March 21, 2025
Buy the Dip?
As longtime Cabot Options Traders know I am not one to buy the dip on earnings losers as I would prefer to buy earnings winners. And even if I was looking to buy an earnings loser, I typically wait 3 days before buying as that gives the big sellers plenty of time to unload their shares.
That being said, I know several Cabot Options Traders who are dip buyers, and this morning there are four well-known stocks falling on earnings. Let’s dive in …
Nike (NKE) stock has been a disaster really since the stock peaked at 176 in late 2021. This is horrible performance as the S&P 500 has rallied nicely in the past several years. And this morning, following earnings last night, the stock is now trading at a new multi-year low at 67.
I am not looking to buy this dip, but if I was, this is how I might play it:
Buy to Open the January 67.5 Calls (exp. 1/16/2026) for $8.50 (approximately)
Again, I’m not buying, but I will say this is a reasonable price to get bullish exposure for just short of a year.
Next up is FedEx (FDX), which is lower by 10% this morning following earnings and at a new 52-week low.
Again, I’m not buying, but if I was I might look at:
Buy to Open the January 230 Calls (exp. 1/16/2026) for $23 (approximately)
Micron (MU) is not nearly the disaster that NKE and FDX are, but the stock is down 8% today on earnings. If looking for a rebound this is how I might play it:
Buy to Open the January 95 Calls (exp. 1/16/2026) for $18 (approximately)
Finally, Lennar (LEN) is down 5% today on earnings and has now fallen from 195 to its low today at 114. If looking to play a housing rebound, this is how I would do it:
Buy to Open the January 115 Calls (exp. 1/16/2026) for $16 (approximately)
As you can probably tell, the way I would buy these stocks that are under pressure is to buy at-the-money calls with a lot of time.
Stepping back, it is somewhat interesting that all four of these stocks are in totally separate industries, which for now at least tells me the bears are not discriminating when selling stocks.
March 19, 2025
Stock on Watch – Robinhood (HOOD)
Quick update on the day-to-day action of the market …
Three weeks of terrible price action!
Friday: Very impressive bounce.
Monday: Decent to good.
Yesterday: Not great, gave back most/some of Friday and Monday’s gains.
Today: Good.
I’m not trying to be silly with these short descriptions, but big picture, no money is being made as the market violently moves around, and shorting stocks into a weak day of trading isn’t working as of late, and chasing the market higher on strong days is definitely not working.
And while no money is being made as of late, that doesn’t mean I’m not building a watchlist. This leads me to …
As I wrote in the Monday Weekly Review, Robinhood (HOOD) doesn’t look great but is intriguing:
On the other side of the coin, HOOD got beat up last week, but into a deep decline call buyers aggressively positioned throughout the week looking for a stock rebound in the months to come. Option activity was very bullish!
Fast forward to this week and the bullish option positioning is continuing, including these trades:
Today - Buyer of 3,300 Robinhood (HOOD) September 65 Calls for $$2.85 – Stock at 42
Today - Buyer of 4,000 Robinhood (HOOD) April 45 Calls for $2.50 – Stock at 42
Yesterday - Buyer of 4,000 Robinhood (HOOD) May 45/55 Bull Call Spread for $2 – Stock at 39.5
These trades are a small sample of the bullish option activity in HOOD the last two days, and I’m very interested in HOOD should the market finally strengthen.
Stepping back, let’s see how the market reacts to the Fed later today, and should conditions improve, maybe we will finally get off the sidelines with a new buy or two.
March 18, 2025
Position Updates and a Trade Idea (MAGS)
Friday of last week and yesterday were very impressive days for the market as the indexes and most stocks surged higher. Fast forward to today, and the indexes are giving back some/most of those gains. As I continue to stress, patience is key right now. There will be a time to buy, but I don’t think we are there yet.
Switching gears a bit … three of our positions are in the news today. Here is brief breakdown of each.
Corning (GLW) hosted its investor day this morning and the company upgraded its longer-term outlook and raised first-quarter guidance. In reaction to this news the stock is higher by 1.5%, which is very strong outperformance compared to the S&P 500 and Nasdaq, which are lower by 1.2% and 2%, respectively.
Grab (GRAB) is also higher on the day following a Bloomberg report that the company is in the early stages of a potential takeover of its rival GoTo Group. I continue to be impressed by GRAB stock’s performance in an awful market for growth stocks.
Starbucks’ (SBUX) rating was raised to Buy at Wall Street research firm Argus this morning as the analyst noted, “Given efforts to increase customer traffic and open new stores, we believe the shares are undervalued. At current prices, our target price, if achieved, offers investors the prospect of a nearly 19% total return including the dividend ($115).”
In reaction to this upgrade SBUX is marginally lower on the day, which is fine given the weakness in the market this morning.
Speaking of weakness, the selling this morning is once again being led by the Mag 7 stocks, or as some traders are now referring to the group, the Lag 7.
In fact, the group, which has its own ETF (MAGS), which offers equal weight exposure to GOOG/AMZN/AAPL/META/MSFT/NVDA/TSLA, is now down 16% year-to-date.
So how might I bet on, OR, against the Mag 7 stocks using the MAGS ETF?
If I was looking for the MAGS to bounce later this year I might …
Buy to Open the MAGS September 46 Calls for $5.20
Or
If I was looking for the MAGS to continue to fall this year I might …
Buy to Open the MAGS September 46 Puts for $4.50.
Back to the market, should the indexes bounce back this afternoon or tomorrow, I think that would be a great sign that the bulls are willing to buy the dip. However, if the indexes fully give back the last two days of gains, that would definitely be concerning/bear market type of action.
March 17, 2025
Weekly Update
There is no sugar coating it: last week was ugly for the market as the S&P 500 fell 2.3%, the Dow lost 3.1%, and the Nasdaq declined by another 2.4%. And while the market looks terrible, on a positive note stocks had their best day of the year on Friday.
Stocks on Watch and What Traders are Saying
The market has been dreadful as of late, and that is a somewhat kind assessment of the price action in individual stocks. So, the question becomes, is this the start of a true bear market, or just a normal pullback?
According to Carson Research, since World War II there have been 48 10% corrections in the S&P 500 and only 12 of those turned into a 20% bear market, as noted below:
And even more positively, again via Carson Research, historically we are reaching the end of a typically bearish time of year, as noted below:
So, if this is not going to turn into a real bear market (hopefully!) and if we are entering a more positive time of the year historically, which stocks look best?
I continue to monitor PLTR very closely as the stock AGAIN held the 80 level on Thursday and then traded as high as 87 on Friday.
Somewhat similarly, NVDA actually gained 7% last week even as the market got killed.
On the other side of the coin, HOOD got beat up last week, but into a deep decline call buyers aggressively positioned throughout the week looking for a stock rebound in the months to come. Option activity was very bullish!
And finally, while it’s not the fastest horse in the race, GE continues to hold up nicely no matter how bad the selling pressure is on the overall market, which is very impressive.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 22 after trading just short of 30 on Monday and Tuesday. What was so interesting about the VIX last week was the “fear index” stopped going up even as the S&P 500 kept melting down Wednesday and Thursday. This is often a bullish signal as traders are no longer racing to buy protection against a deeper market decline.
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 – 6
Events for the Week to Come
The big event of the week, outside of the reverberations from the deep market sell-off of the past month, will be the Federal Reserve announcement on Wednesday. While there is almost no chance the Fed will make a move on interest rates, the bond market is again pricing in cuts later this year, and traders will be looking to Fed Chairman Jerome Powell for clues as to how they’ll proceed.
Also, traders will be monitoring an AI-themed Nvidia conference throughout the week, headlined by CEO Jensen Huang’s keynote on Tuesday.
On the earnings front it will be mostly quiet, outside of MU, NKE and FDX on Thursday.
Open Positions
Corning (GLW) May 47 Calls – Corning will host its Investor Day tomorrow and into the event traders aggressively positioned for upside via these trades:
Friday - Buyer of 20,000 Corning (GLW) November 60/70 Bull Call Spread for $1 – stock at 47
Friday - Buyer of 3,500 Corning (GLW) November 50 Calls for $4.10 – Stock at 47.
Grab Holdings (GRAB) January 5 Calls – GRAB continues to look “decent” amidst the market shakeup. What I mean is a speculative stock like GRAB could be under way more pressure, yet it’s holding up OK as similar stocks have been blasted. Also, option activity remains strong, including this call buy from Friday:
Friday - Buyer of 1,000 Grab (GRAB) July 4 Calls for $0.80 – Stock at 4.40.
Marvell (MRVL) June 115 Calls – MRVL stock is still horrible, though I’m not going to sell our calls just yet as there is no upside in doing so.
Financials ETF (XLF) June 50 Calls – After hitting a new recent low earlier last week the XLF rallied 2.5% on Friday. Should this “recession” story fade off, the XLF and our trade could get back in gear quickly.
Jets ETF (JETS) January 26 Calls and Starbucks (SBUX) January 110 Calls – Speaking of recession fears, the JETS and SBUX came under pressure last week as traders are pricing in increasing odds of a recession. And while it’s certainly possible that will be the case, I think it’s also possible this story will pass with time. And with so much time until January expiration I will continue to hold both of these positions.
Occidental Petroleum (OXY) March 52.5 Calls and Rocket (RKT) March 20 Calls – Unfortunately the balance of both of these trades will likely expire worthless this Friday as the interest rate dynamics killed RKT and the market shakeout hit OXY. Grrr!
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