After the close, President Trump called for another $200 billion in Chinese tariffs.
Since the first set of tariffs have not yet gone into effect, this was a surprise. China immediately pledged to fight back "firmly" if the U.S. follows through and publishes and updated tariff list. The S&P futures are down -25 points and the Dow futures are down -250.
China has already cancelled the deal reached in the prior negotiation and "stands ready to defend free trade." Unfortunately, while that sounds good, trade with China is not free.
President Trump told the US Trade Representative to identify $200 billion worth of Chinese goods for additional tariffs of 10%. The duties would take effect "if China refuses to change its practices, and also if it insists on going forward with the $34 billion in tariffs it recently announced. Trump proposed $50 billion last week at 25% and China countered with $34 billion in new tariffs.
This is rapidly reaching a critical point. This could become the straw that breaks the market's back if the severity of tariffs continues to get worse and the retaliation from both sides gets out of control.
The Dow and S&P are struggling and another 250-point drop on Tuesday could push already cautious traders to head to the sidelines and dip buyers may decide to pass on the next dip.
The Dow posted its 5th consecutive day of lower highs and lower lows. Another 250 point drop would put it back at the prior strong resistance at 24,700, which should now be support. The 100-day average is 24,745 and that could also be support. However, if the negative headlines appear to be increasing, there could be a deeper dip in our future.
The S&P had a strong intraday rebound of 16 points but could not make it back to positive territory. Prior resistance at 2,750 should be support and the futures are currently at 2,755. If we blow through that level, we could see 2,700 again.
The Nasdaq managed to rebound 71 points to close fractionally positive. The big cap techs were evenly mixed but the small cap techs were on fire. Tesla rallied despite negative analyst comments. I think everyone believes they will hit their 5,000 per week target on the Model 3 by the end of the month.
The Nasdaq has held at the recent highs for the last three days. This is great relative strength but the 70-point decline was definitely a sentiment challenge while it was happening. Nasdaq futures are down -74 points on Monday night.
The Russell 2000 remains the market leader because the small caps are immune to tariff threats. This index is definitely overbought but that does not seem to be worrying investors.
The calendar for Tuesday is lackluster with only one material report and that is new home construction. The Fed gets another chance to tank the market on Wednesday when Chairman Powell speaks before the open.
Oracle reports earnings on Tuesday and they get a chance to rebut the JP Morgan downgrade from last Thursday that crashed the stock. FedEx earnings will tell us if the economy is still strong. Shipping is the lifeblood of commerce. When shipping slows, the economy is slowing.
I would avoid buying the opening on Tuesday. We really need to wait for the tariff headlines to calm and the appearance of a deal in progress. We may get a rebound tomorrow but the next headline could push it even lower. The severity of the headlines is increasing. That means market reaction will also increase. Be patient. Wait for a change in sentiment.
Enter passively, exit aggressively!
Send Jim an email
NEW DIRECTIONAL CALL PLAY
With the S&P futures down -24 points, I am not adding any new positions today.
Check the graphic below for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline. Any items shaded in blue were previously closed.
Current Position Changes
INTC - Intel
The long call position was closed on Tuesday.
SMH - Semiconductor ETF
The long call position was closed on Tuesday.
IBM - IBM Inc
The long call position was entered on Tuesday.
SYMC - Symantec
The June long call position expired on Friday.
Original Play Recommendations (Alpha by Symbol)
AKAM - Akamai Technologies - Company Profile
No specific news. Shares closed at a new high, again.
Original Trade Description: May 7th
Akamai Technologies, Inc. provides cloud services for delivering, optimizing, and securing content and business applications over the Internet in the United States and internationally. The company offers Web and mobile performance solutions, such as Ion, a situational performance solution; Dynamic Site Accelerator that helps in consistent Website performance; Image Manager that automatically optimizes online images; CloudTest to conduct load testing and other analysis of Websites in a pre-production environment; mPulse that provides real-time Website performance data to provide insight about end-user experiences on a Website; and Global Traffic Management, a fault-tolerant solution. It also provides cloud security solutions, including Web Application Protector to safeguard Web assets from Web application and distributed denial of service; Kona Site Defender, a cloud computing security solution; Bot Manager Premier to identify bots; Fast DNS, which translates human-readable domain names into numerical IP addresses; Prolexic Routed to protect Web- and IP-based applications; and Client Reputation for protection against DDoS and Web application attacks. In addition, the company offers enterprise security solutions, including Enterprise Application Access that enables remote access to applications; and Enterprise Threat Protector to enable enterprise security teams to identify, block, and mitigate targeted threats. Further, it provides network operator solutions, including Aura Licensed CDN, Aura Managed CDN, and Intelligent DNS solutions, as well as professional services and solutions; media delivery solutions, such as adaptive delivery, download delivery, infinite media acceleration, media services, and media analytics solutions; and NetStorage, a cloud storage solution. The company sells its solutions through direct sales and service organization; and channel partners. Company description from FinViz.com
Akamai reported earnings of 79 cents that beat estimates for 70 cents. Revenue of $669 million rose 11% and beat estimates for $657 million. The earnings beat came from a concentrated push into cloud security along with a surge in its media delivery business. Revenue in the booming cloud security business surged 36%.
They did not provide guidance but with the cloud business booming shares should continue moving higher.
Earnings July 30th.
Shares have been consolidating for the last two months and now that earnings were positive shares are starting to move higher again. Monday's close was a 6-week high.
Update 5/14: Major gain for the week after the CEO and Founder, Tom Leighton answered an acquisition question positively. An analyst asked him if the company was for sale and he said, "We are a public company and our board, which is very professional and diligent, is always going to do the right thing for shareholders." That suggests if they are not considering any offers today, they will more than likely be receiving some in the near future. Shares exploded higher.
Update 5/21: Shares spiked $1.50 in afterhours when Akamai announced a partnership with MUFG (MUFG) to develop a blockchain payment network that could handle one million transactions per second and be operational in early 2020 or before. Akamai has the scope and the horsepower to make it happen.
Long August $75 call @ $4.30, see portfolio graphic for stop loss.
CHGG - Chegg Ing - Company Profile
No specific news. New closing high, again.
Original Trade Description: May 29th
Chegg, Inc. operates direct-to-student learning platform that supports students on their journey from high school to college and into their career with tools designed to help them pass their test, pass their class, and save money on required materials. The company offers Chegg Services, which include digital products and services; and required materials that comprise its print textbooks and eTextbooks. Its digital products and services include Chegg Study, which helps students master challenging concepts on their own; Chegg Writing that enables automatically generate sources in the required formats, when students need to cite their sources in written work; Chegg Tutors that allow students find human help on its learning platform through a network of live tutors; Chegg Math, an adaptive math technology and developer of the math application; Brand Partnership, which offers various ways for student-relevant brands to reach and engage high school and college students; Test Prep that provides students with an online adaptive test preparation services; and internships services. The company rents and sells print textbooks and eTextbooks; and offers supplemental materials and textbook buyback services. The company has a strategic alliance with Ingram Content Group. Company description from FinViz.com
CHGG reported earnings of 10 cents on revenue of $77 million to beat estimates of 9 cents and $74 million for the fifth consecutive earnings beat. Cash on the balance sheet reached a record high of $500 million compared to $66 million in Q2 2017. Jefferies said the cash pile offered Chegg the opportunity to expand its business outside of its own organic growth.
Shares have been rising steadily since the earnings beat in February and closed at a new high on Tuesday in a very bad market.
Earnings August 2nd.
Long Oct $30 call @ $1.95, see portfolio graphic for stop loss.
IBM - International Business Machines - Company Profile
IBM announced the acquisition of Oniqua Holdings Pty Ltd, based in Denver. Financial terms were not disclosed. The 56 person company makes software to track maintenance and spare parts inventories in oil and gas operations, mining, utilities, transportation and similar industries. A study by the Aberdeen Group found that half of unscheduled downtimes was due to a lack of spare parts in inventory. IBM sees this acquisition as a way to bolster their IoT movement.
Original Trade Description: June 11th.
International Business Machines Corporation operates as an integrated technology and services company worldwide. Its Cognitive Solutions segment offers Watson, a cognitive computing platform that interacts in natural language, processes big data, and learns from interactions with people and computers. This segment also offers data and analytics solutions, including analytics and data management platforms, cloud data services, enterprise social software, talent management solutions, and solutions tailored by industry; and transaction processing software that runs mission-critical systems in banking, airlines, and retail industries. The company's Global Business Services segment offers business consulting services; delivers system integration, application management, maintenance, and support services for packaged software applications; and finance, procurement, talent and engagement, and industry-specific business process outsourcing services. Its Technology Services & Cloud Platforms segment provides cloud, project-based, outsourcing, and other managed services for enterprise IT infrastructure environments. This segment also offers technical support, and software and solution support; and integration software solutions. The company's Systems segment offers servers for businesses, cloud service providers, and scientific computing organizations; data storage products and solutions; and z/OS, an enterprise operating system. Its Global Financing segment provides lease, installment payment plans, and loan financing services; short-term working capital financing to suppliers, distributors, and resellers; and remanufacturing and remarketing services. The company was formerly known as Computing-Tabulating-Recording Co. and changed its name to International Business Machines Corporation in 1924. International Business Machines Corporation was founded in 1911 and is headquartered in Armonk, New York. Company description from FinViz.com
IBM is on the way back. The last several lyears have been hard to watch but they have turned the company around with their strategic imperative restructuring program. About half of IBMs revenue now comes from those strategic imperative applications that did not exist 10 years ago.
IBM just announced the most powerful supercomputer in the world named Summit. This computer can do 200,000 trillion calculations per second. Companies are going to be beating a path to their door for run time on this beast but even better they will be ordering smaller versions for themselves.
The company just announced a major expansion to their cloud with 18 new availability zones around the world. They already have 60 zones and this will add to them. A zone is a geographically located set of data centers and customers near a particular zone will benefit from lower latency times and faster processing. IBM's clour business already generates $17.7 billion in revenue and growing rapidly. IBM is already the leader in enterprise cloud services.
IBM is also a blockchain company. They have multiple blockchain development projects underway for things like mobile payments, faster crypto currency transactions, real estate records, etc.
IBM trades at a PE of 12 with a 4.5% dividend yield. Shares closed at a five-week high on Monday and almost a breakout over short term resistance.
Earnings July 17th.
Long August $150 call @ $3.13, see portfolio graphic for stop loss.
INTC - Intel - Company Profile
No specific news. We closed our June option at the open on Tuesday.
Original Trade Description: March 26th
Intel Corporation designs, manufactures, and sells computer, networking, and communications platforms worldwide. The company operates through Client Computing Group, Data Center Group, Internet of Things Group, Non-Volatile Memory Solutions Group, Intel Security Group, Programmable Solutions Group, and All Other segments. Its platforms are used in notebooks, 2 in 1 systems, desktops, servers, tablets, smartphones, wireless and wired connectivity products, and mobile communication components; enterprise, cloud, and communication infrastructure; and retail, transportation, industrial, video, buildings, and other market segments. The company offers microprocessors that processes system data and controls other devices in the system; chipsets, which send data between the microprocessor and input, display, and storage devices, such as keyboard, mouse, monitor, hard drive or solid-state drive, and optical disc drives; and system-on-chip and multichip packaging products that integrate its central processing units with other system components onto a single chip. It also offers NAND flash memory products primarily used in solid-state drives; security software products that secure computers, mobile devices, and networks; programmable semiconductors and related products for communications, data center, industrial, military, and automotive market segments. In addition, the company develops computer vision and machine learning-based sensing products, mapping and driving policy technology solutions for advanced driver assistance systems, and autonomous driving technologies. It serves original equipment manufacturers, original design manufacturers, cloud and communications service providers, and industrial, communications, and automotive equipment manufacturers. The company was founded in 1968 and is based in Santa Clara, California. Company description from FinViz.com.
Intel has shows excellent relative strength over the last couple weeks of market volatility. Monday's close was a new high and there is nothing to keep it from moving higher. Long term support is $43 but I seriously doubt we will see that again.
Intel does not need a lot of play description. It is a big cap tech stock in a chip driven world.
Update 4/16: Consumer tests of the new Windows notebooks with the Qualcomm Snapdragon processor have gone badly. The notebooks have the same processor as the Samsung Galaxy S8 phone. That should give you a clue as to notebook performance. It does not run 64 bit applications. Suffice to say Intel is not going to lose a lot of business to Qualcomm.
Update 4/30: Intel spiked to a new high after reporting earnings of 87 cents that beat estimates for 72 cents. Revenue of $16.07 billion beat estimates for $16.3 billion. Data center revenue rose 24% to $5.2 billion. They guided for full year earnings of $3.85 and revenue of $67.5 billion. Shares spiked 6.4% but faded in the weak market.
Update 5/7: Late after the bell today, Qualcomm said it was shutting down its datacenter chip effort and would either shutter the unit or attempt to sell it. Qualcomm just started selling its first server chip, the Centriq 2400 last year and customer acceptance has been lacking. Intel has a 99% market share in the server chip market and releases new higher end chips constantly and for Qualcomm to try and keep up using the limited ARM chip, it would have been an expensive and time-consuming battle. This should give Intel a boost on Tuesday.
Closed 6/12: Long June $55 call @ $2.07, exit .59, -1.48 loss.
MRCY - Mercury Systems - Company Profile
No specific news. Company received $2.1 million electronic warfare module order for airborne application. The rebound faded slightly with the weak market.
Original Trade Description: June 4th
Mercury Systems, Inc. provides sensor and safety critical mission processing subsystems for various critical defense and intelligence programs in the United States. The company's products and solutions are deployed in approximately 300 programs with 25 defense prime contractors. Its principal programs include Aegis, Patriot, Surface Electronic Warfare Improvement Program, Gorgon Stare, Predator, F-35, Reaper, F-16 SABR, E2D Hawkeye, and Paveway. The company also designs, markets, and licenses software and middleware environments under the MultiCore Plus name to accelerate development and execution of signal and image processing applications on a range of heterogeneous and multi-computing platforms. In addition, it offers hardware products, including components, such as power amplifiers and limiters, switches, oscillators, filters, equalizers, digital and analog converters, chips, monolithic microwave integrated circuits, and memory and storage devices; embedded processing modules and boards, switch fabric boards, high speed input/output boards, digital receiver boards, multi-chip modules, integrated radio frequency and microwave multi-function assemblies, tuners, and transceivers, as well as graphics and video processing, and Ethernet and input-output boards; and integrated subsystems. The company was formerly known as Mercury Computer Systems, Inc. and changed its name to Mercury Systems, Inc. in November 2012. Company description from FinViz.com
In April Mercury reported earnings of 30 cents that missed estimates for 35 cents. Revenue of $116.3 million missed estimates for $123.3 million. Mercury said government budget issues shifted $11 million in revenue into the next quarter.
The company guided for revenue of $146.7-$151.7 million in the current quarter and significantly above Q1 levels. They raised full year guidance to $1.35-$1.38 per share on revenue of $464-$468 million.
Shares were crushed for a $16 drop or -35% on the news. They have been rebounding steadily since early May.
Bookings rose 41% to a record $150 million. They now have a record backlog of $429 million in orders. They are guiding for a 20% rise in revenue in 2018 with 23% EBITDA margins.
Earnings July 24th.
I understand the reasons for the Q1 miss. Government budget deadlines are highly unreliable. Also, they just completed the acquisition of Themis Computer, which added additional onetime costs. With the raised guidance, the drop should eventually be erased. This is a tech stock in the defense sector. How much better growth and security could you get?
Long October $40 call @ $2.60, see portfolio graphic for stop loss.
MU - Micron Technologies - Company Profile
After much consternation I am going to recommend we hold over the earnings report on Wednesday after the close. The last two reports saw large post earnings gains. They have already guided higher for Q2. However, there is $3 at risk. If this does not fit your risk profile, please exit.
Original Trade Description: May 14th
Micron Technology, Inc. provides semiconductor systems worldwide. The company operates through four segments: Compute and Networking Business Unit, Storage Business Unit, Mobile Business Unit, and Embedded Business Unit. It offers DDR3 and DDR4 DRAM products for computers, servers, networking devices, communications equipment, consumer electronics, automotive, and industrial applications; lower power DRAM products for smartphones, tablets, automotive, laptop computers, and other mobile consumer device applications; DDR2 DRAM and DDR DRAM, GDDR5 and GDDR5X DRAM, SDRAM, and RLDRAM products for networking devices, servers, consumer electronics, communications equipment, computer peripherals, and automotive and industrial applications, as well as for computer memory upgrades; and hybrid memory cube semiconductor memory devices. The company also provides NAND products, which are electrically re-writeable, non-volatile semiconductor memory, and storage devices; client solid-state drives (SSDs) for notebooks, desktops, workstations, and other consumer applications; enterprise SSDs for server and storage applications; cloud SSDs; and multi-chip package and managed NAND products. In addition, it manufactures products that are sold under other brand names; and resells flash memory products that are purchased from other NAND Flash suppliers. Further, the company provides 3D XPoint non-volatile memory products; and NOR Flash, which are electrically re-writeable and semiconductor memory devices for automotive, industrial, connected home, and consumer applications. It markets its products to original equipment manufacturers and retailers through its internal sales force, independent sales representatives, and distributors; and through a Web-based customer direct sales channel, and channel and distribution partners. The company was founded in 1978. Company description from FinViz.com
Micron suffered in the chip decline as investors worried over Apple's declining iPhone sales rumors. As soon as Apple reported the stock began to recover and it has returned to resistance and could be poised for a breakout.
The reported earnings of $2.80 and beat estimates for $2.69 but missed the whisper number of $2.81. Revenue of $7.3 billion also beat estimates. They posted $12 billion for all of 2016 and $20 billion for 2017.
Earnings June 20th.
The company is getting out of memory technologies that have run their course and are poised to become a pure commodity. The new CEO Sanjay Mehrotra built Sandisk before selling it to Western Digital. He is rapidly expanding Micron's production in new product lines.
The company has $8 billion in cash and long-term debt is only $7 billion. The company is trading at a PE of only 5.9. That is the same level as Ford.
I am pretty sure everyone understands that every electronic product built today has memory, and those amounts are growing. The IoT devices are growing by millions every month.
Resistance is $53.50 and a break over that level should trigger some short covering. There is no reason why Micron could not make a new high in the coming months, market permitting.
Update 5/21: Micron raised Q2 guidance at the open from $2.76-$2.90 to $3.12-$3.15 and revenue rose from $7.2-$7.6 billion to $7.7-$7.8 billion. After the bell, the company said it was going to buy back $10 billion in stock or roughly 16% of the company at today's closing price. Shares are going higher.
Long Aug $62.50 call @ $4.05, see portfolio graphic for stop loss.
Prior Position 5/15/18:
Closed 5/31: Long July $57.50 call @ $2.92, exit $4.55, +1.63 gain.
SMH - Semiconductor ETF - ETF Profile
We closed the expiring June position at the open on Tuesday.
Original Trade Description: April 2nd
VanEck Vectors Semiconductor ETF (SMH) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS US Listed Semiconductor 25 Index (MVSMHTR), which is intended to track the overall performance of companies involved in semiconductor production and equipment. ETF description from VanEck.com.
The chip sector peaked in early March with the SMH at $114.50 and it has since declined to $100. The world runs on chips. The sector has been crushed by several analysts calling for an end to the shortage of memory chips although the actual companies claim demand remains strong. The sector also fell last week on worries about tariffs on chips coming out of China. With President Xi Jinping putting an end to the tariff worries on Tuesday after the bell, the chip stocks should return to rally mode.
The world runs on chips and with IoT devices expected to grow by the tens of billions and AI becoming a potential blockbuster technology, the demand for chips will continue to grow.
The SMH closed at $100 with the 200-day average at $97. If we do not get a rally on Tuesday, support is only $3 away.
Closed 6/12: Long June $105 call @ $3.70, exit $4.95, +1.25 gain.
SYMC - Symantec - Company Profile
No specific news. The June option expired. This position was entered before the crash so it had no chance after that gap lower.
Original Trade Description: April 16th
Symantec Corporation, together with its subsidiaries, provides cybersecurity solutions worldwide. It operates through two segments, Consumer Digital Safety and Enterprise Security. The Consumer Digital Safety segment provides Norton-branded services that provide multi-layer security services across desktop and mobile operating systems, public Wi-Fi connections, and home networks to defend against online threats to individuals, families, and small businesses. This segment also offers LifeLock-branded identity protection services, such as identifying and notifying users of identity-related and other events, and assisting users in remediating their impact; and digital safety platform designed to protect information across devices, customer identities, and the connected homes and families. The Enterprise Security segment provides endpoint protection products, endpoint management, messaging protection products, information protection products, cyber security services, Website security, and advanced Web and cloud security offerings. Its enterprise endpoint, network security, and management offerings supports evolving endpoints and networks, as well as provides an integrated cyber defense platform. This segment delivers its solutions through various methods, such as software, appliance, software-as-a-service, and managed services. The company serves individuals, households, and small businesses; small, medium, and large enterprises; and government and public sector customers. It markets and sells its products and related services through direct sales force, direct marketing and co-marketing programs, e-commerce and telesales platforms, distributors, Internet-based resellers, system builders, Internet service providers, employee benefits providers, wireless carriers, retailers, original equipment manufacturers, and retail and online stores. Company description from FinViz.com
Symantec has gotten a bad rap over the last year and it was undeserved. They make the best consumer antivirus software available for a reasonable price. You are living in a fantasy land if you don't believe that cyber attacks are going to continue to skyrocket. Hijacking cryptocurrencies rose significantly in 2017. Ransomware continues to grow in popularity and severity. Cryptojacking, where your computer is hacked and forced to run coin mining programs to mine coins for others, is also exploding with an 8,500% rise in 2017. Even Tesla's computers were cryptojacked and used for coin mining.
Symantec announced a new AI process on Monday that will allow subscribers to automate the discovery of targeted attacks. The program is called Targeted Attack Analytics. Targeted attacks are rarely accomplished with brute force but are done skillfully utilizing known holes in the system firewall. They are normally disguised as a brute force attack in order to hide in the mountain of daily alerts received by system managers. TAA identifies these attacks before they can get inside the system and then alerts the network so that millions of other machines are protected in advance.
The Symantec team discovered Stuxnet, Regin, Lazarus, Swift and WannaCry among thousands of other viruses.
Update 5/14: Symantec was a major disaster last week. Fortunately, the option was cheap. They posted mediocre guidance and disclosed an internal audit. The stock fell -35%. On Monday the company held an investor call and gave some more details saying it would not likely impact past earnings. There were fears there would be a restatement. The company also firmed up revenue and margin forecasts for 2019 and 2020. Shares rebounded 10% on the news.
I am going to recommend we add a longer dated option because this dip will more than likely be recovered over the next couple months. Since the company said it would not impact past earnings, this is a buying opportunity. We will not hold the position until October but the July strikes are too close to retain any earnings premium.
Closed 6/15: Long June $28 call @ $1.21, expired, -1.21 loss.
Long Oct $24 call @ $1.62, see portfolio graphic for stop loss.
VXX - Volatility Index Futures - ETF Description
Volatility has fallen below $32 and a 4-month low.
The VXX always moves lower eventually.
Original Trade Description: September 18th.
The VXX is a short-term volatility ETF based on the VIX futures. As a futures product it has the rollover curse. Every time they roll to a new futures contract, they have to pay a premium and that lowers the price of the ETF. It is a flawed product with a perpetual decline built in from the monthly roll over in the futures contracts.
As evidence of this flaw, they have now done 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 VXX always declines.
Unfortunately, put options are expensive with a volatility instrument at this price level. The only recommendation is to short the ETF and forget it. If we do get a new rally into the Q1 earnings cycle we could see a sharp decline in the VXX over the next 2-3 months. This will be a long-term position. This is not a 2-3 week play. I can guarantee you, if history holds, we can play this until it splits 1:4 again at $10. Once we are in the position and profitable I will put a trailing stop loss on it. We will take profits and then look for a bounce to get back in.
The VXX is hard to short. There are 34.2 million shares outstanding and ShortSqueeze.com says 44.5 million are short. The shares are out there and being traded because the volume on Monday was 46.5 million. More than 221 million traded on Feb 5th. This ETF is a favorite vehicle for the computer traders so the volume is always high. 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.
Previously: On Feb-5th a reader emailed me saying a friend was short 1,000 shares. When the VXX spiked $21 in afterhours, Ameritrade closed that position for a $35,000 loss. They did not have a protective stop loss.
We are not using a profit stop in this position because it could be hard to re-short the shares after a volatility event. That is just trade management for a profitable position.
In ANY SHORT POSITION, you should have a catastrophe stop loss to avoid the position turning into a major loss. Had this person had a stop loss at their entry point, they would have been closed for a breakeven and they would be sleeping a lot better today.
Readers should always assume the potential for the worst possible outcome of a short position. Trade smart!
Short VXX shares @ $49.16, no initial stop loss.
Prices Quoted in Newsletter
At Option Investor, we have a long-standing policy prohibiting the editors and staff from actually trading the individual recommendations in order to conform to SEC rules concerning trades.
The prices quoted in the newsletter are the end of day prices in most cases.
When discussing fills or stops the prices quoted are the bid/ask at the time the entry trigger or exit stop is hit. This is NOT a price that someone on staff actually got using a live order.
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All of these rules normally produce worse prices than an active trader would normally get. Because they are standardized there may be some cases where a price quoted was better than an actual fill. If you received a price that was dramatically different than what was quoted please let us know.