July 11, 2024
Wells Fargo (WFC) Earnings
Tomorrow, before the market open, Wells Fargo (WFC) will report earnings. Headed into the event, we are holding the December 62.5 calls that have not yet worked as financial stocks have mostly chopped around for the past several months, while money raced into AI/Semiconductors.
That may be changing today as the AI/Semiconductors are under pressure, while “everything else” is rallying. While this is just one day’s action, I am not going to sell WFC ahead of earnings as it’s possible that today is the start of a big rotation (maybe).
Essentially, let’s see how WFC stock reacts to earnings, and the rotation, and evaluate again in the days to come.
WFC - With the stock trading at 60, the options market is pricing in a move of $2.75 this week, or 57.25 to the downside and 62.75 to the upside.
Open interest is split evenly call vs. put.
Skew is pricing in typical downside risk and upside interest.
July 11, 2024
TSM New Stop
AI/Semiconductors are under pressure today. And while this is just one day, in case this selling continues I am going to set a mental stop on our TSM position that is at a big profit.
Should the TSM September 130 Calls, which are now worth $55, fall to $45, which would happen if the stock fell another $10, we will exit our trade.
Essentially, I’m trying to give this trade some rope, but also there is a point that we will bail on our trade if the selling continues.
Let’s see how this situation plays out …
July 8, 2024
Weekly Update
The holiday-shortened week was mostly quiet outside of the AI/Semiconductors plays, which once again rose nicely. As for the rest of the market, by the numbers below it was a good week, though under the surface it feels like not many stocks are truly rallying.
For the week, the S&P 500 gained 1.35%, the Dow rose marginally, and the Nasdaq added another 2.9%.
Stocks on Watch
Not surprisingly, option activity throughout the holiday-shortened week was mostly quiet. This leaves me with few “hot” ideas, having added PLTR last week.
That being said, with earnings season kicking off this week, though not truly ramping up until the weeks of July 15th and then the week of the 22nd, I MAY stay on the sidelines with new buys, waiting instead to deploy our capital into emerging earnings season winners.
That being said, should option activity truly heat up in any stock, we certainly could continue to add positions to the portfolio.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 12.5, which remains right in the middle of its recent range. Not much more to add about the VIX coming out of the shortened holiday week.
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Monday – 6
Tuesday – 6
Friday – 5
Events for the Week to Come
While last week was very quiet, this week things should heat up again as traders will be closely watching inflation data via CPI on Thursday and PPI on Friday.
And on the earnings front, the first inning of earnings season kicks off this week, starting with leading financial players JPMorgan (JPM), Wells Fargo (WFC) and Citigroup (C) on Friday.
What Traders Are Saying
The talk of the trading world, especially as the year has progressed, is the performance of the S&P 500 vs. the Russell 2000 (IWM). And in fact, the Russell 2000 Index relative to the S&P 500 just posted its worst first half of the year in history. The Russell 2000 gained just 1.4% compared to a 14.5% gain in the S&P 500 in the first half of 2024.
And while this underperformance is especially severe this year, this is the third straight year of relative underperformance for the IWM.
As a result, as noted by Bloomberg, small caps are the cheapest relative to large caps in 23 years.
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
Stepping back, while the IWM looks “bad” and has not shown any real signs of life, I am somewhat intrigued by the trades above as the risk/reward in paying $12.50 or $10.50 on these positions is intriguing.
Open Positions
Cameco (CCJ) December 55 Calls – CCJ mostly chopped around aimlessly last week as commodity plays were not where the hot money was rotating into during the holiday-shortened week.
Robinhood (HOOD) January 15 Call – Despite crypto coming under pressure last week, and HOOD does tend to move with Bitcoin, etc., HOOD held its ground nicely. And on Tuesday a trader bought 3,000 Robinhood (HOOD) January 30 Calls (exp. 2026) for $5.45 – Stock at 22.
Hewlett Packard (HPE) January 22 Calls – Somewhat disappointedly, HPE fell marginally last week. That being said, the stock still looks great, and trading sideways after a monster move higher in recent weeks/months is not terribly surprising.
Lyft (LYFT) August 16 Covered Call – After a nice rebound the previous week, LYFT went back to trading poorly last week. Fortunately, we had sold the August 16 call into the previous week’s strength and that option that we sold for $0.67 has already lost $0.25 of its value (good)
Marijuana ETF (MSOS) Stock – MSOS went nowhere last week, and we continue to sit on our stock position waiting for a stock pop in order to sell a new call to further lower our cost basis on the trade.
Novo Nordisk (NVO) September 135 Calls – NVO pulled back some last week though continues to look spectacular. Not much more to add.
On Holding (ONON) January 42.5 Calls – ONON had been bleeding lower heading into last week, and that concerning action continued. Essentially high-end retailer/consumer plays have been under pressure as of late, and if this continues, we may sell a piece of our position.
Palantir (PLTR) January 26 Calls – PLTR was the hottest stock in the market last week when it came to option activity, and it started early in the week via the trades below, as well as on Friday, which I wrote about that afternoon. Here are those trades from Tuesday:
Tuesday – Buyer of 8,500 Palantir (PLTR) September 31 Calls for $1.21 – Stock at 26.3
Buyer of 7,000 Palantir (PLTR) January 31 Calls for $2.70 – Stock at 26
Taiwan Semiconductor (TSM) September 130 Calls – Good gracious TSM stock is just insanely strong, which is terrific for our TSM position that continues to explode in value.
Nasdaq ETF (QQQ) November 430 Puts – With the QQQ trading at 496, our QQQ puts are not truly protecting our portfolio as they are so far out of the money. We may make a move on this trade soon.
Walmart (WMT) January 65 Calls – WMT traded at a new high last week which is great for our calls that are now at a potential profit of approximately 125%. Who knew WMT calls could be so profitable in an AI-led market?!!!
Wells Fargo (WFC) December 62.5 Calls – While earnings are rarely the true driver of financial stock performance, WFC will report quarterly results on Friday, and hopefully this will get the stock back in gear.
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