Make no mistake about it, the job of a hedge fund manager is to make money, and they don’t truly care how they do it.
For example, when a hurricane is barreling towards Florida you can almost guarantee generator stocks like Generac (GNRC) will rally in the “hopes” that there will be damage, and people will have to buy generators, which will prop up GNRC stock. And here are a couple other examples:
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Two weeks ago, I wrote this to Cabot Options Traders about this subject shortly after we bought Occidental Petroleum (OXY) calls following a surge in call buying activity in oil stocks:
There is no question that oil stocks attracted wild call buying activity last week. Here is a super small sample of this action:
Buyer of 5,000 Exxon Mobil (XOM) November 130 Calls for $2.50 – Stock at 125
Buyer of 10,000 Energy ETF (XLE) November 99 Calls for $1.43 – Stock at 93
Buyer of 1,600 Oil Services ETF (OIH) November 315 Calls and Sale of November 270 Puts – Stock at 298 (bull risk/reversal)
Buyer of 2,000 Occidental Petroleum (OXY) November 55 Calls for $1.95 – Stock at 53.5
Buyer of 20,000 Occidental Petroleum (OXY) March 60 Calls for $2.39 – Stock at 53.35
Buyer of 55,000 Energy ETF (XLE) December 95/105 Bull Call Spreads for $2 – Stock at 90
Buyer of 4,000 Occidental Petroleum (OXY) January 55 Calls for $2.80 – Stock at 52.5.
As I wrote when we bought our OXY calls, this bullish option activity could be a play on a number of factors, including:
The escalating tensions in the Middle East, which could cause a spike in oil prices.
The recently announced stimulus in China, which could be a positive development for oil.
And finally, traders have been underinvested, or even short, oil and oil stocks, and the sector could be due for a short squeeze.
Regardless, should oil and oil stocks continue to attract hot money flowing into the sector it will be interesting to see if other sectors start to lose their recent strength (retail and airlines are the traditional shorts when oil gets strong).
Finally on oil, as I also wrote when we bought OXY, it never feels good to make money when there is human suffering, and that will likely be the case for our OXY calls if the Middle East continues to be a mess.
That being said, my job as a trader isn’t to make trading decisions that necessarily feel good. I’m making trades to make money. And on that note, long-time Cabot Options Traders may remember we profited nicely at the start of the Russia/Ukraine war when we bought CF Industries (CF) calls ahead of the invasion following bullish option activity. Again, it didn’t feel good, but the trade worked.
That brings me to an interesting bearish trade from last week …
The situation in many rural communities in North Carolina, Georgia and South Carolina is quite dire following Hurricane Helene. Essentially, roads are a mess, and many towns are shut off from the rest of civilization. NOT good!
So what stocks might be a short if this situation continues to be dire?
One such company/stock might be Ingles Market (IMKTA), which is a grocery chain headquartered in Asheville, NC, which was rocked by the hurricane and whose stores are mostly in North Carolina, Georgia and South Carolina, as seen below.
As you can see, the company’s stores are essentially right on the path of Helene’s destruction.
And right on cue following the storm, IMKTA stock has come under pressure, and on Thursday a trader bought the following puts looking for further downside in the stock:
Thursday - Buyer of 1,000 Ingles Market (IMKTA) November 55 Puts for $1.45 – Stock at 63.
Hedge funds are heartless … but again, their job is to make money, no matter the situation.
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