The mighty CAT struck out with a weak earnings report and the bulls lost the game.

Caterpillar posted the first earnings miss in 10 quarters and the biggest miss in more than ten years. It was not a fun day for shareholders given the nearly 10% decline. CAT blamed tariffs and a sharp decline in China's economy for the miss. This tanked the Dow and added to the growing cloud of earnings uneasiness.

Nvidia (NVDA) appeared shortly after the Caterpillar earnings and warned that a decline in China's economy, strong dollar, end of crypto mining and weak sales of their latest video product, would cause them to severely miss their prior revenue guidance. Shares fell 14% or -$22 on the news to further increase the earnings uneasiness.

Whirlpool (WHR) reported earnings of $4.75 and beat estimates for $4.23. However, it lowered guidance for 2019 saying earnings would be in the $14-$15 range compared to estimates for $15.99. They blamed weak demand due to slowing in Europe, Africa and the Middle East and higher raw material costs from tariffs on China. The company said it expected the "uncertain external environment and volatility to continue." Earnings sentiment took another hit on the news.

Late in the day the administration filed criminal charges against Huawei for stealing trade secrets from T-Mobile. The company had filed a civil suit against Huawei in 2014 related to the theft. At the same time the government said it was filing criminal charges against the CFO Meng Wanzhou and requesting extradition from Canada where she has been held for over a month. The US claims Huawei, using a Hong Kong based subsidiary called Skycom Technologies committed wire fraud, obstructed justice, conspired to launder money and violated the IEEPA act by doing business with a sanctioned Iran.

Notice of these charges two days before the trade meeting with the Chinese Vice Premier in Washington, amount to a giant warning that the US is prepared to do battle and if necessary put multiple Chinese companies out of business. ZTE exists only because President Trump agreed to a major fine in lieu of business killing sanctions. Huawei could also be put out of business for cyber theft of intellectual property and inclusion of spyware in their products.

These charges are going to poison the atmosphere surrounding the trade talks and make it very difficult to reach an agreement. However, the government now has two very big Chinese assets in play. This is similar to chess where an opponent can put your valuable pieces at risk and you have to decide which pieces you are willing to lose and whether or not you can cost your opponent pieces at the same time. Each participant has to weigh the risk of each move and think many moves ahead to win the game. Trump has raised the stakes in these trade talks by putting major pieces of the Chinese economy at risk. Meng Wanzhou is roughly the equivalent to Megan Markle in Britain. Wanzhou is the daughter of the founder of Huawei and is corporate royalty in China. Putting her in jail in the US could start a hostage war where China begins grabbing US corporate officials by the dozens on phony charges in order to eventually have a hostage trade.

All of these events pushed the S&P futures down -10 in early trading. With Apple reporting earnings after the bell on Tuesday, there is great fear that they will guide lower and that would be another market disaster. Everyone will be holding their breath at the close.

The major indexes are struggling. The Dow fell more than 400 points at its lows on the earnings disappointments. The recovery to -208 was a 50% rebound but it knocked the index back to the 10% correction level. The 24,750 level is decent resistance and we did not even come close on Monday after closing at that level on Friday.



The S&P fell back to correction territory and congestion from last week. The resistance at 2,650 is being tested daily and so far, each one-day breakout was quickly retraced. There is major resistance at 2,700 and 2,750. The big cap techs reporting this week could have a major impact on the S&P.


The Nasdaq is the lagging index with the roughest path to return to its highs. The index stopped at resistance twice last week with each gain being sold hard the next morning. The index is trapped between 7000-7200 and the direction of the breakout will be the key to overall market direction.



The Russell posted a minor decline, but it was actually a decent day in a bad market. The Russell is holding right on downtrend resistance and could be poised to move higher.


The headline event for this week is of course the FOMC decision on Wednesday and the Powell press conference. There was some "messaging" last week about a potential slowdown in QT if the data supported it. This is another change in the posture for the Fed suggesting they got the message from the market. With Mario Draghi warning about a continued slowdown in Europe and the potential for a hard Brexit, there may have been some communication between the central bankers and Powell is being preemptive in his messaging.

This is also payroll week. I do not know if the government shutdown with 800,000 people furloughed will have any impact on the Nonfarm Payroll numbers or not because I don't know how they account for that in their surveys. The ADP number should not be impacted because that does not have any government component. It is corporate payrolls only.

The earnings calendar will be far more important than the economic calendar.


For this reporting cycle 112 S&P companies have reported Q4 earnings with average growth of 14.3% and 5.6% revenue growth. More than 72% of companies have beaten on earnings and 58% have beaten on revenue. More than 125 S&P companies report this week.

The most important part of this cycle is the rapidly declining estimates for Q1. Estimates were over 8% as of December 1st and that has fallen to only 2.0% as of Friday. If the Q1 forecast falls below zero, the market is going to react negatively. Guidance will be especially critical and three major companies, CAT, NVDA and WHR, have all guided significantly lower.

Q2-2019 estimates have fallen from 10.6% back on July 1st to a forecast for 4.5% today. Q3-2019 has declined from 12.1% on October 1st to 3.4% today.


The Tuesday before a FOMC decision is normally positive. I wrote in the weekend commentary that the political headlines should be positive. The criminal charges on Huawei and its CFO have killed that idea. Negative sentiment is definitely rising.

Last week we saw investors buy bad news every day. This week could be a major test of that trend. If they buy Monday's bad news on Tuesday and Apple earnings are at least neutral, the market could have a chance at moving higher. However, the following two weeks could be a turning point for the market if the earnings forecasts turn negative. Be aware that the foundation pillars for the market are developing cracks.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email



NEW DIRECTIONAL Call PLAY

BOX - Box Inc - Company Profile

Box, Inc. provides 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 closed at a 4-month high on Monday in a bad market. The saucer base is complete and shares are rebounding.

Because of the potential earnings volatility in the market I am going to stay short term with cheaper options and less risk. I am recommending March but the June options are only slightly more expensive and twice the time.

Buy March $21 Call, currently $1.20, stop loss $18.85.




Current Portfolio


Open Positions

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


IBM - International Business Machines
The long position was closed at the open on Wednesday.


Original Play Recommendations (Alpha by Symbol)


CAT - Caterpillar - Company Profile

Comments:

CAT reported earnings of $2.55 that missed estimates for $2.98. That was the biggest quarterly earnings miss in over a decade. However, it was still an improvement from the $2.16 in the year ago quarter. This was the first earnings miss in ten quarters. Revenue of $14.34 billion also missed estimates but was up from $12.90 in the year ago quarter. The guided for 2019 to earnings of $11.75-$12.75 and analysts were expecting $12.73.

They blamed a slowdown in China's economy and the trade tariffs for the earnings miss.

Here are our options. This is a February call with three weeks until expiration. I do not expect it to return to $135 again. However, with the China trade talks later this week we could get some positive headlines that could lift the stock. Just bringing it back to $130 would inflate the option price. This may be wishful thinking but with a 73-cent premium, we either close now or hold a week and see if the situation improves. The risk is that the 73-cent premium becomes 43 cents. The reward is that maybe it rises to $2 or more on a trade deal. I am recommending we hold it until next week then decide.

Original Trade Description: Jan 7th

Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives for heavy and general construction, rental, quarry, aggregate, mining, waste, material handling, oil and gas, power generation, marine, rail, and industrial markets. Its Construction Industries segment offers backhoe, compact, track-type, small and medium wheel, knuckleboom, and skid steer loaders; small and medium track-type, and site prep tractors; mini, wheel, forestry, small, medium, and large track excavators; and motorgraders, pipelayers, telehandlers, cold planers, asphalt pavers, compactors, road reclaimers, and wheel and track skidders and feller bunchers. The company's Resource Industries segment provides electric rope and hydraulic shovel, landfill and soil compactor, dragline, large wheel loader, machinery component, track and rotary drill, electronics and control system, work tool, hard rock vehicle and continuous mining system, scoop and hauler, wheel tractor scraper, large track-type tractor, and wheel dozer products; longwall, highwall, and continuous miners; and mining, off-highway, and articulated trucks. Its Energy & Transportation segment offers reciprocating engine powered generator set and engine, integrated system, turbine, centrifugal gas compressor, diesel-electric locomotive and component, and other rail-related products and services. The company's Financial Products segment offers finance for Caterpillar equipment, machinery, and engines, as well as dealers; property, casualty, life, accident, and health insurance; and insurance brokerage services, as well as purchases short-term trade receivables. Its All Other operating segments provides parts distribution and digital investments services. The company was formerly known as Caterpillar Tractor Co. and changed its name to Caterpillar Inc. in 1986. Company description from FinViz.com.

For Q3, they reported a 47% increase in profits but that was not good enough. In Q1 earnings rose 99% and 120% in Q2. Expectations were high. Earnings per share were $2.86, up from $1.95 but just barely over estimates for $2.85. The company affirmed their full year guidance of $11-$12 saying nothing had changed since the last quarter. That should be good news. Any changes would have been expected to be negative. They said the China market remained healthy and produced a 40% rise in excavators in 2018. They previously guided for a $100-$200 million hit from tariffs and said with the year 75% over it looked like the impact would be at the lower end of the range.

In any normal period, a 47% increase in profits would be outstanding. Given the sharply declining market and the dumping of anything related to China and tariffs, CAT shares were crushed.

In late November CAT said the three-month rolling sales growth for the October quarter rose 18%. That was still good but down from the 21% in September. Total industry sales rose 46% after a 47% rise in September and 35% in August. Energy and transportation retail sales were up 7%, with oil and gas up 20%. The report showed some slight moderation, but it was still a good month despite the tariffs.

With the Chinese trade talks accelerating the odds of a deal are improving. The Chinese Vice Premier showed up unexpectedly at Monday's talks signifying China's interest in actually doing a deal.

Earnings are January 24th. ANY positive news on China will cause this stock to rocket. I am proposing a short term call and then decide ahead of earnings if we want to hold over.

Position 1/8/19:
Long Feb $135 Call @ $3.52, see portfolio graphic for stop loss.



COST - Costco - Company Profile

Comments:

Costco announced a quarterly dividend of 57 cents payable February 22nd to holders on February 8th. Shares faded slightly with the market after the announcement. However, they posted a strong gain today despite the negative market.

Original Trade Description: Jan 14th

Costco Wholesale Corporation, together with its subsidiaries, operates membership warehouses. It offers branded and private-label products in a range of merchandise categories. The company provides dry and packaged foods, and groceries; snack foods, candies, alcoholic and nonalcoholic beverages, and cleaning supplies; appliances, electronics, health and beauty aids, hardware, and garden and patio products; meat, bakery, deli, and produces; and apparel and small appliances. It also operates gas stations, pharmacies, optical dispensing centers, food courts, and hearing-aid centers; and engages in the travel business. In addition, the company provides gold star individual and business membership services. As of September 2, 2018, it operated 762 membership warehouses, including 527 warehouses in the United States, 100 in Canada, 39 in Mexico, 28 in the United Kingdom, 26 in Japan, 15 in Korea, 13 in Taiwan, 10 in Australia, 2 in Spain, 1 in Iceland, and 1 in France. Further, the company sells its products through online. The company was formerly known as Costco Companies, Inc. Costco Wholesale Corporation was founded in 1976 and is based in Issaquah, Washington. Company description from FinViz.com

Everyone should know by now that Amazon and Costco are not competitors. They do sell some of the same items, but Amazon is not a threat. Costco is Amazon proof. If anything, they are becoming more of a threat to Amazon because their online business is growing rapidly.

For December, Costco reported sales of $15.42 billion a 7.8% increase over the year ago quarter. For the quarter ended on January 6th sales rose 9.5% to $52.99. Same store sales rose 7.5% in the US and 6.1% globally. Ecommerce sales rose 13.6%. For the quarter US same store sales rose 10.0%, globally 7.9% and Ecommerce 27.9%. These are dynamite numbers and show no weakness when other retailers are floundering.

Earnings are March 6th.

Shares are recovering from a monster crash in December. I am going to recommend an April call because there are no March options at this time. We will exit before their earnings. Having the expiration after earnings will retain premium until after earnings. Decay should be minimal.

Position 1/15/19:
Long April $220 call @ $5.35, see portfolio graphic for stop loss.



CRM - SalesForce.com - Company Profile

Comments:

No specific news. Shares still stuck under resistance at $150.

Original Trade Description: Dec 10th.

SalesForce.com, inc. develops enterprise cloud computing solutions with a focus on customer relationship management. The company offers Sales Cloud to store data, monitor leads and progress, forecast opportunities, and gain insights through analytics and relationship intelligence, as well as deliver quotes, contracts, and invoices. It also provides Service Cloud, which enables companies to deliver personalized customer service and support, as well as a field service solution that enables companies to connect agents, dispatchers, and mobile employees through a centralized platform, which helps to schedule and dispatch work, and track and manage jobs in real-time. In addition, the company offers Marketing Cloud to plan, personalize, and optimize one-to-one customer marketing interactions; Commerce Cloud, which enables companies to enhance engagement, conversion, revenue, and loyalty from their customers; and Community Cloud that enables companies to create and manage branded digital destinations for customers, partners, and employees. Further, it provides Quip collaboration platform, which combines documents, spreadsheets, apps, and chat with live CRM data; Salesforce Platform for building enterprise apps, as well as artificial intelligence (AI), no-code, low-code, and code development and integration services, including Trailhead, Einstein AI, Lightning, Internet of Things, Heroku, Analytics, and AppExchange; and solutions for financial services, healthcare, and government. Additionally, the company offers cloud services, such as consulting and implementation services; training services, including instructor-led and online courses; and support and adoption programs. It provides its services through direct sales; and consulting firms, systems integrators, and other partners. salesforce.com, inc. has a partnership with Apple Inc. to develop customer relationship management platform. The company was founded in 1999 and is headquartered in San Francisco, California. Company description from FinViz.com

When the market is weak, go with strength. CRM shares rallied on the strong earnings then pulled back only slightly during the latest Nasdaq crash. The Nasdaq was the strongest index on Monday and hopefully we are nearing an actual bottom. With CRM shares showing relative strength, this may be a safe port in a volatility storm.

SalesForce.com reported earnings of 61 cents that beat estimates for 50 cents and the year ago quarter of 39 cents. Revenue rose 26% to $3.39 billion and beat estimates for $3.37 billion. The company guided for revenue as much as $3.56 billion in Q4 and analysts were expecting $3.53 billion. They said they were on path for $16 billion in revenue in 2020 and $22 billion by 2022.

Billings, metric of future performance, rose 27% to $2.89 billion and beat estimates for $2.68 billion. Revenues rose 25% in the Americas, 26% in APAC and 31% in EMEA using constant currency. Sales cloud revenues rose 11%, service cloud rose 24% and marketing and commerce cloud rose 37%. Platform and "other" cloud revenues rose 51% or 30% if you exclude the acquisition of Mulesoft. The number of deals for more than $1 million rose 46%.

Adjusted gross profit of $2.6 billion came from gross margin of 76.9%. They ended the quarter with $3.45 billion in cash.

This company can seemingly do no wrong. When the tech sector eventually recovers SalesForce will be a leader.

Position 1/8/19:
Long Feb $150 call @ $4.50, see portfolio graphic for stop loss.

Position 12/11/18:
Previously closed 12/20: Long Feb $150 call @ $4.40, exit $1.54, -2.86 loss.



IBM - International Business Machines - Company Profile

Comments:

IBM reported earnings of $4.87 that beat estimates for $4.82. Revenue of $22.54 billion beat estimates for $21.73 billion. For the full year they reported $13.81 in earnings compared to estimates for $13.79. They guided for fiscal 2019 for earnings of "at least $13.90" while analysts were predicting $13.79. Cognitive solutions revenue was $5.46 billion that beat estimates for $5.27 billion. This includes the Watson unit. Cloud revenue was $8.9 billion and missed estimates for $9.04 billion. The global business segment saw revenue of $4.3 billion that beat estimates for $4.15 billion. Overall revenue declined slightly due to the sale of some software assets to HCL Technologies for $1.8 billion.

IBM is paying $34 billion to acquire Red Hat and the deal is expected to close in the second half of 2019. This will be a transformational event according to Keybanc. It will revolutionize IBM's cloud offerings. Shares rose $8 in afterhours.

We had a February $125 call and the stock closed at $130 in afterhours. I recommended we take out gains at the open on Wednesday and exit the position.

Original Trade Description: Jan 7th

International Business Machines Corporation operates as an integrated technology and services company worldwide. Its Cognitive Solutions segment offers Watson, a computing platform that interacts in 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 tailored industry solutions; 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. International Business Machines Corporation has a strategic partnership with Samsung Electronics to manufacture microprocessors. The company was formerly known as Computing-Tabulating-Recording Co. and changed its name to International Business Machines Corporation in 1924. The company was founded in 1911 and is headquartered in Armonk, New York. Company description from FinViz.com

IBM is buying Red Hat to significantly increase their cloud offerings. This is a major deal and will completely change the focus and add to market share for IBM. Most analysts are just waking up to the fact this is a game changer.

The IBM CEO will present the keynote speech at CES 2019 on Tuesday. This could be a market moving speech. I propose we enter at the open and then hold until earnings on January 22nd and then decide whether to hold over.

Position 1/8/19:
Closed 1/23: Long Feb $125 call @ $2.00, exit $7.10, +$5.10 gain.



TITN - Titan Machinery - Company Profile

Comments:

Titan posted a breakout on Friday and closed at an 8-month high. Caterpillar's earnings miss knocked Titan back -4%. Titan does not have the same problems as Caterpillar. They are mostly domestic with operations in North America and Latin America. They do have overseas revenue but it is a minor portion of their sales. Titan's earnings are not until the end of February and there is likely to be a lot of market volatility over the next month. Small caps outperformed today and hopefully that will continue. That would benefit Titan.

Original Trade Description: Jan 21st

Titan Machinery Inc. owns and operates a network of full-service agricultural and construction equipment stores. It operates through three segments: Agriculture, Construction, and International. The company sells new and used equipment, including agricultural and construction equipment manufactured under the CNH family of brands, as well as equipment from various other manufacturers. Its agricultural equipment comprise tractors, combines and attachments, application equipment and sprayers, planting and seeding equipment, tillage equipment, hay and forage equipment, and precision farming technology and related equipment for use in the production of food, fiber, feed grain, and renewable energy; and home and garden applications, as well as maintenance of commercial, residential, and government properties. The company's construction equipment includes compact track loaders, compaction equipment, cranes, crawler dozers, excavators, forklifts, loader/backhoes, loader/tool carriers, motor graders, skid steer loaders, telehandlers, and wheel loaders for commercial and residential construction, road and highway construction machinery, and mining operations equipment. It also sells maintenance and replacement parts. In addition, the company offers repair and maintenance services that include warranty repairs, on-site and off-site repair services, and scheduling off-season maintenance services, as well as notifies customers of periodic service requirements; provides training programs to customers; and sells extended warranty services. Further, it rents equipment; and provides ancillary equipment support services. The company operates in North Dakota, South Dakota, Iowa, Minnesota, Montana, Nebraska, Wyoming, Wisconsin, Colorado, Arizona, and New Mexico, the United States; and Romania, Bulgaria, Serbia, and Ukraine, Europe. Titan Machinery Inc. was founded in 1980 and is headquartered in West Fargo, North Dakota. Company description from FinViz.com

Think of Titan equipment as the poor man's Caterpillar. They are a fraction of the size of Caterpillar but their prices are reasonable compared to the yellow metal giant.

They reported Q3 earnings of 49 cents compared to analyst estimates for 36 cents. Earnings rose 400% over the year ago quarter. Revenue of $363.6 million rose 10% and edged out estimates at $360 million.

They guided for similar sales in Q4 but raised their margin guidance from 8.7%-9.2% to 9.1%-9.4%. They guided for earnings of 65-75 cents. Consensus estimates are well below that level.

Shares have rebounded sharply from the December market crash and are right on the verge of breaking out to an 8-month high. Given their recent gain I would normally not recommend them but with the outlook on China improving and the market in rally mode, I am going to buy the breakout. Options are cheap.

Earnings February 28th.

Position 1/22/19:
Long March $20 call @ 55 cents, see portfolio graphic for stop loss.



BEARISH Play Updates

VXX - Volatility Index Futures - ETF Description

Comments:

I am starting to think our current market volatility is here to stay. Every time we have several days of gains, a headline comes along and knocks the indexes lower and the VXX higher. Fortunately, we know the futures decay in the product will eventually take its toll.

We just need to be patient and it will be back under 30 soon.

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 history 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!

Position 2/13/18:
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.

For entry/exit points at the market open the prices quoted will be the opening print. The majority of the time readers are able to get a better fill than the opening print because of market maker bias at the open.

For trades with an opening qualification the prices quoted will be the bid/ask at the time the qualification was met.

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.