9:00am (EST)
The market opened mixed on Thursday as Wall Street awaited Fed Head Janet Yellen’s testimony on Capitol Hill and once she finished, the bulls had the feeling she has their backs.
The indexes moved to their best levels of the week and those gains held as the bears finally threw in the towel. Of course, today’s action will be more important like we mentioned yesterday so the bulls can’t celebrate until 4pm, providing support holds.
The Dow gained 74 points, or 0.5%, to end at 16,272. The blue-chips traded to a high of 16,276 and need to clear Monday’s peak of 16,300 to confirm a possible run to 16,500-16,600 into March. Support will now try to hold at 16,200 with 16,000 serving backup.
The S&P 500 jumped 9 points, or 0.5%, to close at 1,854. The index set a fresh all-time closing high with the move above 1,850 and will now look to clear Monday’s intraday high of 1,858.71. A close above 1,860 will likely lead to our fluff zone of 1,875-1,900 over the near-term.
The Nasdaq advanced 27 points, or 0.6%, to settle at 4,318. Tech closed at a fresh 14-year high after touching 4,322 intraday and is now on track to make a run to 4,400-4,500. Support will try to hold at 4,300-4,275 on a pullback.
The Russell 2000 popped a 6-pack, or 0.5%, to close at 1,187.94. The small-caps just missed clearing Wednesday’s “official” all-time intraday high of 1,188.06 and remains on track to challenge 1,200 and the December 23 “unofficial” intraday high of 1,213.49.
The S&P 500 Volatility Index ($VIX, 14.04, down 0.31) slipped 2% after trading down to 13.92. The bulls could cap the week by getting the VIX below 13.50 while the bears will try to make a late appearance to the party by cracking 15.
We got some nice pin action ahead of yesterday’s close so let’s go check on our current trades.
As we head from desk to press, futures look like this: Dow (-10); S&P 500 (-1); Nasdaq 100 (-2).
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 trades or “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: 21-8 – 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.
Ingersoll-Rand (IR, $60.53, up $0.23)
April 62.50 calls (IR140419C00062500, $1.00, up $0.10)
Entry Price: $0.90 (2/27/2014)
Exit Target: $1.80
Return: 11%
Stop Target: None
Action: We have a near-term target of $64-$65. If reached, these options will easily double from our entry price. Support will try to hold at $60 on any pullback with $58 serving as backup..
S&P 500 Spiders (SPY, $185.82, up $0.97)
March 188 calls (SPY140322C00188000, $0.95, up $0.25)
Entry Price: $0.75 (2/27/2014)
Exit Target: $1.50
Return: 27%
Stop Target: None
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.
Discovery Laboratories (DSCO, $2.73, up $0.05)
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, $22.74, down $0.22)
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 of its Pay-Per-View subscription model went this week. We are expecting a pop past $25 with a run to $30. Support is at $22.
Kodiak Oil & Gas (KOG, $11.72, up $0.26)
March 12 calls (KOG140322C00012000, $0.45, up $0.10)
Entry Price: $0.60 (2/13/2014)
Exit Target: $1.20
Return: -25%
Stop Target: None
June 13 calls (KOG140621C00013000, $0.55, up $0.05)
Entry Price: $0.70 (2/13/2014)
Exit Target: $1.40
Return: -21%
Stop Target: None
Action: The company missed earnings by a penny and revenue came in light. Shares were down in after-hours to $11.42.
Ariad Pharmaceuticals (ARIA, $8.99, up $0.44)
March 10 calls (ARIA140322C00010000, $0.50, up $0.20)
Entry Price: $0.95 (1/28/2014)
Exit Target: $1.90
Return: -47%
Stop Target: None
May 11 calls (ARIA140517C00011000, $0.90, up $0.15)
Entry Price: $1.05 (1/28/2014)
Exit Target: $2.10
Return: -14%
Stop Target: None
Action: Shares made a late day run to $9 on Thursday. We are expecting a pop to $10 over the next few weeks. Support is at $8 with $7 serving backup.
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.
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, $14.30, down $0.08)
April 19 calls (EXAS140419C00019000, $0.60, down $0.10)
Entry Price: $0.88 (1/22/2014)
Exit Target: $1.75
Return: -32%
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 and why we have 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.
H&R Block (HRB, $31.69, down $0.02)
April 33 calls (HRB140419C00033000, $0.80, flat)
Thoughts: We still like H&R Block as we believe a run to $35, possibly $40 will come over the near-term and in 2014.
Philip Morris (PM, $80.78, up $1.28)
March 82.50 calls (PM140322C00082500, $0.50, up $0.30)
April 75 puts (PM140419C00075000, $0.50, down $0.15)
Thoughts: We said a close above $80 could lead to $82.50. A back test to $75 could be coming afterwards and this could be setting up for a decent strangle trade.
Krispy Kreme Doughnuts (KKD, $19.51, up $0.64)
March 18 puts (KKD140322P00018000, $0.55, down $0.20)
May 17 puts (KKD140517P00017000, $0.65, down $0.15)
Thoughts: Resistance is at $20 and we have added the May 16 puts as an additional way to play KKD’s possible drop to $10 by the summer.
Verizon (VZ, $47.50, up $1.15)
March 49 calls (VZ140322C00049000, $0.40, up $0.10)
April 45 puts (VZ140419P00045000, $0.60, down $0.35)
Thoughts: Shares are on the verge of clearing the 200-day MA at $48.27. If shares clear $48.50 we could go long as shares could reach $50-$52. If resistance holds, we could go short at some point so we have also listed put options. Shares have been volatile of late.
iShares Russell 2000 (IWM, $117.99, up $0.64)
March 115 puts (IWM140322P00115000, $0.90, down $0.25)
Thoughts: We could go short on a drop below $115 or long on a close above $117.50.
Alexza Pharmaceuticals (ALXA, $5.61, down $0.04)
June 6 calls (ALXA140621C00006000, $0.50, down $0.10)
Thoughts: These options look like a bargain if shares make a run past $6.
