May 1, 2024
Novo Nordisk (NVO) Earnings
Ahead of the “big” Federal Reserve event this afternoon I wanted to highlight what the options market is pricing in for Novo Nordisk (NVO) earnings tomorrow morning.
Headed into the event, we are holding our full NVO call position. And while our trade has not worked yet, I am encouraged by the stock’s resilience in recent weeks even as the market has come under pressure. For that reason, and because option activity has been strong, as well as the positive reaction to peer Eli Lilly’s (LLY) earnings report earlier this week, I am going to hold my NVO position through the announcement.
That being said, there is risk in holding a call position through earnings, and should the stock fall, our calls will come under a ton of pressure. And if that risk is too great for you, you must Sell to Close a piece, or your entire position, today before the market close.
NVO - With the stock trading at 129, the options market is pricing in a move of $7 this week, or 122 to the downside and 136 to the upside.
Open interest is skewed bullish on a ratio of 1.5:1 call vs. put.
Skew is pricing in typical downside fear and upside interest.
April 29, 2024
Stock on Watch – Intel (INTC)
Last year we bought Intel (INTC) calls early in the stock’s meteoric rise following several days of bullish option activity. This turned out to be a great trade as we rode our calls to a big profit.
And while our buy of the calls was great, fortunately, so was our sale as we exited our position fairly close to the stock’s top. And since our exit, INTC stock has been a bit of a disaster as it has fallen from a high of 51 in late 2023, to a low of 31.5 today, following earnings late last week.
As long-time Cabot Options Traders know I like to buy strong stocks, and I really like to buy stocks that have reacted well to earnings … essentially the opposite of the set-up in INTC. That being said, I am intrigued by the stock as call buying is very strong in INTC today, including these buys:
Buyer of 15,200 Intel (INTC) December 40 Calls (exp. 2026) for $5.70 – Stock at 31.5 (rolled from December 55 calls)
Buyer of 4,500 Intel (INTC) November 35 Calls for $2.35 – Stock at 31.35.
I am not going to get involved with INTC today as the stock looks horrible. That being said, should this call buying activity continue for a couple more days, I could potentially break my “rules” and buy a longer-term position looking for a turnaround.
April 29, 2024
Weekly Update
After falling 4-6% two weeks ago, the S&P 500 and Nasdaq bounced back by 2-3% last week. Quite the whipsaw! By week’s end the S&P 500 had gained 2%, the Dow had risen marginally, and the Nasdaq had added 3.3%.
Stocks on Watch
Option activity was fairly quiet again last week, though there were two sets of trades I wanted to highlight.
First, on Wednesday some hedge fund or institution clearly had an interest in buying Aerospace/Defense as a trader bought calls in these stocks:
Buyer of 2,000 Northrop Grumman (NOC) August 525 Calls for $7 – Stock at 474
Buyer of 2,000 Leidos (LDOS) August 140 Calls for $4.50 – Stock at 129
Buyer of 2,500 General Dynamics (GD) August 300 Calls for $6 – Stock at 280
Buyer of 1,300 AeroVironment (AVAV) July 180 Calls for $8.50 – Stock at 162.
This is not the first time we have seen strong call buying in this sector, which isn’t terribly surprising given the wars raging across the globe, and perhaps this trader sees getting bullish exposure to the group as a hedge against the various situations getting much worse.
Next up is this large call buy in Microsoft (MSFT) following a strong earnings report on Friday:
Buyer of 40,000 Microsoft (MSFT) August 375 Calls for $48 – Stock at 410 (rolled from May calls).
This August call buy is a purchase of $192 million in premium, which is clearly a large chunk of change to put into a trade. Though of note, this August buy is a “continuation bet” of sorts as the trader originally bought May calls betting on MSFT moving higher many months ago, and rolled that money/trade into this August call buy.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 15, which is well off its highs of 20 from the previous week. This is a very encouraging sign in my mind, especially ahead of the Fed event on Wednesday and the Jobs Report on Friday. Essentially, traders aren’t too concerned about a steep decline headed into either event.
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Monday – 5
Tuesday – 5
Wednesday – 5
Thursday - 5
Friday – 6
Events for the Week to Come
While there are various economic reports throughout the week, the headliner will be the Federal Reserve’s announcement on interest rates on Wednesday (no move expected) and then the April Jobs Report on Friday. The bond market’s reaction to these two events should be SUPER interesting.
And if that wasn’t enough to “worry” about, we will also get earnings from AMZN, AMD, AAPL, SMCI, SQ, QCOM, and MANY more next week.
What Traders are Saying
Just a few months ago the bond market was pricing in five to six interest rate cuts this year, with most predicting the Fed would start those cuts in March. Fast forward to April, and now the bond market is pricing in zero to two cuts this year. How quickly things have changed.
Regardless, ahead of the Fed event this Wednesday, where no policy changes are expected, here is what one Wall Street firm sees as the playbook for Chairman Jerome Powell’s press conference:
Open Positions
Freeport-McMoRan (FCX) November 46 Calls – FCX gained 5% and continues to look fantastic, along with its peer Southern Copper (SCCO).
Of note, late last week Raymond James raised the firm’s price target on Freeport-McMoRan to 54 from 49.50 and kept an Outperform rating on the shares.
Gold Miners ETF (GDX) January 33 Calls – GDX rose 6% last week and is once again approaching its highs from two weeks ago. As I’ve written in the past, I am not a gold bug, and I typically don’t understand why the stock goes up or down each day, but regardless of that, option activity continues to point to higher prices.
Robinhood (HOOD) January 15 Call – HOOD was up marginally last week ahead of earnings on May 8. The reaction to earnings will likely be make or break for the final third of our position.
Novo Nordisk (NVO) September 135 Calls – NVO stock added 4% last week after weeks of steady price action. Of note, the company will report earnings on Thursday and ahead of that report on Friday a trader bought 1,000 January 130 Calls for $14.75 – Stock at 127.
Palantir (PLTR) May 22 Covered Call – PLTR gained 9% last week, which is great for our covered call position. And while the stock rebounding is a positive, the big event for our position will be earnings on May 6.
Equal Weight ETF (RSP) June 158 Calls – The RSP was marginally higher last week as money rotated back into the semiconductors and AI plays. I may roll out of the last piece of this trade and move the capital into an earnings winner in the weeks to come.
Snap (SNAP) August 17 Calls – SNAP rebounded by nearly 30% on earnings on Friday which is terrific for our August calls. The weeks to come will likely tell us if this spike higher in the stock was just a short covering rally, or the start of the re-emergence of SNAP.
Taiwan Semiconductor (TSM) September 130 Calls – TSM rallied 9% last week as the semiconductor/AI theme re-emerged. This week will be a good test for this theme as AMD and SMCI will report earnings. Buckle up!
Nasdaq ETF (QQQ) November 430 Puts – Our lone bearish position took some heat last week as the QQQs rallied sharply. That being said, we will continue to hold our position against our bullish portfolio just in case this last week’s gains were short-lived.
Wells Fargo (WFC) December 62.5 Calls – On Tuesday of last week we added the WFC December 62.5 calls to the portfolio for $5.32. Unfortunately, after we bought this position WFC and the financials gave up some ground. Regardless, I am not too worried about this short-term sector rotation … for now.
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