December 23, 2024
Weekly Update
The breadth worries that had so many traders on edge finally reared their ugly head and took a bite out of the market as the indexes took a big hit on Wednesday. By week’s end things had improved a touch, but still the S&P 500 fell 2.45%, the Dow lost 2.54%, and the Nasdaq declined by 2.71% last week.
Stocks on Watch
Having bought SOFI on Friday, what’s next on my watchlist should the market shape up? Here are some on my list, in no particular order:
MRVL got hit hard early last week, though it certainly didn’t “die.”
UBER saw a flurry of call buying on Wednesday, though the stock looks “meh” at best.
TSM continues to be intriguing to me as the stock pulled back some last week, but impressively is within striking distance of its 2024 highs.
DECK closed Friday at a new high. Super impressive.
GOOG broke out to a new high early last week before pulling back marginally during the market washout. The stock looks great and option activity is very bullish.
EQT has pulled back from its highs, but still looks pretty good. The “problem” is natural gas stocks are just so hard to handle.
PFE stock looks horrible, but on Friday there was a buyer of 40,000 February 28 Calls for $0.50 – Stock at 26.5, possibly playing a stock rally once the calendar flips to 2025.
Essentially, there are plenty of buy candidates despite last week’s market sell-off, which is encouraging.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 18.35 having traded as high as 28 (or higher by 75%) on Wednesday. Interestingly, what made me believe the market could be due to bounce on Friday when we bought SOFI was that the VIX was falling that morning, even as the market was under pressure (bullish signal).
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
Please note, the market will be open today and until 1 on Tuesday before shutting down for Christmas eve that afternoon and Christmas Day on Wednesday.
My plan is to be at the trading desk Monday and Tuesday until the market closes, and then will be traveling Thursday before returning to the normal schedule Friday.
In terms of market-moving events this week, there are no “known” economic data releases or earnings that should move the market. Hopefully, it’s a nice quiet week for the market. (Wouldn’t that be nice?!)
What Traders are Saying
Having bought SOFI on Friday, let’s dig a bit deeper into my thoughts on this trade …
First off, the option activity in the stock has been wildly bullish, targeting short term as well as longer-term expiration cycles. This is encouraging as this would lead me to believe the short-term call buyers are playing momentum in the stock, and the longer-term call buyers think the stock could have much more upside longer term.
Second, the call buying has been at-the-money for the shorter-term call buys and WAY out-of-the-money for the longer-term buys. Much like above, this leads me to believe traders think the stock can move higher in the short term as well as WAY higher in the longer term.
Now, where this trade doesn’t work is if the market falls apart (certainly possible) or if the momentum of the last year in the stock (up 60% year-to-date) fades off as the calendar flips to 2025.
Also, as noted above, SOFI stock definitely has a bit of a momentum play in it, which means it can get red hot and ice cold very quickly. This is why I labeled the trade as Boom or Bust in the trade alert.
And while those risks could hit the stock, as I often say when buying, the option order flow was just too strong for me to pass up.
Open Positions
Robinhood (HOOD) January 15/26 Bull Call Spread – HOOD fell 11% last week, though interestingly option activity was red hot on Friday as the stock bounced from its early lows.
At current levels our bull call spread has $0.20 left to capture between now and January expiration.
Corning (GLW) May 47 Calls – GLW fell marginally last week and continues to look good. Essentially, GLW is the type of stock that will rise and fall with the market week to week.
Marijuana ETF (MSOS) – I’m very likely going to sell our MSOS stock position to take the tax loss either this week or next as I’ve seen virtually no buying since the election.
On Holding (ONON) January 42.5 Calls – ONON was mostly unchanged last week which was impressive. At current levels our calls are at a potential profit of approximately 120%.
Oracle (ORCL) March 160/240 Bull Call Spread – ORCL fell 2% last week, largely in-line with the Nasdaq. I think the stock looks “OK,” and with profits in the bank, I’m trying to give the position more time to get back in gear since the earnings fall.
Palantir (PLTR) January 26/45 Bull Call Spread – PLTR gained 6.5% last week and is a total stock star. Our position now has only $0.15 left to capture between now and January expiration.
Occidental Petroleum (OXY) March 52.5 Calls – OXY, like most oil stocks, has looked dreadful the last couple of weeks. However, the narrative got a bit more interesting Thursday/Friday for OXY when it was reported Berkshire Hathaway was back buying OXY stock. Here are some of the details:
“Berkshire’s largest recent stock purchase was about $405 million of Occidental Petroleum. The buy of around 8.9 million shares raised Berkshire’s stake in the big energy company to 264.2 million shares, approximately a 28.1% stake (first buy since June).”
Rocket (RKT) March 20 Calls – The bond market move of the past two months has just killed RKT and many of the home-related plays. This position will be a failure unless something changes early in 2025.
Walmart (WMT) January 65/95 Bull Call Spread – WMT fell 2% last week, largely in-line with the market. That being said, the stock looks great and our position is now at a potential profit of approximately 500%.
Financials ETF (XLF) June 50 Calls – The XLF fell 2% last week, and has been under pressure along with most of the market for the past two weeks. That being said, a couple strong days (Friday was a start) and the Financials ETF could be back near its highs.
Jets ETF (JETS) January 26 Calls – The JETS were mostly unchanged last week, which was impressive. Also, much like I said about the XLF above, a couple strong days and the JETS could be back at its highs.
SoFi (SOFI) July 16 Calls – See “What Traders are Saying” above.
Happy Holidays, Everyone!
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