October 1, 2024
Stock on Watch – Occidental Petroleum (OXY)
Oil stocks for the most part have grossly underperformed the S&P 500 and Nasdaq in 2024. For example, the Energy Select ETF (XLE) is higher by 5.5% on the year while the indexes are higher by more than 20%. Not great … and it’s been even worse for many individual oil stocks.
One of those disappointing oil stocks is Occidental Petroleum (OXY) which is down 11% year to date despite famed investor Warren Buffett building a big position in the stock in the last year.
However, in the last two days, a trader/traders have been aggressively buying OXY calls, including these trades:
Today: Buyer of 4,000 Occidental Petroleum (OXY) January 55 Calls for $2.80 – Stock at 52.5
Yesterday: Buyer of 15,000 Occidental Petroleum (OXY) November 50 Calls for $2.96 – Stock at 50.75
These two trades don’t truly tell the story of the call buying in OXY, especially today, as calls outpace puts on a ratio of 9:1 (290k calls vs. 32k puts) today.
I don’t love dumpster diving in beaten-down stocks, and it’s possible this OXY call buying is a play on oil and tensions in the Middle East continuing to rise. That being said, if this call buying continues, we could potentially get involved.
September 30, 2024
Weekly Update
It was a mostly quiet week for the market, which isn’t terribly surprising as traders have moved past the Federal Reserve event and inch towards the election. By week’s end the S&P 500 had gained 0.4%, the Dow had rallied 0.5% and the Nasdaq had fallen 0.55%.
Stocks on Watch
China-related stock plays went vertical to the upside last week following news that the government was taking aggressive stimulus steps to revive their economy. For example, the China Internet ETF (KWEB) rallied 26% last week!
And into that strong bounce for China plays call buying was aggressively bullish, including these trades:
Friday - Buyer of 10,000 China ETF (KWEB) November 33 Calls for $2.72 – Stock at 33.5
Thursday - Buyer of 5,000 JD.com (JD) January 39 Calls for $3.80 – Stock at 38
Thursday - Buyer of 42,000 China Internet ETF (KWEB) December 40 Calls for $0.70 – Stock at 32.35
Thursday - Buyer of 8,000 Vipshop (VIPS) October 16 Calls for $0.40 – Stock at 15.25
Tuesday - Buyer of 12,000 Pinduoduo (PDD) November 115 Calls for $4.10 – Stock at 109
Tuesday - Buyer of 12,000 Tencent Music (TME) December 12 Calls for $0.95 – Stock at 11.5
Tuesday - Buyer of 4,000 Tencent Music (TME) December 13 Calls for $0.70 – Stock at 11.35.
The call buys above are a VERY small sample of this action, as call buyers bought upside positions in these stocks, as well as BABA, BIDU etc.
I am hotly debating getting involved with a China-related position, though of note, if I do, this group can be very slippery, so there is risk.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 17, or higher by 5%, which is somewhat interesting as the indexes were mostly unchanged to up. This slow-rising VIX, or at least not declining VIX, might be the case for the next couple weeks headed into the election, and with the situation in the Middle East flaring up.
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Monday – 5
Tuesday – 6
Wednesday – 5
Thursday - 5
Friday – 5
Events for the Week to Come
Today is the end of the third quarter, which could bring some stock and sector gyrations as traders mark and rebalance their portfolios. Plus, Fed Chairman Jerome Powell will speak today. Other than that, the September Jobs Report on Friday will be the biggest catalyst of the week.
On the earnings front it will be a quiet week, with only Nike (NKE) on Tuesday drawing the attention of traders:
What Traders are Saying:
As I noted last week on Tuesday a trader/traders went on a wild call buying spree in Unity (U), as traders bought more than 40,000 in-the-money calls. Here are those trades:
Buyer of 15,000 Unity Software (U) November 20 Calls for $3.40 – Stock at 21.8
Buyer of 5,000 Unity Software (U) October 20 Calls for $2.50 – Stock at 21.65
Buyer of 15,000 Unity Software (U) January 15 Calls for $7.70 – Stock at 21.8
Buyer of 5,000 Unity Software (U) January 20 Calls for $4.85 – Stock at 22.5.
This call buying bonanza almost surely caused the stock to spike to recent highs as the market maker who sold these calls would have been forced to buy stock to hedge off his risk in these trades.
For example, let’s take a look at the Buy of 15,000 November 20 calls. If I was the market maker who sold those calls, I would immediately buy 1.1 million shares to hedge.
Then I would have to buy another 400,000 shares against the October 20 call sale, and one million shares against the January call, and so on …
And while these bursts of call buying and subsequent stock hedging can cause short-term bursts higher in the stock, I will say over time these stock moves start to “chill out” unless the call buying continues.
Stepping back, I continue to like the setup in U as call buying has been aggressive for months and the stock is trading at a multi-month high.
Open Positions
Robinhood (HOOD) January 15/26 Bull Call Spread – HOOD rallied 5% last week, potentially aided by the recent rally in crypto, which HOOD’s trading platform has exposure to. Regardless, our position is now at a potential profit of approximately 235%.
Hewlett Packard (HPE) January 22 Calls - HPE gained 7.5%, closing the week at 20 for the first time since earnings. And while the improving stock action is encouraging, we do need the stock closer to 22 before I get too excited.
Also of note, on Wednesday Barclays upgraded HPE shares to Overweight noting early signs of an enterprise recovery and Juniper deal accretion upside, and on Wednesday a trader bought 5,000 Hewlett Packard (HPE) November 21 Calls for $0.65 – Stock at 20.
Lyft (LYFT) October 13 Covered Call – LYFT closed last week at 12.85, which is a near perfect spot for our October 13 covered call. Time decay is on our side with this short volatility play.
Marijuana ETF (MSOS) November 8 Covered Call – The MSOS rallied 5% last week and we took advantage of that stock strength on Friday to sell the November 8 call for $0.43 which lowered our breakeven on our covered call to 7.65.
On Holding (ONON) January 42.5 Calls – ONON was mostly unchanged last week which is pretty much in-line with the overall market. Stepping back, our calls are now at a potential gain of approximately 70%.
Oracle (ORCL) March 160 Calls – ORCL rallied modestly last week, though it continues to look great. I continue to have high hopes for this March call if growth stocks get in gear.
Palantir (PLTR) January 26/45 Bull Call Spread - PLTR like ORCL and ONON above was mostly unchanged last week as growth stocks mostly chopped around.
And while the stock was little changed, traders continue to buy calls looking for further upside to come, including these trades from Thursday:
Buyer of 13,000 Palantir (PLTR) January 42 Calls for $2.33 – Stock at 37
Buyer of 6,500 Palantir (PLTR) November 40 Calls for $1.92 – Stock at 37.2.
Nasdaq ETF (QQQ) November 430 Puts – The election is the last remaining known event for our Nasdaq puts which have done a good job of protecting our bullish portfolio the last couple months.
Rocket (RKT) March 20 Calls – RKT was unchanged last week, which is “fine.” That being said, clearly we would like to see the stock back above 20 and beyond. Stepping back, interest rate-sensitive stocks like RKT have yet to really get going since the Fed rate cut two weeks ago.
Unity Software (U) December 18 Calls – U rallied another 6.7% last week and looks terrific. For more on U, see “What Traders Are Saying”, above.
Walmart (WMT) January 65 Calls – WMT added another 1% last week, though interestingly the stock was somewhat volatile (for WMT). Two more notes, on Wednesday a trader bought 36,500 Walmart (WMT) January 100/105 Bull Call Spreads for $0.14 – Stock at 81, and on Tuesday Truist upgraded WMT to Buy from Hold with a price target of 89, up from 76, noting Walmart continues to gain share across income levels due to its focus on price, convenience and assortment, the firm tells investors in a research note.
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