workflows, as well as allows end-users to create simple, personalized, and customizable communications experiences, such as communications control, external data source integration, and intelligent routing. The company integrates its services with third-party applications and platforms, including enterprise resource planning, customer relations management, human capital management, and other proprietary application suites. It markets its services to end users through direct sales organization, Website, and channel partners. As of March 31, 2018, the company serves approximately 53,800 business customers. 8x8, Inc. was founded in 1987 and is headquartered in San Jose, California. Company description from FinViz.com.

8X8 was punished severely for earnings that missed only fractionally. The company reported a loss of 6 cents on revenue of $89.9 million. Analysts were expecting a loss of 6 cents on revenue of $88.6 million. No problems there except that matching on earnings normally produces a decline in the stock.

They lowered guidance for 2019 from $334-$338 million to $334-$335 million. Still not a major decline but the stock was hammered.

Service revenue rose 20% with a 61% increase in customers billing more than $10,000 in monthly recurring charges. Average monthly service revenue per business customer rose to $5,211.

The CEO said "we are disrupting a $50 billion addressable market that is shifting toward cloud solutions with a preference for a single technology platform."

Shares fell from $19.50 to $16.50 on the earnings. They have recovered to $18.79 and continue to move higher.

Earnings April 30th.

Buy EGHT shares, currently $18.79, stop loss $17.79.
Optional: Buy May $20 call, currently $1.10, stop loss $16.95.


No New Bearish Plays

In Play Updates and Reviews

Partial Recovery

by Jim Brown

Click here to email Jim Brown

Editors Note:

The S&P, Nasdaq and Russell closed with a gain but it was only a fraction of Thursday's losses. I think it is great that they rebounded from the morning weakness to close positive but losing 15 points and gaining back 1 point is not a successful trend. We need the small caps to recover from their four day pause and push back to 2-months highs to trigger some enthusiasm.

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

No Changes

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

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


Box shook off the profit taking after the Goldman rating spike and rebounded to close at a new -month high.

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.

EPZM - Epizyme - Company Profile


No specific news. New 5-month high close in a weak market.

Original Trade Description: Feb 6th.

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.

Position 2/7/19:
Long EPZM shares @ $11.63, see portfolio graphic for stop loss.
Optional: Long March $12.50 call @ $.55, see portfolio graphic for stop loss.

INFN - Infinera - Company Profile


No specific news. Shares completed their return to uptrend support after the unexplained spike on February 1st.

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:
Closed 2/7: Long INFN shares @ $4.22, exit $4.75, +.53 gain (12%).

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

RDUS - Radius Health - Company Profile


No specific news. We were stopped out of the stock position on Thursday's dip but big rebound today to inflate the option position.

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:

Optional: Long March $20 call @ $.90, see portfolio graphic for stop loss.

Previously closed 2/7: Long RDUS shares @ $18.70, exit $17.95, -.75 loss.

BEARISH Play Updates

VXXB - Barclays VIX Futures ETN - ETN Description


Only a minor gain despite the weak market. We just need to be patient.

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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