Not adding new plays on Thursday evening was the right decision. The potential for profit taking ahead of the weekend was too great and now that has occurred. The key for next week is whether support holds and the rally can continue. Historically next week could see some increased volatility after the Monday debate. Friday's decline could have been investors getting ready for that volatility.
We were only stopped out on one position and that was Alexion with a whopping -6.47 drop on no news. The stocks with the biggest gains from Thursday saw the biggest declines on Friday but that is normal. Also normal was the sudden rebound in the stocks with puts. Those stocks most beaten down tend to attract buyers when the market declines because they appear to be already oversold.
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.
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
ALXN - Alexion Pharma
The long call position was stopped out with a trade at $127.85.
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BULLISH Play Updates
ALXN - Alexion Pharmaceuticals - Company Profile
Major implosion on Alexion on no news. Wedbush initiated coverage at neutral but I doubt that causes the selling. This was more than likely a sell the news event on the drug approval on Thursday. Investors waiting on that event, exited with their gains. Shares rose $3.33 on Thursday and fell -$6.30 today. We were stopped out on the drop.
Original Trade Description: September 14th.
Alexion Pharmaceuticals, Inc., a biopharmaceutical company, develops and commercializes life-transforming therapeutic products. The company offers Soliris (eculizumab), a monoclonal antibody for the treatment of paroxysmal nocturnal hemoglobinuria (PNH), a genetic blood disorder; and atypical hemolytic uremic syndrome (aHUS), a genetic disease. It provides Strensiq (asfotase alfa), a targeted enzyme replacement therapy for patients with hypophosphatasia (HPP); and Kanuma (sebelipase alfa) for the treatment of patients with lysosomal acid lipase deficiency. The company also conducts Phase IV clinical trials on Soliris for the treatment of PNH registry; Phase III clinical trials for the treatment of myasthenia gravis, neuromyelitis optica spectrum disorder, and delayed kidney transplant graft function; and Phase II clinical trials for antibody mediated rejection in presensitized renal transplant patients. It develops cPMP (ALXN 1101) that is in Phase II/III trial for treating metabolic disorders; and ALXN 1007, a novel humanized antibody in Phase II clinical trial for the treatment of anti-phospholipid syndrome and graft versus host disease. Company description from FinViz.com.
The Uncommon Strength campaign supports building global communities for patients with rare diseases, which include atypical hemolytic uremic syndrome (aHUS), hypophosphatasia (HPP), lysosomal acid lipase deficiency (LAL-D) and paroxysmal nocturnal hemoglobinuria (PNH). While the platform aims to provide key information about the diseases to educate the patients and their families, it also offers interactive connection through social media components to unite the global community.
Last week Alexion was awarded orphan drug status by the EU on the ALXN1007 drug for the treatment of graft-versus-host disease (GVHD). This is an anti-inflammatory monoclonal antibody targeting complement protein C5a, currently in a phase II study in patients with newly diagnosed acute GVHD of the lower gastrointestinal tract (GI-GVHD). This disease has a 30-40% mortality rate. The orphan drug status provides certain incentives for the company to proceed with marketing including a longer period of market exclusivity. They have several other drugs similar to ALXN1007.
In Q2 they reported adjusted earnings of $1.25 compared to estimates for $1.17. Revenue of $753.1 million also beat estimates for $742.5 million.
Earnings Oct 27th.
Shares dipped in late August and traded sideways for two weeks. They have been trying to rebound despite the volatile market. Options are expensive so I am recommending a November call spread to reduce the expense.
Position 9/15/16 with a ALXN trade at $130.50
Closed 9/23/16: Long Nov $135 call @ $6.00, exit $4.20, -1.80 loss.
Closed 9/23/16: Short Nov $145 call @ $1.90, exit $2.15, -.25 loss.
Net loss $2.05.
CLVS - Clovis Oncology - Company Profile
No specific news. Traders took some profits after the $2.68 gain on Thursday.
Original Trade Description: September 13th.
Clovis Oncology, Inc., a biopharmaceutical company, focuses on acquiring, developing, and commercializing anti-cancer agents in the United States, Europe, and internationally. It is developing three product candidates, which include Rociletinib, an oral epidermal growth factor receptor and mutant-selective covalent inhibitor that is under review with the U.S. and E.U. regulatory authorities for the treatment of non-small cell lung cancer; Rucaparib, an oral inhibitor of poly polymerase, which is in advanced clinical development for the treatment of ovarian cancer; and Lucitanib, an oral inhibitor of the tyrosine kinase that is in Phase II development for the treatment of breast cancers. Company description from FinViz.com.
Clovis has been rising on the prospects for the drug Rucaparib. They reported last week the FDA was not planning on holding an advisory committee meeting to discuss the new NDA application. The FDA has accepted the company's NDA for accelerated approval and granted it a priority review. The FDA response is expected to be positive and is expected by Feb 23rd.
Clovis has several anti cancer drugs in final stages and the outlook is very positive. Just seeing that CLVS shares have not declined in the recent market drops is a very strong indication that portfolio managers are buying and holding.
Earnings Nov 3rd.
We have to use a January call spread because October is the only other series available and with Friday the expiration for September, the October premiums will collapse next week. The net cost is the same but with the January options, we have more flexibility in the weeks ahead.
Long JAN $30 call @ $6.00, see portfolio graphic for stop loss.
Short JAN $40 call @ $3.31, see portfolio graphic for stop loss.
Net debit $2.69
IDCC - Interdigital - Company Profile
On Thursday IDCC boosted its dividend 50% to 30 cents per quarter. This dividend is payable on Oct 26th to holders on Oct 12th. Shares rallied +1.88 to a new high. On Friday they declined -1.25. Not a big loss.
Original Trade Description: September 7th.
InterDigital, Inc. designs and develops technologies that enable and enhance wireless communications in the United States and internationally. It offers technology solutions for use in digital cellular and wireless products and networks, such as 2G, 3G, 4G, and IEEE 802-related products and networks. The company develops cellular technologies comprising technologies related to CDMA, TDMA, OFDM/OFDMA, and MIMO for use in 2G, 3G, and 4G wireless networks and mobile terminal devices; and other wireless technologies related to Wi-Fi, WLAN, WMAN, and WRAN. Its patented technologies are used in various products, including mobile devices, such as cellular phones, tablets, notebook computers, and wireless personal digital assistants; wireless infrastructure equipment comprising base stations; and components, dongles, and modules for wireless devices. As of December 31, 2015, it had a portfolio of approximately 20,400 patents and patent applications related to the fundamental technologies that enable wireless communications. Company description from FinViz.com.
IDCC does not make the equipment that uses its designs and patents. They lease those patents to other companies for annual royalty payments based on the volume of devices sold. This is a very lucrative business because they do not have the cost of production or the risk any specific product will not sell in the marketplace.
For Q2 they reported earnings of 48 cents that beat estimates for 26 cents. Revenue of $75.9 million was $300,000 short of estimates. They received an arbitration award of roughly $150 million from Huawei in the quarter that will be reported as income in Q3. They also announced a new multi-year patent agreement with Huawei for 3G and 4G units. They ended Q2 with $814 million in cash.
Update 9/8/16: The company issued revenue guidance for Q3 of $220-$225 million. This compares to Q2 revenue of $75.9 million. Quarterly revenues are volatile because they receive royalties on new products when shipped. For instance, a royalty on the iPhone 7 would show a monster jump in Q4 compared to minimal revenue in Q3.
Earnings Oct 27th.
IDCC is a member of the S&P-400 MidCap index.
IDCC shares are moving slowly higher with very little volatility. They closed at a new high on Wednesday. I know the daily chart looks scary but the 90-min chart below shows the three weeks of consolidation after their Q2 earnings jump. That consolidation is breaking to the upside and given their guidance, I believe it has room to run. I am using an inexpensive option in case disaster strikes.
Position 9/8/16 with a IDCC trade at $73.25
Long Oct $75 call @ $1.60. See portfolio graphic for stop loss.
ITW - Illinois Tool Works - Company Profile
No specific news. Shares fell back to prior resistance, now support.
Original Trade Description: September 12th.
Illinois Tool Works Inc. manufactures and sells industrial products and equipment worldwide. It operates through seven segments: Automotive OEM; Test & Measurement and Electronics; Food Equipment; Polymers & Fluids; Welding; Construction Products; and Specialty Products. The company distributes its products directly to industrial manufacturers, as well as through independent distributors. Illinois Tool Works Inc. was founded in 1912. Company description from FinViz.com.
In late July, ITW reported earnings of $1.46 that rose 12.3% and beat estimates for $1.40. Revenue of $3.43 billion beat estimates for $3.40 billion. ITW guided for Q3 earnings of $1.42-$1.52 compared to analyst estimates for $1.46. The company raised full year guidance for earnings by 10 cents to the $5.50-$5.70 range. Analysts were expecting $5.51 per share.
Earnings Oct 19th.
The stock jumped from $111 to $115 on the news and then traded sideways for two weeks on post earnings consolidation. In early August, the shares started a slow climb to hit $119 and a new high. Every day I thought about recommending ITW but I kept waiting for a pullback.
On Sept 2nd shares spiked to $123.50 on no news. That spike was erased and shares drifted back down to the prior consolidation range of $119 and held there for two days. The 9/9 crash knocked us out of our prior position and shares dipped to $114.91 on Monday the 12th. Real support is $114.50. I am going to recommend this position for a reentry on a dip to $115.50 on any further market weakness.
Position 9/13/16 with an ITW trade at $115.50
Long Dec $120 call @ $2.50. See portfolio graphic for stop loss.
LITE - Lumentum Holdings - Company Profile
No specific news. Only a minor decline from Thursday's high close.
Original Trade Description: September 12th.
Lumentum Holdings Inc. manufactures and sells optical and photonic products for optical networking and commercial laser customers worldwide. It operates in two segments, Optical Communications and Commercial Lasers. The Optical Communications segment offers components, modules, and subsystems that enable the transmission and transport of video, audio, and text data over high-capacity fiber optic cables. It offers optical communication products, including optical transceivers, optical transponders, and supporting components, such as modulators and source lasers; modules or sub-systems containing optical amplifiers, reconfigurable optical add/drop multiplexers or wavelength selective switches, optical channel monitors, and supporting components; and products for 3-D sensing applications, including a light source product. This segment serves customers in telecom and datacom markets. The Commercial Lasers segment offers diode, direct-diode, diode-pumped solid-state, fiber, and gas lasers; and photonic power products, such as fiber optic-based systems for delivering and measuring electrical power. This segment serves customers in markets and applications, such as manufacturing, biotechnology, graphics and imaging, remote sensing, and precision machining such as drilling in printed circuit boards, wafer singulation, and solar cell scribing. Company description from FinViz.com.
In Q2 LITE reported adjusted earnings of 41 cents compared to estimates for 35 cents. Revenue of $241.7 million beat estimates for $238.4 million. The company guided to earnings of 40-46 in Q3 and revenue in the range of $245-$255 million. Both were slightly ahead of analyst estimates.
Raymond James upgraded the stock saying strong demand from new datacenter build outs and from China was pushing sales higher. The company only has two competitors, Finsar and Nistica, and they only compete in certain products. Raymond James believes LITE can increase sales in that category by 50% by year-end. Verizon's network upgrades are expected to supply $900 million to LITE over the next several years. Zacks also joined the upgrade club with a strong buy.
The stock is also getting a boost from the strong performance of Acacia (ACIA), which sells some similar products. The winning is rubbing off on LITE.
Shares made a new high at $37.82 on Friday morning and then dipped to $35.37 this morning before rebounding to close just under the prior high.
Position 9/13/16 with a LITE trade at $37.75
Long DEC $40 call @ $2.65, see portfolio graphic for stop loss.
NVDA - Nvidia Corp - Company Profile
No specific news. Only gave back -7 cents from Thursday's new high.
Original Trade Description: September 17th.
NVIDIA Corporation operates as a visual computing company worldwide. It operates in two segments, GPU and Tegra Processor. The GPU segment offers processors, which include GeForce for PC gaming; Quadro for design professionals working in computer-aided design, video editing, special effects, and other creative applications; Tesla for deep learning, accelerated computing, and general purpose computing; and GRID for cloud-based streaming on gaming devices. The Tegra Processor segment provides processors that integrate a computer onto a single chip under the Tegra brand name; DRIVE automotive computers, which offer supercomputing capabilities; and tablet and portable devices for mobile gaming under the SHIELD name. The company's products are used in gaming, professional visualization, datacenter, and automotive markets. It sells its products primarily to original equipment manufacturers, original design manufacturers, system builders, motherboard manufacturers, add-in board manufacturers, and retailers/distributors. Company description from FinViz.com.
Q2 earnings rose 800% to 40 cents and beat estimates for 37 cents. Revenue of $1.43 billion beat their own guidance of $1.35 billion they gave in Q1. Earnings in the year ago quarter were 5 cents and $1.15 billion. They hiked full year revenue guidance as well as the current quarter. They guided for Q3 revenue of $1.68 billion and analysts were only expecting $1.45 billion. During the first six months of 2016, they bought back $509 million in shares and paid $124 million in dividends. The company had $4.88 billion in cash at the end of Q2.
Earnings Nov 10th.
They recently released several new graphics cards that are twice as fast and 40% cheaper than the cards they are replacing.
Nvidia's Graphics Processing Units or GPUs have become more than just video chips. They have become supercomputing processors and can be packaged in large groups to parallel process monster datasets and computations that would have taken weeks with conventional chips. They are truly revolutionizing the processor industry.
The focus on Artificial Intelligence or AI, a lot of companies like Google and Amazon are turning to GPUs to handle the monster amounts of data they collect every day. Facebook already uses Nvidia M40 GPU accelerators to power its Big Sur machine learning computers. Those NVIDIA GPUs were specifically designes to train deep neural networks for enterprise data centers, and the company says they are 10-20 times faster than other network computers. Nvidia said their GPD powered machine learning computers can help train networks new things in just a few hours that would take days or weeks with less powerful systems.
The new P100 GPU is 12 times faster than the prior version and can provide more performance than "several hundred computer nodes" and up to eight P100s can be interconnected to provide previously unheard of computing power. The chips in the GPUs contain more than 15.3 billion transistors each and the largest chip ever built at 16 nanometer technology. That is twice as many as on Intel's biggest chips. The P100 delivers more than 10 teraflops of performance. One teraflop can process one trillion floating-point instructions per second and the P100 can do 10 teraflops or 10 trillion calculations per second.
The COSMOS weather forecasting application runs faster on the P100 than the 27 servers, running twin multicore processors each that were previously tasked with the project. Intel makes commodity processors for the millions of PCs and servers in the world. Nvidia is light years ahead of Intel in technology. Nvidia's data center revenue increased 63% in Q1.
Nvidia shares have been stair-stepping higher since January. That means they post solid gains for a month or so and then pause to consolidate with a minor retracement. They set a new high at $63.38 on August 12th, the day after their Q2 earnings beat. Shares have moved sideways for a month. Last week, when the extreme market volatility hit on the 9th, shares dropped from $63 to $57. Within 4 days the stock was back at $63. I believe it it now poised to breakout now that the weak holders have been eliminated.
Long Nov $65 call @ $3.45, no initial stop loss.
BEARISH Play Updates (Alpha by Symbol)
RGR - Sturm Ruger & Company - Company Profile
No specific news. Gun stocks seeing investor attention after daily shootings suggest more gun control talk ahead.
Original Trade Description: September 15th.
Sturm, Ruger & Company, Inc. designs, manufactures, and sells firearms under the Ruger trademark in the United States. It operates in two segments, Firearms and Castings. The company offers single-shot, autoloading, bolt-action, and sporting rifles; rimfire and centerfire autoloading pistols; single-action and double-action revolvers; and firearms accessories and replacement parts, as well as manufactures and sells steel investment castings and metal injection molding (MIM) parts. It sells its firearm products through independent wholesale distributors to commercial sporting market; and castings and MIM parts directly or through manufacturers' representatives. The company also exports its firearm products through a network of commercial distributors and directly to foreign customers comprising primarily of law enforcement agencies and foreign governments. Company description from FinViz.com.
In Q2, RGR reported earnings of $1.22 that beat estimates for $1.19. Revenue rose +19% to $167.9 million. The company said the new AR-15 clone, the AR-556 was responsible for one-third of all sales.
However, the pace of sales growth declined from the 26% rate in Q1. Ruger also surprised investors with a new CEO succession plan. The highly regarded Michael Fifer will retire in May and be replaced by the COO Christopher Killoy. The company had not mentioned a possible succession plan at the last shareholder meeting. Killoy is a good choice because he graduated from West Point and worked at both GE and competitor Smith & Wesson before joining Ruger as head of sales in 2003. He will only be the fourth CEO in Ruger's history.
The slowdown in sales growth was accompanied by a decline in background checks. FBI background checks slowed in August to only a 6% rise compared to 37% growth in July and 39% in June. The actual number of checks fell from 2.19 million in July to 1.85 million in August.
The gun makers have been posting some outstanding earnings thanks to rapidly rising gun sales only those sales are slowing now that Trump has pulled even or slightly ahead of Clinton. Trump is pro gun and Clinton is anti gun. As long as his numbers are improving, gun sales are likely to slow. However, should Clinton surge into the lead again, the numbers will rocket higher. Consumers are not going to spend hundreds of dollars to buy another gun if they think their gun rights will be safe for another 4 years. If Clinton surges into the lead again, they will be out in force buying those "extra" guns. The biggest surge will occur if Clinton wins the election on Nov 8th. At that point we want to be long every gun manufacturer and ammunition maker.
Earnings Nov 1st.
Ruger shares closed at an 8-month low on Wednesday. The rebound on Thursday was lackluster in a market were the Dow was up +200 points. With sales growth slowing and investors thinking the "bun boom" is over we could see Ruger retest the November lows at $48.
Position 9/20/16 with a RGR trade at $54.85
Long Jan $52.50 put @ $3.50, see portfolio graphic for stop loss.
Short Jan $45 put @ $0.80, see portfolio graphic for stop loss.
Net debit $2.70
SIG - Signet Jewelers - Company Profile
No specific news. Another big gain on no news in a bearish market. This typically happens in a market decline. Investors buy previously beaten up stocks thinking they are oversold. Our stop loss is only 28 cents above the close so we could be stopped on Monday is the resistance at $79 does not hold.
Original Trade Description: September 20th.
Signet Jewelers Limited engages in the retail sale of diamond jewelry and watches. Its Sterling Jewelers division operates stores in malls and off-mall locations under the Kay Jewelers, Kay Jewelers Outlet, Jared The Galleria Of Jewelry, Jared Vault, Jared Jewelry Boutique, JB Robinson Jewelers, Marks & Morgan Jewelers, Every kiss begins with Kay, He went to Jared, Celebrate Life. Express Love., the Leo Diamond, Hearts Desire, Artistry Diamonds, Charmed Memories, Diamonds in Rhythm, Open Hearts by Jane Seymour, Radiant Reflections, Colors in Rhythm, Chosen by Jared, Now and Forever, and Ever Us names. As of January 30, 2016, this segment operated 1,540 stores.
The company's Zale division operates jewelry stores and mall-based kiosks in shopping malls under the Zales, Zales Jewelers, Zales the Diamond Store, Zales Outlet, Gordon's Jewelers, Peoples Jewellers, Peoples the Diamond Store, Peoples Outlet the Diamond Store, Mappins, Piercing Pagoda, Arctic Brilliance Canadian Diamonds, Candy Colored Jewelry, Celebration Diamond, The Celebration Diamond Collection, Unstoppable Love, and Endless Brilliance names. This segment operated 977 jewelry stores and 605 mall-based kiosks. Company description from FinViz.com.
In Q2, Signet reported earnings of $1.14, down from $1.28 and well below analyst estimates for $1.45. Revenue fell -2.6% to $1.37 billion and also missing estimates. Same store sales declined -2.3% system wide with sales at Jared down -7.6% and Kay Jewelers seeing a -0.5% decline.
The CEO blamed the drop in oil prices for the decline in jewelry sales. The company slashed guidance, cutting the earnings forecast from $8.35-$8.55 to $7.25-$7.55. They cut same store sales guidance from 2.0% - 3.5% growth to a decline of -2.5% to -1%.
Next earnings Nov 22nd.
Shares fell from $95 to $80 on the earnings news. After moving sideways for three weeks, shares began to fade last week and closed at a two year low today at $75.65.
Position 9/21/16 with a SIG trade at $75
Long Nov $70 put @ $2.43, see portfolio graphic for stop loss.
VXX - VIX Futures ETF - Company Profile
No specific news. Sharea gained only 24 cents in a bearish market. This is why we are short the VXX. The ETF is broken.
This is a long-term position and I will not be commenting on it on a daily basis.
Original Trade Description: September 21st.
The VXX is a short term volatility product based on the VIX futures. As a futures product it has the rollover curse. Every time they roll to a new futures contract they have to pay a premium and that lowers the price of the ETF. It is a flawed product with a perpetual decline built in from the monthly roll over in the futures contracts.
As evidence of this flaw, they have now down four 1:4 reverse stock splits. The last four reverse splits occurred at $13.11 (11/2010), $8.77 (10/2012), $12.84 (11/2013), $9.52 (8/8/16). The prospectus says it can reverse split anytime it trades under $25 for a prolonged period and the splits will always be 1:4.
After the August split the ETF moved sideways for four weeks at $36. The volatility event on Sept 9th with the Dow falling -2.5% spiked the VXX from $33 to $42 in three days. That bounce has faded and it is almost back at $33. You are probably thinking, the $40 level would have been a good entry point and you are right in hindsight. However, with the market in danger of breaking down if the Fed had hiked rates, it was better to wait. Now there is nothing on the horizon to cause a spike other than normal market movement.
This is going to be a long-term position. I am not putting a stop loss on the position because long term the VXX always goes down. If we get another volatility spike we will buy another position at a higher level and then ride them both back down.
The market typically rises in late October and into the Thanksgiving weekend. A rising market reduces volatility.
I thought about using a spread to reduce the out of pocket costs. However, that means the strikes have to be relatively close together for the short strike to have any premium. Since the VXX could decline 10 points or more before December, that would limit our potential return to 3-4 points in a spread. However, if we do get a big decline we can spread out at much lower level to further increase our gains.
Long Dec $33 Put @ $4.20. No stop loss.
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