November 20, 2024
Nvidia (NVDA) Earnings
I’ve had a couple subscribers reach out to ask for an earnings preview for Nvidia (NVDA) tonight. Here are my thoughts, and then what the options market is pricing in.
Option activity has gone from WILDLY bullish (mostly targeting upside March calls) to mixed as of late. That positioning isn’t terribly surprising as traders tend to get bullish in liquid leaders in the run-up to earnings, and then hedge at the last minute.
The 8.27% expected move (noted below) is mostly in line with previous earnings reactions which saw the stock fall 6% in August, and rally 9% in May. Essentially, based on recent stock moves, the market is pricing in similar volatility on earnings tonight.
NVDA - With the stock trading at 145, the options market is pricing in a move of $12 this week, or 133 to the downside and 157 to the upside.
Open interest is split evenly call vs. put.
Skew is pricing in normal downside risk, as well as big upside interest.
November 19, 2024
Walmart (WMT) Earnings Follow-up
Following earnings this morning, Walmart (WMT) is trading higher by 4% at 87.5, which is a new all-time high. This strong stock run today, and in the past several months, has helped push our January 65 calls that were originally purchased for $4.35 to be worth $22.80, or a potential profit of approximately 425%.
As is always the case with our big winners, I am going to continue to let this stock run as high as possible. However, just in case the stock begins to fall, I am going to move my mental stop on our calls from $15 up to $18.
Stepping back, who would have thought WMT would have been one of our best trades of 2024?!!
November 18, 2024
Walmart (WMT) Earnings
Tomorrow before the market open, Walmart (WMT) will report earnings. Headed into the event, we are holding the last piece of our trade, which is at a potential profit of approximately 360%.
I am going to hold my position through earnings as the stock looks terrific.
That being said, the stock has been on a MONSTER run, so it’s possible it’s “due” to pull back. Because of that risk, if you want to ring the register on your position ahead of the event you must Sell to Close before the end of the trading day today.
WMT - With the stock trading at 84.5, the options market is pricing in a move of $4 this week, or 80.5 to the downside and 88.5 to the upside.
Open interest is skewed bullish on a ratio of 1.4:1 call vs. put.
Skew is pricing in typical downside risk and upside interest.
November 18, 2024
Weekly Update
Not surprisingly the post-election market wiggles continued last week as many stocks and sectors continued to show strength, while others got hit hard. By week’s end the three leading indexes had all lost ground as the S&P 500 fell 2.3%, the Dow declined by 1.7%, and the Nasdaq lost 3.65%.
Stocks on Watch
The market pullback of the last couple days has made it a bit easier to find the best-looking stocks of the recent rally. What I mean is soooo many stocks had surged higher in recent weeks which made it hard to find the true standouts … but now that the sellers have stepped back in, which stocks are still holding up best?
This brings me to Toast (TOST), which broke out on earnings two weeks ago and continued to tack on gains last week despite the Nasdaq falling more than 3%.
I am very intrigued by TOST and should the market shape up, we may be adding this stock to the portfolio soon.
Next up on my watchlist is Shopify (SHOP), which jumped from 90 to as high as 114 on earnings Tuesday before pulling back a couple percent Wednesday/Thursday, and then was mostly unchanged on Friday as the Nasdaq was getting hit.
And interestingly, along with the strong stock action option activity was bullish throughout the week including these call buys:
Friday - Buyer of 1,200 Shopify (SHOP) June 120 Calls for $11.50 – Stock at 108
Wednesday - Buyer of 3,000 Shopify (SHOP) November 113 Calls (exp. 11/24) for $2.11 – Stock at 111.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 16, having traded as low as 14 on Thursday and as high as 17.5 on Friday. Big picture, I continue to think the VIX will be range bound as we head into the holidays … unless something goes truly sideways for the market.
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Monday – 6
Tuesday – 5
Wednesday – 5
Thursday - 6
Friday – 5
Events for the Week to Come
This week will be relatively quiet on the macro-economic front, which means traders will be most focused on earnings from the leading retailers like Walmart (WMT) and Lowe’s (LOW) on Tuesday and Target (TGT) and TJX (TJX) on Wednesday as well as tech leader Nvidia (NVDA) on Wednesday after the close.
What Traders are Saying
While traders initially celebrated the election of Donald Trump, last week traders started to wrap their minds around what his presidency might look like based on some of his nominations for high-profile roles in the administration.
One potential leading contributor to the administration is Robert Kennedy, who has been nominated to head the Department of Health and Human Services … and several sectors did not love that nomination, as noted below by @bespokeinvest:
“The RFK effect. There are more new 52-week lows today than 52-week highs in the S&P 500, and the bulk are Big Pharma names and processed food Consumer Staples stocks …”
And by week’s end Healthcare (XLV) had lost 5.35% and Biotech (XBI) had fallen by 11%. Not great.
But those weren’t the only sectors that fell on assumptions regarding the new administration’s policies as Defense stocks (ITA) fell 4.5% on the week.
Big picture, truly who knows what the new administration will do in the next four years, but I did want to highlight that while the Financials (XLF) are breaking out to new highs there are other sectors that traders suspect might be due for rougher times ahead.
Open Positions
Robinhood (HOOD) January 15/26 Bull Call Spread – HOOD fell marginally last week, though it continues to look spectacular trading just short of its 52-week high. Our position remains in outstanding shape.
Corning (GLW) May 47 Calls – GLW gave up some ground last week along with the market. Option activity has gone quiet in the stock. Not much more to add.
Hewlett Packard (HPE) January 22 Calls – HPE gave up some of its recent run last week along with the market, though big picture the stock looks good. Earnings will be released in early December.
Of note, this morning Raymond James raised the stock to Strong Buy from Outperform.
Marijuana ETF (MSOS) Stock – The MSOS November 8 call that we sold last month expired worthless on Friday which means we are left with only a stock position. Now the question becomes, do we sell a new call, bail on the stock entirely, or wait for a rally to sell a new call? I’m not yet sure how I’m going to play this situation.
On Holding (ONON) January 42.5 Calls – ONON was mostly unchanged in the days after earnings, which was impressive given the selling pressures in the market. Of note, following earnings the stock was upgraded by Cowen as the firm noted: Raising price target to 60 following Q3 upside to sales and EBITDA.
Oracle (ORCL) March 160 Calls – After a monster run higher in recent weeks ORCL finally gave up some ground late last week. That being said, the stock still looks great ahead of earnings in early December.
Palantir (PLTR) January 26/45 Bull Call Spread – PLTR stock is an absolute rocket ship that continues to make highs day after day even when the market is soft. At some point this stock will cool off, but for now at least I’ve seen no signs of that.
Of note, we still have approximately $0.70 left to capture in our bull call spread between now and January expiration.
Occidental Petroleum (OXY) March 52.5 Calls – OXY initially fell on earnings, then soared higher when the company’s CEO said “Trump will be very positive for the US oil industry, before settling the week mostly unchanged.
Of note on Wednesday a trader bought 25,000 Occidental Petroleum (OXY) March 55 Calls for $2 – Stock at 51 (rolled down from March 60 calls)
Rocket (RKT) March 20 Calls – RKT got hit hard on earnings last week, and my plan is to sell a piece of this position on any meaningful rally.
Walmart (WMT) January 65/95 Bull Call Spread – WMT will report earnings tomorrow before the open. I will be sending a preview of those earnings later this morning/afternoon.
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