1:05pm (EST)
The Fed Head’s Q&A session today on Capital Hill went rather smoothly as Janet Yellen briefed the zombies on the Fed’s plans moving forward. She seemed rather calm and well prepared for the grilling session and the market is responding with another trip past resistance.
Of course, this movie has played out like Groundhog Day with higher opens that have faded into the close all week but today’s action feels more bullish as we believe there is a good chance the market holds resistance. Today’s headline event with the Fed is now a tailwind and we mentioned that tomorrow’s close will be more important than today’s.
February has been super bullish following the beginning of the month dip and if the bulls can get through this week above resistance there is a good chance our fluff targets from December come into play.
Although historically bullish, March can also be a tricky month to trade as recent years have been very volatile. We believe the VIX could resume its wild price swings and as option traders it is exactly what we want to see. There will be plenty of opportunities to play index option trades on the major indexes if volatility returns.
We will cover more of our near-term outlook in this weekend’s Weekly Wrap but for now all signs are pointing towards a continued rally.
As we make the turn, the Dow is higher by 35 points to 16,233 while the S&P 500 is advancing 4 points to 1,849. The Nasdaq is up 14 points to 4,306 and the Russell 2000 is gaining a point to 1,183. The S&P Volatility Index ($VIX, 14.17, down 0.18) has stayed below 15 and is edging lower.
We have 2 New Trades we are getting into and we have updated our current positions as we have closed another profitable trade that gave us a 36% return.
Do not risk more than 5% of your trading account on any one trade but do try to take ALL of the trades. Please remember, ALL “Exit Targets” and “Stop Targets” are targets. You should not have any “Hard Stops” entered to close any tradesor “Exit Orders” in your brokerage account unless we list one. We will send out a “Profit Alert” or “New Trade” if we want you to close a position OR if a new trade comes out. Otherwise, follow instructions at all times in the 9am and 1pm updates. Also, we will usually give you a heads-up if we think we are going to send an email outside of these time frames. Closed Trades for 2014: 20-8 – the Weekly Wrap is 9-2 for 2014 (94-9, or 91% win rate, since 2011) and is designed for traders that want to use options with less risk.
New Trades
Ingersoll-Rand (IR, $60.31, up $0.01)
Buy to OPEN April 62.50 calls (IR140419C00062500, $0.90, flat)
Action: Support at $60 seems to be holding and we like these call options at current levels. They have 50 days before they expire and that should gives us ample time to play the run to $64-$65. If reached, these options will easily double from current levels.
S&P 500 Spiders (SPY, $185.18, up $0.33)
Buy to OPEN March 188 calls (SPY140322C00188000, $0.75, up $0.05)
Action: This will likely be a very short-term trade as these options expire in 3 weeks. Much of the market’s moves have come on Friday’s and Monday’s this year and we are looking for a short-term breakout.
Current Trades
Discovery Laboratories (DSCO, $2.74, up $0.06)
April 2 calls (DSCO140419C00002000, $0.85, up $0.05)
Entry Price: $0.65 (2/24/2014)
Exit Target: $1.00-$1.30
Return: 31%
Stop Target: None
Action: Shares recently made a break out of a symmetrical triangle and appear to be headed to $3. This would get the options to a least $1.00-$1.10. Support is at $2.40.
World Wrestling Federation (WWE, $22.51, down $0.45)
March 30 calls (WWE140322C00030000, $0.25, flat)
Entry Price: $0.40 (2/18/2014)
Exit Target: $0.80
Return: -38%
Stop Target: None
Action: We should get some numbers from the company next week on how the launch went this week. The bid/ask is wide due to the pending news. We are expecting a pop past $25 with a run to $30. Support is at $22.
Kodiak Oil & Gas (KOG, $11.66, up $0.20)
March 12 calls (KOG140322C00012000, $0.40, up $0.10)
Entry Price: $0.60 (2/13/2014)
Exit Target: $1.20
Return: -33%
Stop Target: None
June 13 calls (KOG140621C00013000, $0.50, flat)
Entry Price: $0.70 (2/13/2014)
Exit Target: $1.40
Return: -29%
Stop Target: None
Action: Earnings are due out on today after the bell. We have a near-term target of $12.75 if shares can clear $12.50. Support is at $11.50 if $12 fails to hold.
H&R Block (HRB, $31.80, up $0.09)
March 32 calls (HRB140322C00032000, $0.95, down $0.15)
Entry Price: $0.60 (2/11/2014)
Exit Target: $1.20 (2/21/14 closed a third @ $0.85)
Return: 36%
Stop Target: 80 cents (Hard Stop)
Action: Our Hard Stop of 80 cents triggered this morning after shares traded down to $31.36. We still like H&R Block as we believe a run to $35, possibly $40 will come over the near-term and in 2014.
Ariad Pharmaceuticals (ARIA, $8.40, down $0.15)
March 10 calls (ARIA140322C00010000, $0.30, flat)
Entry Price: $0.95 (1/28/2014)
Exit Target: $1.90
Return: -68%
Stop Target: None
May 11 calls (ARIA140517C00011000, $0.75, flat)
Entry Price: $1.05 (1/28/2014)
Exit Target: $2.10
Return: -29%
Stop Target: None
Action: Shares traded to a high of $9.13 after the company reported better-than-expected earnings. Revenues should grow during the current quarter with the re-launch of Iclusig in the U.S. The company could also have a new drug debut in the second half of 2014 and why we also suggested longer-term options on this trade as well.
We are expecting a pop to $10 over the next few weeks. Support is at $8 with $7 serving backup.
The water cooler talk is that Eli Lilly has made a “friendly approach” to buy the company and is willing to pay up to $20 a share. GlaxoSmithKline is also in the hunt along with Shire.
We have said there is a HUGE gap to fill on the stock’s drop from $23 to a 52-week low of $2. Eli is trying to get the company for cheap as it currently has a $1.25 billion market-cap.
Exact Sciences (EXAS, $14.40, up $0.02)
April 19 calls (EXAS140419C00019000, $0.70, flat)
Entry Price: $0.88 (1/22/2014)
Exit Target: $1.75
Return: -20%
Stop Target: None
Action: Resistance is at $15 and a move above this level should get us back near even.
Support is at $11.75. The company should get some FDA news in March on its Cologuard drug. These are April options with 2 months until expiration and we plan to hold through the volatility because we want to be in when the March news is released. We do not have a Stop Limit listed.
Other 2014 Portfolio OPEN positions (5): These are trades that are still open in the portfolio but are down over 50%. They have longer expiration dates and are on “hold” but are not worth mentioning until they turn around. This means we would not open any new positions. We are still keeping track of the trades and we will record the results, accordingly, when we close them or if the options expire. Click on the 2013Portfolio link in the Members Area to view ALL open/ closed trades.
Sony April 20 calls (from January 2014) – continue to HOLD
General Electric March 28 calls (from January 2014) – continue to HOLD
Caterpillar March 85 puts (from January 2014) – continue to HOLD
McDonald’s March 90 puts (from February 2014) – continue to HOLD
Apollo Education Group March 29 puts (from February 2014) – continue to HOLD
WATCH LIST SECTION
These trades are NOT recommendations. They are trades that we like but have not added to the portfolio as an official recommendation because of market conditions or because we are waiting for better entry prices. We try not to have more than 12-15 open trades at any one time which is why we created a Watch List. We will not list entry prices because these stocks are on the verge of breaking out or they could sell off but these are the trades we are watching as new candidates.
We will update this section in the morning.
