After trading in a very narrow range on Thursday, the expectation was for a big directional move on Friday. The Dow dropped -119 points at the lows but quickly rebounded in the afternoon to positive again but it was brief. The index dipped again at the close to just under the 18,250 price magnet.
The Dow is becoming more volatile but it is not going anywhere. The swings are pronounced but there is no market direction. Eventually we are going to break out of this range and it is likely to be violent when it happens.
We were stopped out of three more positions but the biggest loss was only 77 cents. Clovis released from bad data on a cancer drug and fell -30%. First Solar was downgraded by Goldman and Lannet continued the decline with the biotech sector.
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
CLVS - Clovis Oncology
The long call position was stopped out at $33.25.
FSLR - First Solar
The long call position was stopped out at $37.50.
LCI - Lannet
The long call position was stopped out at $25.85.
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BULLISH Play Updates
CLVS - Clovis Oncology - Company Profile
That was depressing. Clovis shares gapped down over 30% on fears a leading ovarian cancer drug candidate was weaker than a similar competing drug from AstraZeneca (AZN). The data was presented on Friday at the ESO conference and the drug rucaparib appeared to be inferior to Lynparza, a drug that has already been approved for AstraZeneca. We were stopped on the drop.
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.
Closed 10/7/16: Long JAN $30 call @ $6.00, exit $4.20, -1.80 loss
Closed 10/7/16: Short JAN $40 call @ $3.31, exit $1.70, +1.61 gain.
Net loss 19 cents.
COST - Costco - Company Profile
No specific news. Decent gain in a weak market.
Original Trade Description: October 4th.
Costco Wholesale Corporation, together with its subsidiaries, operates membership warehouses. The company offers branded and private-label products in a range of merchandise categories. It provides dry and institutionally packaged foods; snack foods, candy, tobacco, alcoholic and nonalcoholic beverages, and cleaning and institutional supplies; appliances, electronics, health and beauty aids, hardware, and garden and patio; meat, bakery, deli, and produce; and apparel and small appliances. The company also operates gas stations, pharmacies, food courts, optical dispensing centers, photo processing centers, and hearing-aid centers; and engages in the travel business. In addition, it provides gold star (individual) and business membership services. As of October 29, 2015, it operated 690 warehouses. Company description from FinViz.com.
Costco reported earnings last week of $1.77 compared to estimates for $1.73. Revenue of $36.56 billion barely missed estimates for $36.81 billion. Same store sales, excluding gasoline, rose 2% in the USA, +5% in Canada and +1% internationally. Overall sales rose +3%.
For the full year same store sales were up +4%. Membership fees rose from $785 million to $832 million. The company said some of its increased profitability came from the lower fees it was paying to Visa compared to the prior payments to American Express. There were initial problems in the conversion and some customers were angered leading to weaker sales in the prior two quarters. That is now over and customers are coming back.
The earnings were Friday and shares spiked to $154 on the news. Post earnings depression appeared along with a weak market over the last two days. I believe Costco will rebound into Black Friday because this is the strongest quarter. They typically sink into the September earnings and then rally into December.
The plan is to buy calls now and exit around Black Friday. The December calls are cheap and any rally should lift the stock back to $160-$165. I am not putting a stop loss on this position because of the potential for market volatility over the next two weeks.
Long Dec $155 call @ $2.76, no stop loss.
DISH - Dish networks - Company Profile
No specific news. Minor decline. Still fighting resistance at $56.50.
Original Trade Description: October 3rd.
DISH Network Corporation provides pay-TV services in the United States. The company operates through two segments, DISH and Wireless. The company provides video services under the DISH brand. It also offers programming packages that include programming through national broadcast networks, local broadcast networks, and national and regional cable networks, as well as regional and specialty sports channels, premium movie channels, and Latino and international programming. In addition, the company provides access to movies and TV shows via TV or Internet-connected tablets, smartphones, and computers; and dishanywhere.com and mobile applications for smartphones and tablets to view authorized content, search program listings, and remotely control certain features. Further, it offers Sling TV services that require an Internet connection and are available on streaming-capable devices, including TVs, tablets, computers, game consoles, and smart phones primarily to consumers who do not subscribe to traditional satellite and cable pay-TV services. Additionally, the company operates Sling International that offers over 200 channels in 18 languages; and Sling domestic package that consists over 20 channels and tiers of programming, including sports, kids, movies, world news, lifestyle and Spanish language, and premium content, such as HBO. Further, it offers Sling Latino service; and satellite broadband services, wireline voice, and broadband services under the dishNET brand. Additionally, the company has wireless spectrum licenses and related assets. As of December 31, 2015, it had 13.897 million Pay-TV subscribers. Company description from FinViz.com.
Dish is gaining a significant number of views in the millennial generation that either have never had a cable subscription or cannot stand paying the monthly cable bills for what they believe should be free TV. They are also developing a large audience of Latino viewers with their various Spanish language channels. They also offer 18 other languages and more than 200 channels.
In early September, they gained the rights to about 800 sporting events offered by the six PAC 12 networks. Millennial's love to watch sports, especially when it is free or nearly free.
The online Sling TV offering is gaining market share with its skinny bundles including channel packages like HBO and Starz.
Over the last month the consensus earnings estimates for the current quarter have risen from 63 cents to 68 cents. Full year estimates have risen from $2.92 to $3.05.
Earnings Nov 7th.
Since they signed the sports deal on September 12th the stock has been in rally mode. Shares are closing in on resistance from June at $56.50 and should easily break through. The next resistance is in the $65 range.
Long Nov $57.50 call @ $2.43, see portfolio graphic for stop loss.
FSLR - First Solar - Company Profile
The company was downgraded from buy to neutral at Goldman Sachs and shares fell -6% to stop us out. They also downgraded Solar Edge (SEDG) to sell. They upgraded Sunrun (RUN) from neutral to buy and Vivint Solar (VSLR) from sell to neutral.
Original Trade Description: September 28th.
First Solar, Inc. provides solar energy solutions in the United States and internationally. It operates through two segments, Components and Systems. The Components segment designs, manufactures, and sells solar modules that convert sunlight into electricity. This segment manufactures cadmium telluride and crystalline silicon modules for system integrators and operators. The Systems segment provides turn-key photovoltaic solar power systems or solar solutions, such as project development; engineering, procurement, and construction; and operating and maintenance services to utilities, independent power producers, and commercial and industrial companies. Company description from FinViz.com.
First Solar was the number one pick for a Clinton presidency. In the first debate, she advocated for installing "half a billion" solar panels to head off an impending energy crisis and reduce climate change.
After the debate Clinton was the assumed victor because of her calm, fact filled answers. Analysts have picked several stocks that would rise with a Clinton presidency and they were all up on Tuesday. Note that FSLR was in all four lists.
Deutsche Bank said buy FSLR, C, NFLX, UNH and FB.
Zacks said buy FSLR, LMT and PFPT.
Estimize said buy FSLR, UNH, FB, NFLX and CYBR.
InsiderMonkey said buy FSLR, CREE, TSLA, UNH and HUM.
I could not recommend FSLR on Tuesday because it was up 5%. The morning dip on Wednesday deflated the options and gives us an entry point. However, there is strong resistance at $39.50. I would like to see it move over that level before we jump in. A move over that level could generate significant short covering because FSLR was in a downtrend before the political lift.
Earnings are Oct 27th so we will be out relatively quickly. That is a week before the election and if Clinton is ahead in the polls the stock should still be rising. This could be a volatile position because of the political sound bites.
Position 9/29/30 with a FSLR trade at $40.00
Closed 10/4/16: Long Nov $42.50 call @ $1.95, exit $1.18, -.77 loss.
IDCC - Interdigital - Company Profile
No specific news. New support has formed at $78 and shares posted a minor gain in a weak market.
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.
Update 9/28/16: In a study done by the EU Commission and IDCC they found the cost of rolling out 5G in all 28 EU member states could reach 56 bullion euros by 2020 and 141.8 billion annually by 2025. That is a huge amount of money that will be flowing into a hand full of companies including IDCC. The 5G standard is seen as 50 Mbps everywhere compared to the current 5-20 Mbps.
Earnings Oct 27th.
IDCC is a member of the S&P-400 MidCap index.
Position 9/27/16 with an IDCC trade at $78.65
Long Nov $80 call @ $2.90, see portfolio graphic for stop loss.
LCI - Lannet - Company Profile
No specific news. Shares dropped -5% to stop us out as some other biotechs crumbled.
Original Trade Description: October 5th.
Lannett Company, Inc. develops, manufactures, packages, markets, and distributes generic versions of brand pharmaceutical products in the United States. It offers solid oral, extended release, topical, nasal, and oral solution finished dosage forms of drugs that address a range of therapeutic areas, as well as ophthalmic, patch, foam, buccal, sublingual, soft gel, and injectable dosages. The company provides its products for various medical indications comprising glaucoma, muscle relaxant, migraine, anesthetic, congestive heart failure, gastrointestinal, cardiovascular, thyroid deficiency, central nervous system, urinary, dryness of the mouth, gout, hypertension, and gallstone. It also manufactures active pharmaceutical ingredients. Lannett Company, Inc. markets its products under the Diamox, Fioricet, Fiorinal, Lanoxin, MiraLAX, Imdur, Levoxyl/Synthroid, Metadate CD, Concerta, Procardia, Prilosec, Ditropan, Protonix, Salagen, Dyazide, and Actigall brands. Company description from FinViz.com
For Q2, LCI reported earnings of 73 cents that beat estimates for 60 cents. Revenue of $169 million beat estimates for $162 million. Lannet guided for full year revenue in the range of $690-$700 million. Analysts were expecting $666 million.
Revenue increased 70% thanks to new drugs in inventory. They refinanced $250 million in 12% notes to take advantage of the current low interest rates. The forecast an earnings growth rate in the mid teens percentage for the second half of the year.
Shares immediately spiked from $32 to $40 on the earnings news and then faded on post earnings depression. A rebound began on Sept 12th culminating with a spike to $33.50 on the 20th when they announced the FDA approval of two new drugs. That appeared to trigger a sell the news event and shares rolled over and fell to $26 over the next week. The next day after the drug announcement, they also said their Chief of Scientific Affairs resigned. That could have accelerated the decline.
Fast forward to September 29th and shares found support at $26 for three days and prices are now beginning to rise. There is no reason for LCI to be declining. It has fallen to value stock status and fund managers should be drooling over it for their October portfolio restructuring. If this is the bottom, we can enter a cheap position as they rally into earnings on Nov 3rd. Remember they blew away estimates in Q2.
Earnings Nov 3rd.
Closed 10/7/16: Long Nov $30 call @ $1.50, exit .85, -.65 loss.
LITE - Lumentum Holdings - Company Profile
No specific news. New intraday high but faded at the 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.
Update 10/3/16: Jefferies raised earnings estimates to $2.61 for the 2018 fiscal year, which is 14% above consensus. Revenue estimates rose to $1.29 billion and 11% over consensus.
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.
WDC - Western Digitial - Company Profile
RBC Capital said WDC, BRCM and INTC would all benefit from the robust expansion of cloud services underway by Google, Amazon and Apple. Shares of WDC gained 62 cents.
Original Trade Description: September 26th.
Western Digital Corporation, together with its subsidiaries, engages in the development, manufacture, sale, and provision of data storage solutions that enable consumers, businesses, governments, and other organizations to create, manage, experience, and preserve digital content worldwide. The company's product portfolio includes hard disk drives (HDDs), solid-state drives (SSDs), direct attached storage solutions, personal cloud network attached storage solutions, and public and private cloud data center storage solutions. It provides HDDs and solid-state drives for performance enterprise and capacity enterprise markets desktop, and notebook personal computers (PCs). The company also offers HDDs embedded into WD, HGST, and G-Technology branded external storage appliances with capacities ranging from 500 GB to 24 TB, as well as using various interfaces, such as USB 2.0, USB 3.0, FireWire, Thunderbolt, and Ethernet network connections. In addition, it provides consumer electronics solutions, including DVRs, gaming consoles, security surveillance, systems, set top boxes, camcorders, multi-function printers, and entertainment and automobile navigation systems. Company description from FinViz.com.
Western Digital recently acquired flash memory company SanDisk and they are stronger together. The company recently raised guidance for the second time as the integration of the two companies is turning out to be a winning duo.
WDC raised revenue guidance for the current quarter to $4.45-$4.55 billion up from $4.4-$4.5 billion. Analysts were expecting $3.41 billion. Gross margin guidance rose from 32% to 33%. Q3 earnings guidance rose from 85-90 cents to $1.00-$1.05. Analysts were expecting 68 cents. The company said the product mix was improving with the addition of the SanDisk lines. They also said PC sales were improving, as did Intel, and that means more disk drives sold.
Update 9/27/16: Research company Cleveland Research said channel checks for WDC showed continued strong demand for the most common hard drives and a potential ramp in demand for the new 10TB Helium drive. There was also strong execution and pricing for NAND chips. Cleveland projected earnings of $6.60 in fiscal 2018 and a mid $70s stock price. Shares closed at $58 after a $1.85 gain.
The Helium 10TB drive is filled with helium instead of air. Helium is one-seventh the density of air and that allows the read/write heads to fly smoother and closer to the actual magnetic recording surface, contain more recording platters, consume less power and operate at a lower temperature. More than one million Helium drives have already been sold with a mean time between failure of 2.5 million hours. Quality is expensive with a $750 price tag.
Earnings Oct 27th.
Shares spiked to $54 on the stronger guidance and then languished for a week before starting to move higher to start a new trend.
Long Nov $60 call @ $2.14, see portfolio graphic for stop loss.
BEARISH Play Updates (Alpha by Symbol)
MBLY - Mobileye - Company Profile
No specific news. Shares closed at a new 3-month low.
Original Trade Description: September 27th.
Mobileye N.V., together with its subsidiaries, develops computer vision and machine learning, data analysis, and localization and mapping for advanced driver assistance systems and autonomous driving technologies primarily in Israel. It operates through two segments, Original Equipment Manufacturing and After Market. The company offers Roadbook, a localized drivable paths and visual landmarks using its proprietary REM technology through crowd sourcing; and proprietary software algorithms and EyeQ chips that perform detailed interpretations of the visual field to anticipate possible collisions with other vehicles, pedestrians, cyclists, animals, debris, and other obstacles. Its products also detect roadway markings, such as lanes and road boundaries, as well as barriers and related items; and identify and read traffic signs, directional signs, and traffic lights. In addition, the company provides enhanced cruise control, pre-lighting of brake lights, and Bluetooth connectivity, as well as related smartphone application. It serves original equipment manufacturers, tier 1 system integrators, fleets and fleet management systems providers, insurance companies, leasing companies, and others through distributors and resellers. Mobileye N.V. was founded in 1999. Company description from FinViz.com.
Mobileye was kicked to the curb by Tesla because their camera technology was not precise enough and was subject to errors from things like lightning flash, rain storms, fog and oncoming headlights. Analysts claim the location accuracy needs to be within 1.5 centimeters or about 0.6 inches. While I do not understand the need to be precise to within half an inch I would expect that to be on near objects with the size miss widening if the objects are farther away. For instance, a rifle bullet that misses the target by half an inch at 10 feet would be 15 inches off target at 100 yards. When your car is traveling at 60 mph any miss of that size could be an immediate challenge as in a car coming towards you in two-way traffic.
Tesla also said they were hard to work with because the company demanded all the sensor data received from their cameras could only be used by Mobileye. That would be like Intel claiming all the data on your PC belonged to them because the PC had an Intel processor.
Multiple car manufacturers including Tesla, Ford and Volvo have now moved away from Mobileye technology. The company replacing them is Nvidia with their Drive PX2 technology. Uber is now using an off the shelf camera that costs only $1 and image processing is done in the onboard computer.
Trip Chowdhry of Global Equities Research said the stock is worth $10 today but remains hyper inflated because it was an early leader in the mobile technology. He expects the stock to collapse within 6-8 months as more investors realize the company is being left behind.
Earnings Nov 3rd.
Shares have been falling from their high of $50 as the heated words between Tesla and Mobileye increase. When Mobileye learned it was being replaced they tried to stop Tesla from developing their own system and immediately halted any support for previously installed systems.
Long Nov $40 put @ $2.08, see portfolio graphic for stop loss.
VXX - VIX Futures ETF - Company Profile
This is a long-term position and I will not be commenting on it on a daily basis. There is no news on the VXX since it is not a company.
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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