Dear Momentum Options Subscriber,
Wall Street tried to remain calm as they preached caution during Monday’s pullback. However, I’d like to see how the suits-and-ties react if the selling pressure continues today and for the rest of the week.
The VIX caught the talking heads’ attention, as one knucklehead boasted that they ignore the VIX until it trades above 20. This means they missed the warning sign ahead of yesterday’s breakdown. We didn’t, however, and our put option trades had an outstanding day.
The Dow tanked 350 points, or 2%, to end at 17,596. The blue-chips opened at 17,936 but quickly fell below the 17,800 level within minutes. The index tested a low of 17,590 and closed below the 17,600 level and its 200-day moving average. There is additional risk to 17,300-17,250 this week. Resistance is at 17,800-17,900.
The S&P 500 sank 44 points, or 2.1%, to settle at 2,057. The index opened below the 2,100 level at 2,098, with the 100-day moving average giving way shortly afterwards. I mentioned that a drop below 2,090 could lead to 2,075-2,050, and Monday’s bottom reached 2,056. There is further help at 2,040-2,035 on a close below 2,050 and the 200-day moving average. Resistance is at 2,085-2090.
The Nasdaq tumbled 122 points, or 2.4%, to close at 4,958. Tech opened nearly 60 points lower at 5,021 and made a steady fade to 4,956 late in the session. Backup support at 5,000-4,975 and the 100-day moving average was breached on the drop below 5,025. There is additional support at 4,850-4,800 and the 200-day moving average on continued selling pressure. Resistance is at 5,000-5,025.
The Russell 2000 stumbled 33 points, or 2.6%, to finish at 1,246. The small-caps opened below the 1,270 level at 1,269, and I talked about risk to 1,250 and the 50- and 100-day moving averages if that level was breached. Further help is at 1,240-1,235 on the close below 1,250. If the latter is violated, a test to 1,225-1,200 and the 200-day moving average is possible. Resistance is at 1,270-1,275.
The S&P 500 Volatility Index ($VIX, 18.85, up 4.83) zoomed 34% and closed above 17.50. I mentioned that I wouldn’t be surprised if 20 trips this week, and yesterday’s peak reached 19.50. A close above 20 could lead to 22-25 on panic selling. The bulls will need to get the VIX back below the 17.50 level to calm Wall Street’s nerves.
There is a good chance that I could add additional put option trades today and this week. However, I don’t want to get too aggressive in case there is a snap-back rally. Second-quarter earnings season will be starting next week, which could be a catalyst for a rebound, but it could also be just another excuse for continued selling pressure.
From desk to press, futures look like this: Dow (+74); S&P 500 (+11); Nasdaq 100 (+16).
Momentum Options Play List
Closed Momentum Options Trades for 2015: 65-20-1 (76%). All trades are dated and time stamped so new subscribers can look at the past history to see how the trades have played out.
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 I list one. I will send out a “Profit Alert” or “New Trade” if I want you to close a position or if a new trade comes out. Otherwise, follow instructions at all times in the 9 a.m. and 12 p.m. – 1 p.m. updates. Also, I will usually give you a heads-up if I think I’m going to send an email outside of these time frames.
All prices given in this update are current as of 8:00 a.m. EST.
I hereby disclose that I will be participating in the following trade(s). Every new Momentum Options recommendation is listed with the price at which I entered my own position. If the price is slightly different than my recommended entry or exit price when you receive the alert, don’t let that keep you from getting into or out of a trade. Occasionally, you might even get a better “fill” price than what is posted in the portfolio.
Krispy Kreme Doughnuts (KKD, $19.19, down $0.67)
KKD August 19 puts (KKD150821P00019000, $0.70, up $0.20)
Entry Price: $0.55 (6/29/2015)
Exit Target: $1.10-$1.60
Stop Target: None
Action: Shares have struggled with resistance at $20.50 following the company’s “better-than-expected” earnings report a few weeks ago. Near-term resistance has moved down to $20 from $20.50. Monday’s low touched $19.22, with the 200-day moving average holding by a few pennies. A move below $19 should be the trigger for additional weakness to $18.50-$18 and the 50-day moving average.
A test to these levels should easily return a triple-digit profit on our options. At $18, these put options will be $1.00 “in the money.” However, I’m looking for a backtest to $17.50 for the stock, which should get these puts to $1.50.
US Steel (X, $20.90, down $0.70)
X July 21 puts (X150717P00021000, $0.90, up $0.35)
Entry Price: $0.28 (6/23/2015)
Exit Target: $0.60 (closed first half at $0.45 on 6/25/15)
Stop Target: $0.35, raise to $0.65 (Stop Limit)
Action: Raise the Stop Limit from $0.35 to $0.65 on the second half of the trade.
Shares traded to a low of $20.89 on Monday. Support is at $20 and the 52-week low of $20.13. Short-term resistance is at $21-$21.50.
You can read my full report on X in the June 24 Pre-Market Update.
S&P 500 SPDR ETF (SPY, $205.42, down $4.40)
SPY July 200 weekly puts (SPY150710P00200000, $1.25, up $0.87)
Entry Price: $0.45 (6/19/2015)
Exit Target: $3.00 (Limit Order at $3.00 on remaining 2/3-sized position)(closed 1/3 at $0.80 on 6/29/15)
Stop Target: $0.50, raise to $1.00 (Stop Limit)
Action: Raise the Stop Limit from $0.50 to $1.00 on the remaining two thirds of the trade.
These puts are still $5 “out of the money,” and they expire next week, so there is no need for us to get fancy with the trade. The trade will still return 107% if the $1.00 Stop Limit triggers. There is also a three-day weekend ahead, and I’ve talked about a possible snap-back rally that could play out. This takes the emotion out of the trade.
The SPY traded to a low of $205.33 yesterday. These options reached a peak of $1.39, as volume exploded to over 18,000 contracts. Additional support is at $204 following the close below $206, which is now resistance.
You can read my full update on SPY and view the chart work in the June 22 Pre-Market Update.
Rambus (RMBS, $14.60, down $0.61)
RMBS August 16 calls (RMBS150821C00016000, $0.40, down $0.15)
Entry Price: $0.55 (6/19/2015)
Exit Target: $1.40
Stop Target: None
Action: Backup support at $14.50 and the 50-day moving average was tested on Monday’s fall to $14.55. There is additional risk to $14-$13.50 and the 100-day moving average if RMBS gets pulled down with the overall market.
You can read my full update on RMBS and view the chart work in the June 22 Pre-Market Update.
Microsoft (MSFT, $44.84, down $0.42)
MSFT July 47 calls (MSFT150717C00047000, $0.15, down $0.05)
Entry Price: $0.73 (6/18/2015)
Exit Target: $1.50
Stop Target: None
Action: I mentioned that there was additional risk to $44 and the 100-day moving average, and Monday’s low reached $44.36. I will likely close the trade if shares fall below $44. In the meantime, I’m placing it on “hold,” and it will appear in the “Trades on Hold” section of subsequent updates.
Wells Fargo (WFC, $56.06, down $1.38)
WFC July 60 calls (WFC150717C00060000, $0.03, down $0.09)
Entry Price: $0.20 (6/5/2015)
Exit Target: $0.50
Stop Target: None
Action: Support at $56.50-$56 and the 50-day moving average was tested on yesterday’s drop to $56.06. Let’s see where shares are on Thursday before pulling the plug on this trade. In the meantime, I’m placing it on “hold,” and it will appear in the “Trades on Hold” section of subsequent updates.
Rigel Pharmaceuticals (RIGL, $3.02, down $0.24)
RIGL September 5 calls (RIGL150918C00005000, $0.20, down $0.05)
Entry Price: $0.40 (6/4/2015)
Exit Target: $0.80
Stop Target: None
Action: Shaky support is at $3, with risk to $2.80-$2.75 and the 200-day moving average on a close below this level. Resistance is at $3.25. These options have three months before expiration, and shares are capable of huge moves. I still like this trade going forward.
You can read my detailed write-up on RIGL in the June 5 Pre-Market Update.
Sony (SNE, $30.36, down $0.81)
SNE July 33 calls (SNE150717C00033000, $0.20, down $0.05)
Entry Price: $0.45 (6/1/2015)
Exit Target: $0.90
Stop Target: None
Action: Support is at $31 and the 50-day moving average. A close below this level could lead to another backtest to $29.50-$29 and the 100-day moving average. Resistance is at $31. The bid/ask is ridiculously wide, so I’m not going to close the trade at this time. Instead, I’m placing it on “hold,” and it will appear in the “Trades on Hold” section of subsequent updates. I still believe shares can make a run past $33 by mid-July if $30 holds.
Trades on Hold — other 2015 Portfolio Open positions (2): 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 I would not open any new positions. I’m still keeping track of the trades and will record the results accordingly when the trade closes or if the options expire. Click on the Open Trades and Closed Trades pages to see all open and closed positions.
United Parcel Service (UPS) July 105 calls (from 6/11/15) — Sell to close the UPS July 105 calls at current levels.
United Parcel Service (UPS) October 110 calls (from 6/11/15) — These options have four months to go before expiration — Continue to hold.
The June track record is 10-2 (83% win rate), so I don’t mind taking a hit on the UPS July 105 calls, as shares appear to be headed towards $96. There are multiple levels to overcome before this situation turns bullish. We can save the remaining premium by getting out on today’s open. At 10-3, the win ratio for June will be 77%.
I know some of our newest subscribers might be getting the market jitters, but I have called the market’s moves to a “T” all year long. As you can see, this volatile market is an environment I thrive in, so make sure you stick around. For the subscribers that have been with me for years, get your wheelbarrows out, as July should shape up to be an incredible trading month.
Editor and Chief Options Strategist