July 16, 2024
Stock on Watch – Unity Software (U)
In the last week the leader in terms of bullish option activity has been Unity Software (U), which has seen non-stop call buying, including these trades below:
Today - Buyer of 4,000 Unity Software (U) September 20 Calls for $1.40 – Stock at 17.4
Yesterday - Buyer of 7,000 Unity Software (U) August 20 Calls for $0.80 – Stock at 17
July 11 - Buyer of 3,000 Unity Software (U) August 17 Calls for $1.65 – Stock at 16.7.
The trades above are a small sample of this bullish option activity, as traders have been targeting calls expiring this week, next week, as well as in the August and September expiration cycles. There is nothing I don’t like about this activity. However …
U stock has been a total train wreck the past several years, and despite the Nasdaq trading at new all-time highs, U stock is trading at a multi-year low. It’s been gross!
And while I typically don’t “dumpster dive,” should this wild call buying continue today, and in the days to come, I may be “forced” into taking a speculative shot on a U position.
July 15, 2024
Big Put Buying in Big Tech
I wanted to put on your radar a flurry of put buying that just hit my option scanner. Here are those trades in market leaders:
Buyer of 10,000 Taiwan Semiconductor (TSM) September 185 Puts for $12.5 – Stock at 186
Buyer of 15,000 Nvidia (NVDA) September 129 Puts for $12 – Stock at 128
Buyer of 7,000 Amazon (AMZN) September 190 Puts for $9 – Stock at 192
My thoughts on these trades are the following:
First, I would assume it was one hedge fund or institution as these three trades are fairly similar in that they are targeting September expiration, and are near at-the-money in each stock.
Second, I’m not too worried about these trades just yet, as it’s the first set of real big put buying that I’ve seen in some time, and again, it was likely made by one firm.
That being said, I will continue to watch to see if further put buying floods in, and if it does, we could turn more defensive with our bullish portfolio of stocks and options.
July 15, 2024
Weekly Update
While I rarely highlight the gains/losses of the Russell 2000 (IWM) as the group has been mostly a dog for the last year-plus, last week the small-cap index came alive on Thursday and Friday, far outpacing its index peers with a gain of 5.25% on the week.
And while the other indexes couldn’t keep up with the IWM the S&P 500 gained 0.8%, the Dow rallied 1.5%, and the Nasdaq fell 0.35%.
Stocks on Watch
If you heard a lot of yelling and screaming in the distance on Thursday and Friday last week when the Russell 2000 (IWM) rallied from 201 to a high of 215, you are right in assuming it was me, as just last week in the Monday Weekly Review I wrote:
“With this underperformance in mind, and if I were a contrarian (I am, sometimes), if I wanted to play a ‘catch-up’ trade for the IWM I might look at these trades:
“Buy of the IWM December 200 Calls for $12.50
“Or
“Buy of the IWM December 200/230 Bull Call Spread for $10.50.”
Those December 200 calls traded as high as $23 on Friday, which would have been an approximate gain of 85% in a couple days’ time. GRRRRR! Such is the life of a trader.
Moving on …
I sold our WFC position and half of ONON on Friday as I wanted to raise capital for new earnings season stars. And if the market remains in gear, I would expect to be busy with new buys coming out of earnings this week and next. Here we go …
Volatility and What Traders are Saying
This week I am going to combine the Volatility and What Traders are Saying sections. You will see why below ….
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 12.5, which means it continues to trade in the “no fear” zone. In fact, the low VIX is abnormally low over the past 25 years and beyond as noted below:
@charliebilello: The VIX has averaged 13.8 so far this year, on pace for the lowest volatility since 2017.
@bespokeinvest: This is the lowest the VIX has ever been on July 9 during an election year.
As I’ve written many times in the past, this low level in the VIX is encouraging to me as it means that the large hedge funds and institutions are not paying up for puts to protect their portfolios. Though I would note, at some point the market will pull back and traders will very quickly race to buy puts/VIX.
Option Order Flow was fairly bullish this past week as my Options Barometer came in at:
Monday – 5
Tuesday – 5
Wednesday – 7
Thursday - 7
Friday – 5
Events for the Week to Come
This week earnings season starts to heat up a bit, though it still won’t be in true manic mode. Below is a list of the most anticipated earnings releases for the week, led by Goldman Sachs (GS) on Monday, Morgan Stanley (MS) on Tuesday, and Taiwan Semiconductor (TSM) and Netflix (NFLX) on Thursday.
Open Positions
Cameco (CCJ) December 55 Calls – CCJ exploded higher on Wednesday, which is not out of character for this uranium play, and into this move higher call buyers aggressively bought upside calls, including:
Thursday - Buyer of 3,500 Cameco (CCJ) July 58 Calls for $0.40 – Stock at 54.
Robinhood (HOOD) January 15 Call – Despite red hot call buying (noted below) HOOD remains “stuck” around the 22 level in the stock. Our position remains in great shape.
Tuesday: Buyer of 3,500 Robinhood (HOOD) February 30 Calls for $2.70 – Stock at 22.5.
Wednesday: Buyer of 4,000 Robinhood (HOOD) November 27 Calls for $2.16 – Stock at 22.3
Thursday: Buyer of 5,000 Robinhood (HOOD) September 27 Calls for $1.48 – Stock at 23
Hewlett Packard (HPE) January 22 Calls – Somewhat similar to HOOD above, HPE stock looks great, but is somewhat stuck just above the 21 level. Also similar to HOOD, HPE continues to attract call buying, including:
Wednesday - Buyer of 1,000 Hewlett Packard (HPE) August 20 Calls for $1.65 – Stock at 21.3.
Lyft (LYFT) August 16 Covered Call – LYFT, and its peer UBER, perked up a bit last week as it was reported Tesla’s self-driving ride hailing service was not on track as previously reported. Regardless, LYFT remains choppy, which is fine for our short volatility trade.
Marijuana ETF (MSOS) Stock – The MSOS perked up a bit last week, though is not yet high enough for me to have great interest in selling a new call … though we are getting close.
Novo Nordisk (NVO) September 135 Calls – NVO continues to move violently day-to-day, but big picture hasn’t made or lost much ground in weeks. I think the stock looks great ahead of earnings in a couple weeks.
On Holding (ONON) January 42.5 Calls – On Friday we took a loss on half of our ONON calls as the stock has looked dreadful along with its consumer-related peers. I will give the balance of our trade more time to recover.
Palantir (PLTR) January 26 Calls – PLTR looks fantastic and option activity remains red hot. I like the way this trade is shaping up quite a bit … though as we saw on Thursday of last week, the AI theme can get red hot, and then ice cold, very quickly.
Taiwan Semiconductor (TSM) September 130 Calls – Much like PLTR above, TSM came under pressure on Thursday, but then bounced back nicely on Friday. Regardless, our position remains at a monster profit.
Nasdaq ETF (QQQ) November 430 Puts – Our hedge is doing little to protect our bullish portfolio at this point, and I may soon roll our puts closer to the current stock price.
Walmart (WMT) January 65 Calls – WMT and COST are the two lone consumer-related plays that have been working in this market of late. And of note, late last week WMT received the following positive research note from Wall Street firm Piper:
“WMT resumed with an Overweight: WMT’s AI And Automation Opportunity Remains on Track - Back in February, we conducted a deep dive into WMT’s AI and Automation opportunity here. We continue to believe that the company is in the early innings of a $20B+ EBIT growth opportunity and share below some of the latest developments that include a partnership with Fox Robotics and Sam’s Clubs’ new exit arch technology. WMT remains our top pick.”
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