October 22, 2024
Market Update and Stocks on Watch
We are now on trading day seven of the market going nowhere. This lack of volatility is not terribly surprising given the election is now just two weeks away. As I’ve written recently, who would want to add a ton of exposure to the market in front of an election that many think will be a toss-up?
And while we mostly wait out the election, I continue to build my watchlist of earnings season winners, and today I am going to add two more mega-cap stocks, which are up big on earnings.
General Motors (GM) is trading higher by 10% today, and at a new 52-week high, following earnings this morning. This is a heck of a move for a stock like GM.
Similarly, Philip Morris (PM) is higher by 9% today, and also is trading at a new multi-year high following earnings this morning. Again, much like GM this is a heck of a stock rally for a boring stock like PM.
And what makes both GM and PM so interesting to me is the price of calls are sooo cheap following earnings, and should either of these stocks continue to trend higher following these big breakouts, the profits could be quite spectacular … much like our WMT trade where options prices were too good to pass up.
While GM and PM are not sexy stock names, we may get involved should this stock strength continue.
October 21, 2024
Weekly Update
Another week, another all-time high for the S&P 500 and Dow, while the Nasdaq is slowly creeping towards its previous highs. By week’s end the S&P 500 had gained 0.6%, the Dow had rallied 1%, and the Nasdaq had risen marginally.
Stocks on Watch and What Traders are Saying
I’m fairly bullish on the market right now for a couple reasons …
First off, the market has handled a seemingly never-ending wave of bad news in recent months including the port strike (short-lived), the war in the Middle East (still ongoing), the anxiety over the Federal Reserve (mostly passed, but always a worry), and now the uncertainty surrounding the election. And despite all that, the S&P 500 is trading at a new all-time high. Impressive action!
On top of that in the last week there have been several mega-cap stocks that have reported earnings and seen their stocks surge higher, including NFLX and ISRG on Friday, and TSM, BX and MS earlier in the week. This is another encouraging sign.
And finally, option activity, while not overwhelming, continues to point to higher prices in leading stocks and sectors, led by these trades from last week:
Friday - Buyer of 10,000 Amazon (AMZN) March 220 Calls for $6 – Stock at 189
Friday - Buyer of 5,000 Regional Banks ETF (KRE) December 65 Calls for $1.35 – Stock at 60
Thursday - Buyer of 90,000 Nvidia (NVDA) December 180/190 Bull Call Spread for $1 – Stock at 140
Thursday - Buyer of 5,000 Apollo (APO) December 155/170 Bull Call Spread for $3.33 – Stock at 146
Wednesday - Buyer of 5,000 Apollo (APO) January 170 Calls (exp. 2026) for $11.40 – Stock at 142
Wednesday - Buyer of 4,000 Software ETF (IGV) January 98 Calls for $1.60 – Stock at 91.75
Tuesday - Buyer of 165,000 Nvidia (NVDA) December 125 Calls for $16.60 – Stock at 132 (rolled up from December 110 calls).
Now, could all this goodwill go up in flames in the blink of an eye? Absolutely! One or two bad days for the market will have the bears calling a market top.
That being said, for now at least I continue to like the way this market is trading, and should conditions continue to improve I really like the stock action and option activity in NVDA and AMZN noted above.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 18. If I were to guess, the VIX at 18 will be near the floor for the “fear index” for the next few weeks headed into the election, as traders will be hedging more and more “just in case” things go sideways on election day.
Of note, Goldman Sachs wrote this weekend about the falling VIX/fear about the election, noting: The implied election move has come in a ton this week as Trump odds have climbed higher. We model the implied move now at 2.11%, down from 2.78% just 2 weeks ago.
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 – 5
Events for the Week to Come
With the economic data releases this week relatively quiet, traders will again turn their attention to earnings season, as companies such as General Motors (GM), Texas Instruments (TXN) and 3M (MMM) report on Tuesday, Tesla (TSLA), IBM (IBM), and Vertiv (VRT) on Wednesday, and UPS (UPS) on Thursday which will give traders a feel for the general economy and continued risk on/off for the market.
Open Positions
Robinhood (HOOD) January 15/26 Bull Call Spread – HOOD rose marginally last week ahead of earnings on 10/30. Our trade continues to sit at a big profit.
Corning (GLW) May 47 Calls – GLW was mostly unchanged last week ahead of earnings on 10/29. Of note, on Tuesday a trader bought 2,000 Corning (GLW) December 47 Calls for $2.05 – Stock at 46.
Hewlett Packard (HPE) January 22 Calls – HPE, like HOOD and GLW above and many of our stocks below, was mostly unchanged last week. Not much more to add.
Lyft (LYFT) November 13 Covered Call (exp. 11/1) – Last week we rolled our LYFT short call to the November 13 strike call expiring 11/1. This reason we rolled to the 11/1 expiration date is I wanted to sell a call ahead of the company’s earnings and the election.
Marijuana ETF (MSOS) November 8 Covered Call – The MSOS continues to chop around aimlessly ahead of the election. Of note, while the stock has been chopping around, decay has been slowly eating away at our short call (good).
On Holding (ONON) January 42.5 Calls – ONON gave up some ground last week, though it continues to look good ahead of earnings in early/mid-November (the earnings date hasn’t been officially released yet).
Oracle (ORCL) March 160 Calls – ORCL was mostly unchanged last week (like almost all of our stocks) though it continues to trade within striking distance of its all-time highs. Option activity remains very strong.
Palantir (PLTR) January 26/45 Bull Call Spread – The bears tried to go after PLTR on Wednesday as the stock fell near the 40 level. However, that negative action was short-lived as the stock bounced back nicely, closing just short of its all-time highs on Friday.
Nasdaq ETF (QQQ) November 430 Puts – Our lone bearish position is likely going to expire worthless in November. But just in case something goes poorly on election day we will continue to hold this position.
Occidental Petroleum (OXY) March 52.5 Calls – OXY came under pressure last week as oil got hit. That being said, I like our position should oil stocks get back in gear again.
Rocket (RKT) March 20 Calls – If you want to see how RKT will trade day-to-day, just watch the TLT. For example, on Wednesday the TLT finally rallied, which spurred RKT to break back above 19. Then on Thursday and Friday the TLT gave up its gains, and so did RKT. For now at least, our RKT trade is seemingly a bonds play.
Unity Software (U) December 18 Calls – U continues to move violently day-to-day, but big picture has not gone anywhere ahead of earnings in early November.
Walmart (WMT) January 65/95 Bull Call Spread – WMT rose marginally last week and is trading just short of its all-time highs. Our position remains in excellent shape.
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