November 27, 2024
Happy Thanksgiving and Scheduling Note
As expected, the market is fairly slow today and trading in the options world is VERY quiet. Essentially some of our stocks are up, some are down, but big picture not a whole lot to report, which isn’t terribly surprising.
I am working today and will be monitoring the market on Friday, which is a half day. And while the market is open for a couple hours on Friday, the Cabot offices will be closed, and it’s unlikely you will hear from me.
Also of note, as I do from time to time on holiday weekends, I am going to send a shortened Monday Week in Review this upcoming Monday so that I can hang with my parents who are in town, as well as re-charge the batteries for the end of year market push.
I hope you have a wonderful Thanksgiving weekend and I look forward to a strong finish to 2024.
Have a Happy Thanksgiving!
Jacob
November 25, 2024
Weekly Update
Despite some early morning sell-offs nearly every day last week, the bulls stepped up each time, and by week’s end the S&P 500 had gained 1.6%, the Dow had rallied 2%, and the Nasdaq had added 1.55%.
Stocks on Watch
As you will see in the recap of my options barometer below (two readings at 6, and two at 7), it was a very bullish week of options trading, which is very encouraging.
So, which of the many bullish trades from last week are most appealing to me?
Buyer of 3,000 EQT (EQT) March 50/60 Bull Call Spread for $1.60 – Stock at 45.3
Option activity has been very strong in EQT as well as natural gas peer AR of late as the sector has been very strong.
Buyer of 1,000 Twilio (TWLO) February 110 Calls for $4.30 – Stock at 95
Second week in a row of bullish option activity in TWLO as the stock broke out to a new high.
In addition, I’m watching recent strong stock performers such as TOST, SHOP, BX/KKR and more.
Essentially, I have many potential candidates to buy, from a variety of sectors, which somewhat shows just how under-the-surface strong the market is.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed last week at 15.25. And moving forward I expect the “fear index” will bleed lower this week as options traders, or more accurately their computers, aggressively take the decay out of options as the market is closed Thursday for Thanksgiving and open for only half the day Friday (essentially a four-day weekend of decay).
Option Order Flow was very bullish this past week as my Options Barometer came in at:
Monday – 6
Tuesday – 7
Wednesday – 5
Thursday – 7
Friday – 6
Events for the Week to Come
The stock market will be closed for Thanksgiving on Thursday and open for only half the day on Friday. And please note, the Cabot offices are closed for both days so you will not hear from me Thursday or Friday unless action is drastically needed with one of our positions. Have a great holiday!
In theory, this should be a quiet week as many traders will step away from the desk to travel and celebrate Thanksgiving. That being said, traders will be watching the Federal Reserve Minutes from its previous meeting on Tuesday, as well as PCE (inflation data) on Wednesday.
Much like the economic data to be released this week, the earnings front should be mostly quiet. That being said, while the volume of big earnings reports is small, some of the companies reporting are big hitters, including DELL, CRWD, WDAY, ZM, ADSK and ADI.
What Traders are Saying
Late Friday afternoon I sent out a trade alert to sell the first piece of our XLF trade above the current market price, at $3.70. I rarely recommend selling above the current bid price, as I want to be “sure” that you will get filled on my trade alert (though there is never a guarantee).
However, in this case, late on a Friday I thought there was a decent chance we would get filled for these reasons:
First off, in general on Friday afternoons liquidity dries up in the market as traders often leave early, which means stocks and options can move more dramatically on less volume. This was a positive for our above-market offer as I felt that there may not be sellers at $3.65 and $3.70 on our calls.
Second, the XLF and financials in general were leading the market higher on Friday (higher by 1.2% vs. S&P 500 up 0.35%), and I felt there was a chance they would run the XLF and the hottest stocks into the close.
Finally, it’s been a bull market of late, and I felt that the odds favored the market closing at its weekly high, which would likely benefit the XLF (which it did).
Fortunately, we were in fact filled in the last couple minutes of the day at $3.70 as the S&P 500 and the XLF finished at the highs of the day and week. I love it when a plan comes together (though of course there was no guarantee that it would).
Regardless, I wanted to share a bit of insight into some lesser-known market mechanics so that you can better understand how the market works in certain situations.
Open Positions
Robinhood (HOOD) January 15/26 Bull Call Spread – HOOD gained ANOTHER 10% last week and continues to look spectacular. This strength could be due to excitement for the industry over the Trump administration, or because of its crypto exposure, or maybe it’s just a bull market. Regardless, our $11-wide bull call spread that we own for $0.16 is now worth $10.50.
Corning (GLW) May 47 Calls – GLW gained 5% last week and is looking better and better again as the market strengthens. Essentially, if the general market is in gear, I expect GLW to work as well.
Hewlett Packard (HPE) January 22 Calls – Much like GLW above, HPE broke out to a new recent high last week and looks great. Earnings are coming in early December, which will be make or break for the last piece of our position.
Marijuana ETF (MSOS) – The MSOS continues to look dreadful post-election and my patience with this position is starting to run out as I’m not going to sell a new 5 strike call for pennies.
On Holding (ONON) January 42.5 Calls – ONON broke out in a big way last week following an upgrade from Wall Street research firm Raymond James, which raised the stock from Outperform to Strong Buy.
At current levels our January calls are now at a potential profit of approximately 135%.
Oracle (ORCL) March 160 Calls – Much like most stocks in the portfolio ORCL broke out to a new high last week and looks outstanding. Our calls are now at a potential profit of approximately 150%.
Palantir (PLTR) January 26/45 Bull Call Spread – PLTR mostly chopped around last week, which is fine given the ridiculous run the stock has been on. At current levels our $19-wide bull call spread that we purchased for $3.09 is now worth $18.50.
Occidental Petroleum (OXY) March 52.5 Calls – OXY and oil stocks in general are starting to join the rally it appears as the stock has been trending higher of late. And on Thursday a trader bought 10,000 Occidental Petroleum (OXY) March 60/70 Bull Call Spreads for $0.80 – Stock at 51.7.
Rocket (RKT) March 20 Calls – RKT continues to be a drag on the portfolio as rising interest rates are killing this stock. Maybe, just maybe, as the bull market continues higher, traders will start to chase the garbage (which RKT appears to be) into year end.
Walmart (WMT) January 65/95 Bull Call Spread – What more can I say about WMT other than this is one of the best-looking stocks in the market. Our position is now at a potential profit of approximately 500%.
Financials ETF (XLF) June 50 Calls – See “What Traders are Saying” above for my thoughts on XLF.
And of note, option traders continue to pile into the big bank stocks including these trades from Friday:
Buyer of 20,000 Bank of America (BAC) February 48 Calls for $1.90 – Stock at 47
Buyer of 8,000 Wells Fargo (WFC) January 77.5 Calls for $2.62 – Stock at 75.
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