October 8, 2024
Position Update
We have three stocks breaking out to new highs today and I wanted to update you on where we stand with each.
Let’s start with HOOD, which is trading at 25 this afternoon. At current stock levels, our January 15 calls that were bought for $2.70 are now worth $10.60, or a potential profit of approximately 292%.
Next up is PLTR, which is trading at 41 today. At current stock levels, our January 26 calls that we bought for $4.63 are now worth $15.8, or a potential profit of approximately 240%.
Finally, in terms of stocks making new highs, let’s look at ONON. The stock is trading at 52.5 today which is a new all-time high, and our January 42.5 calls that we bought for $6.40 are now worth $12, or a potential profit of approximately 88%.
One other stock that I wanted to highlight is HPE, which is not working as well as the trades above though is definitely showing signs of life as of late.
And this morning Bank of America wrote positively of the stock noting:
HPE will host its AI day on Thursday to showcase its technologies centered around large scale computing and liquid cooling. Maintain Buy on compelling valuation, synergies from Juniper, cost controls and upside potential from AI.
Hopefully this AI day on Thursday is the catalyst to get our HPE position back in good shape.
October 7, 2024
Weekly Update
Despite plenty to worry about in the market including the rising tensions in the Middle East and the short-lived port strike, impressively the S&P 500, Dow and Nasdaq all rose marginally last week.
Stocks on Watch and What Traders are Saying
There is no question that oil stocks attracted wild call buying activity last week. Here is a super small sample of this action:
Buyer of 5,000 Exxon Mobil (XOM) November 130 Calls for $2.50 – Stock at 125
Buyer of 4,000 Exxon Mobil (XOM) October 125 Calls for $2.20 – Stock at 124.5
Buyer of 10,000 Energy ETF (XLE) November 99 Calls for $1.43 – Stock at 93
Buyer of 1,600 Oil Services ETF (OIH) November 315 Calls and Sale of November 270 Puts – Stock at 298 (bull risk/reversal)
Buyer of 2,000 Occidental Petroleum (OXY) November 55 Calls for $1.95 – Stock at 53.5
Buyer of 20,000 Occidental Petroleum (OXY) March 60 Calls for $2.39 – Stock at 53.35
Buyer of 5,000 PBF Energy (PBF) October 35 Calls for $0.40 – Stock at 31
Buyer of 55,000 Energy ETF (XLE) December 95/105 Bull Call Spreads for $2 – Stock at 90
Buyer of 4,000 Occidental Petroleum (OXY) January 55 Calls for $2.80 – Stock at 52.5.
As I wrote when we bought our OXY calls, this bullish option activity could be a play on a number of factors, including:
The escalating tensions in the Middle East, which could cause a spike in oil prices.
The recently announced stimulus in China, which could be a positive development for oil.
And finally, traders have been underinvested, or even short, oil and oil stocks, and the sector could be due for a short squeeze.
Regardless, should oil and oil stocks continue to attract hot money flowing into the sector it will be interesting to see if other sectors start to lose their recent strength (retail and airlines are the traditional shorts when oil gets strong).
Finally on oil, as I also wrote when we bought OXY, it never feels good to make money when there is human suffering, and that will likely be the case for our OXY calls if the Middle East continues to be a mess.
That being said, my job as a trader isn’t to make trading decisions that necessarily feel good. I’m making trades to make money. And on that note, long-time Cabot Options Traders may remember we profited nicely at the start of the Russia/Ukraine war when we bought CF Industries (CF) calls ahead of the invasion following bullish option activity. Again, it didn’t feel good, but the trade worked.
That brings me to an interesting bearish trade from last week …
The situation in many rural communities in North Carolina, Georgia and South Carolina is quite dire following Hurricane Helene. Essentially, roads are a mess, and many towns are shut off from the rest of civilization. NOT good!
So what stocks might be a short if this situation continues to be dire?
One such company/stock might be Ingles Market (IMKTA), which is a grocery chain headquartered in Asheville, NC, which was rocked by the hurricane and whose stores are mostly in North Carolina, Georgia and South Carolina, as seen below.
As you can see, the company’s stores are essentially right on the path of Helene’s destruction.
And right on cue following the storm, IMKTA stock has come under pressure, and on Thursday a trader bought the following puts looking for further downside in the stock:
Thursday - Buyer of 1,000 Ingles Market (IMKTA) November 55 Puts for $1.45 – Stock at 63.
Hedge funds are heartless … but again, their job is to make money, no matter the situation.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 19, which was mostly unchanged, which given the situation in the Middle East – and with one month until the election – seems like a somewhat low level of fear.
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Monday – 5
Tuesday – 5
Wednesday – 6
Thursday - 5
Friday – 5
Events for the Week to Come
This week will have three potential market-moving events including the release of the Fed Minutes (inside look at the debate on interest rate cuts) from the last Federal Reserve meeting which will be released on Wednesday, followed by Inflation data on Thursday (CPI) and Friday (PPI).
On the earnings front, this week is the unofficial start of earnings season, led by Delta Airlines (DAL) on Thursday and JPMorgan (JPM) and Wells Fargo (WFC) on Friday.
Open Positions
Robinhood (HOOD) January 15 Call – HOOD fell 4% last week, though it mostly remains near the high end of its 2024 range. I think the stock looks terrific if the bull market (and to a lesser extent crypto) remain strong.
Hewlett Packard (HPE) January 22 Calls – HPE gained another 3% last week and continues to show signs of life after its initial earnings decline several weeks ago.
Lyft (LYFT) October 13 Covered Call – LYFT was mostly unchanged last week, closing the week at 12.6, which is pretty perfect for our short volatility trade that will expire next week. My plan is to simply let the short October call decay away.
Marijuana ETF (MSOS) November 8 Covered Call – Much like LYFT, the MSOS was mostly unchanged last week, which is what we are looking for. Not much more to add other than we want the MSOS to remain range-bound.
On Holding (ONON) January 42.5 Calls – ONON was marginally higher last week, closing near the top of its recent range. Option activity has been quiet, though there was some out-of-the-money put buying late last week, which is something I am going to keep an eye on.
Oracle (ORCL) March 160 Calls – ORCL broke above 170 on Friday and looks terrific, and continues to see bullish option activity pile up, including these trades below:
Monday - Buyer of 5,000 Oracle (ORCL) November 170 Calls for $5.65 – Stock at 169
Thursday - Buyer of 1,000 Oracle (ORCL) December 175 Calls for $6.63 – Stock at 167.
Occidental Petroleum (OXY) March 52.5 Calls – See “Stocks on Watch” and “What Traders Are Saying” above.
Also of note, fellow Cabot analyst Brad Simmerman wrote about OXY and Warren Buffett this week in a Cabot Wealth Daily, noting:
“That stake may not be massive for Berkshire (the sixth-largest portfolio position) but it’s an outsized position in the company, just under one-third of all outstanding shares in OXY.
“And Buffett can buy more, if he’s so inclined. In 2022, Berkshire received permission from regulators to buy up to 50% of Occidental.
“Now, Buffett has expressed that he has no intention of trying to engineer a takeover of Occidental, but that doesn’t preclude him from continuing to add to his stake.
“In Berkshire’s latest filing (on August 14), the company disclosed that it had purchased another 7 million shares of OXY.”
Palantir (PLTR) January 26 Calls – PLTR closed at a new all-time high above 40 on Friday, and option activity remains wildly bullish, including this trade from late last week:
Buyer of 6,000 Palantir (PLTR) October 41 Calls for $0.64 – Stock at 39.
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 is the one position in our portfolio that has not been working in recent weeks, and it’s been frustrating. The likely reason why the stock is under pressure is long-term Treasuries, as measured by the TLT, are down 5.6% since the start of the September Fed meeting.
Unity Software (U) December 18 Calls – U stock continues to be nuts day-to-day, but is hanging out in the general vicinity of its recent highs. Of note, there was some profit taking of the massive call buying that had been so encouraging in the middle of last week … but then on Friday call buying ramped up again.
Walmart (WMT) January 65 Calls – WMT stock continues to look great no matter what the market is doing day-to-day. Not much more to add other than our position is at a monster profit.
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