9:00am (EST)
The bears made a little noise on Monday after they scored a victory round and lead most of the fight from start to finish. The first waves of support were tested but the bulls also showed some strength as they rebounded off the lows to recover 2/3rd’s of the losses.
The action into the close was mildly bullish as there wasn’t a test to new lows but Wall Street seems nervous as the VIX tested 15 again. China is also walking on eggshells as the Shanghai Composite Index is at 5-year lows while Copper continued its plunge and is a development worth watching.
The Dow dipped 34 points, or 0.2%, to settle at 16,418 on Monday. The blue-chips traded to a low of 16,334 but cut the losses by 70% after rebounding to close above 16,400. Boeing (BA, $126.89, down $1.65) led the index lower as it accounted for over 10 negative points while International Business Machines (IBM, $186.39, down $1.29) spoke for another 8. Support is at 16,350 followed by 16,200. A close above 16,500 would be bullish.
The S&P 500 slipped a point, or 0.5%, to close at 1,877. The index traded down 1,867 but was able to hold support at 1,875. A close below this level could lead to a back test to 1,850. A close above 1,885 keeps 1,900 in play.
The Nasdaq dropped 2 points, or 0.04%, to end at 4,334. Tech tested a low of 4,307 but also held support at 4,300. A close below this level could lead to 4,250-4,200, quickly. If the index can clear 4,350 and hold 4,375 there could be a continued run to 4,400-4,500.
The Russell 2000 declined 3 points, or 0.2%, to finish right 1,200.54. The small-caps touched 1,193 an hour after the open but held support at 1,200 by a half point by the close. There is risk to 1,175 on a finish below this level while a close above 1,215 keeps 1,225 in play.
The S&P 500 Volatility Index ($VIX, 14.20, up 0.09) traded to a high of 15.28 but stayed below 15 after finishing near its lows. This was a slightly bullish sign but there is still risk up to 17.50 as long as the bears hold 13.50. Otherwise, new highs are in store.
As we head from desk to press, here is how futures are shaping up: Dow (+7); S&P 500 (-1); Nasdaq 100 (+1).
Subscribers, check the Members Area for the current updates. We have also added some new ideas for this week on possible earnings and index trades so put them on your Watch List as well. Some of them could become official recommendations at some point and we want you to be ready.
Side Note: One stock that regularly appears on our Watch List from time-to-time, Green Mountain Coffee Roasters (GMCR, $133.99, down $2.01), has officially changed its name and will be now known as Keurig Green Mountain. We have traded options on this stock in the past and probably will in the future but the ticker symbol will remain the same. Research in Motion changed its name to BlackBerry (BBRY, $9.67, down $0.24) a couple of years ago along with the ticker symbol so we don’t have to worry about that with GMCR.
MEMBERS AREA
Closed Trades for 2014: 26-8 – the Weekly Wrap is 11-2 for 2014 (96-9, or 91% win rate, since 2011) and is designed for traders that want to use options with less risk.
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
Ingersoll-Rand (IR, $60.96, down $0.98)
April 62.50 calls (IR140419C00062500, $0.85, down $0.20)
Entry Price: $0.90 (2/27/2014)
Exit Target: $1.80 (3/10/14 Hard Stop of 95 cents triggered)
Return: 6%
Stop Target: 95 cents (Hard Stop)
Action: We were stopped out yesterday shortly after our midday update as the options traded down to 80 cents. We had a feeling a back test might come and why we raised the Hard Stop by a nickel yesterday. Shares were down 2% in after-hours and below $60 so we made the right move along with a slight profit.
Current Trades
Verizon (VZ, $47.03, down $0.12)
April 45 puts (VZ140419P00045000, $0.50, flat)
Entry Price: $0.62 (3/10/2014)
Exit Target: $1.30
Return: -19%
Stop Target: None
Action: We believe shares could test $40 over the longer-term and fall below $45 over the near-term. Resistance is at $48.
Aruba Networks (ARUN, $22.05, up $0.22)
April 23 calls (ARUN140419C00023000, $0.90, up $0.10)
Entry Price: $0.65 (3/5/2014)
Exit Target: $1.30
Return: 38%
Stop Target: 65 cents (Stop Limit)
Action: We believe shares could make a run past $25 and challenge its 52-week high of $26.26 on a close above $23.50. Support is at $20.50.
Opko Health (OPK, $9.24, up $0.05)
April 10 calls (OPK140419C00010000, $0.50, flat)
Entry Price: $0.65 (3/4/2014)
Exit Target: $1.30
Return: -23%
Stop Target: None
Action: Resistance remains at $9.50-$10 and a close above the latter would be super bullish for a run to $12-$13 on short covering. Support is at $9-$8.75.
Discovery Laboratories (DSCO, $2.59, down $0.01)
April 2 calls (DSCO140419C00002000, $0.75, down $0.05)
Entry Price: $0.65 (2/24/2014)
Exit Target: $1.00-$1.30
Return: 15%
Stop Target: 65 cents (Hard Stop)
Action: Support is at $2.50 and a dip below this level will likely force us out of the trade.
World Wrestling Federation (WWE, $30.09, up $0.49)
March 30 calls (WWE140322C00030000, $2.00, up $0.15)
Entry Price: $0.40 (2/18/2014)
Exit Target: Limit Order set $3 to exit remaining quarter (3/5/14 closed half @ $0.80, 3/6/14 closed a quarter at $1.80)
Return: 238%
Stop Target: $1.45 (Hard Stop on remaining quarter)
Action: Shares closed above $30 after testing a low of $28.82. Near-term support is at $28 and we will likely get stopped out of the remaining quarter position on a drop below this level.
Kodiak Oil & Gas (KOG, $11.81, down $0.24)
June 13 calls (KOG140621C00013000, $0.60, down $0.10)
Entry Price: $0.70 (2/13/2014)
Exit Target: $1.40
Return: -14%
Stop Target: 30 cents
Action: We believe the company is a takeover candidate that could get a bid north of $15. Resistance is at $12.50. Support is at $11.75 on a close below $12.
Exact Sciences (EXAS, $13.79, up $0.07)
April 19 calls (EXAS140419C00019000, $0.50, flat)
Entry Price: $0.88 (1/22/2014)
Exit Target: $1.75
Return: -43%
Stop Target: None
Action: Support is at $13. Resistance is at $14.50 and a move above this level should get us back near even.
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 (6): 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 mkh jb√ 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
Ariad Pharmaceuticals March 10 calls (from January 3014)
May 11 calls (from January 3014)
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.
Finish Line (FINL, $27.66, down $0.09)
April 30 calls (FINL140419C00030000, $0.60, flat)
May 30 calls (FINL140517C00030000, $0.75, down $0.20)
Thoughts: The sneaker shoe business is exploding. We could boggle you on so many stats but let’s stick to the options for now. But it is an interesting subject.
We mentioned the weather kept us out of the Foot Locker trade last week and Nike can be a crowded trade. What’s interesting with Finish Line is that the company also operates 660 Macy’s stores.
Morgan Stanley (MS, $32.13, down $0.08)
April 33 calls (MS140419C00033000, $0.70, down $0.08)
Thoughts: We like these calls on a break above $32.50.
Valero Energy (VLO, $53.48, up $0.48)
April 57.50 calls (VLO140419C00057500, $0.85, up $0.05)
Thoughts: There could be a run past double-nickels ($55) coming.
S&P 500 Spiders (SPY, $188.16, down $0.10)
March 185 puts (SPY140322P00185000, $0.90, down $0.05)
Thoughts: We could use these puts for a short-term trade on weakness.
Philip Morris (PM, $80.43, up $0.09)
April 77.50 puts (PM140419C00077500, $1.15, flat)
Thoughts: We said a close above $80 could lead to $82.50. A back test to $75 could be coming afterwards.
iShares Russell 2000 (IWM, $119.30, down $0.40)
April 113 puts (IWM140419P00113000, $1.05, up $0.05)
Thoughts: We could go short on a drop below $119.
