Dear Momentum Options Subscriber,
Futures were showing panic-selling declines on the open this morning, as investors from around the globe headed for the exits. True to form, the major indexes plummeted at the start of trading but have rebounded this afternoon as bullish investors tried to pick a bottom and look for good deals.
I mentioned that this week could see a bottoming process and that put options have become extremely expensive. The gap downs on the opens over the last few days have also made it hard to get positioned.
It has been four years since there has been a 10% correction, and the current selloff took a week to reach its double-digit declines. The October 2014 lows are in play, and I mentioned that it would be imperative for these levels to hold.
The October low for the Dow reached 15,855, and a close above this level would be slightly bullish. However, today’s low has reached 15,370, which represented a 1,089 point drop. The biggest loss ever on the Dow was 777 points. A close below 15,800 today would signal continued selling pressure.
Currently, the Dow is down 229 points to 16,230, while the S&P 500 is sinking 30 points to 1,940. The Nasdaq is lower by 46 points to 4,659, and the Russell 2000 is tanking 27 points to 1,129.
As far as earnings, Best Buy (BBY, $30.45, up $0.27) has touched a fresh 52-week low of $28.34 today ahead of its earnings announcement tomorrow morning. This is an extremely difficult environment in which to report earnings. The price swings for the remaining companies reporting this week and into September could see additional volatility.
Best Buy is expected to earn $0.34 a share on revenue of $8.29 billion. The company has blasted past estimates in the past four quarters by $0.08, $0.07 and $0.13, twice.
The BBY September 32.50 Weekly calls (BBY150904C00032500, $0.50, down $0.04) have a bid/ask spread of $0.19/$0.53.
The BBY September 29 Weekly puts (BBY150904P00029000, $0.95, flat) have a bid/ask spread of $0.23/$3.10.
I won’t be participating in a Best Buy trade given the huge spreads in the options, but I wanted to show you how the premiums right now are making it difficult to trade.
Today could be the start of a bottoming process, but we will likely have to wait a few days to see if current levels and the October lows hold. The current quotes I have listed on the indexes and our trades will likely change by the time you read this due to the fast-moving environment. I have been updating them as I go to press, but they continue to change as I type. In the meantime, let’s go check on our current trades.
Momentum Options Play List
Closed Momentum Options Trades for 2015: 82-28-2 (73%). 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 12:10 p.m. EST.
I hereby disclose that I will be participating in the following trade(s). Every 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, $17.10, down $0.20)
KKD November 17 puts (KKD151120P00017000, $1.35, up $0.10)
Entry Price: $0.95 (8/19/2015)
Exit Target: $1.90
Stop Target: $1.00 (Stop Limit)
Action: Support is at $16.75-$16.50. The 52-week low is at $16.41. Resistance is at $17-$17.25.
The company is scheduled to report earnings on Sept. 9, after the close.
iShares Russell 2000 (IWM, $112.79, down $2.24)
IWM September 123 calls (IWM150918C00123000, $0.27, down $0.04)
Entry Price: $0.78 (8/19/2015)
Exit Target: $1.60
Stop Target: None
Action: Support is at $112.50.
JPMorgan Chase (JPM, $62.02, down $1.58)
JPM September 70 calls (JPM150918C00070000, $0.20, up $0.04)
Entry Price: $0.80 (8/10/2015)
Exit Target: $1.60
Stop Target: None
Action: Support is at $60, but shares have traded to a fresh 52-week low of $50.07. However, the call options are up. I’m going to place this trade on “hold” at this time because we could see shares test $70 by mid-September given the crazy market environment. This trade will appear in the “Trades on Hold” section of subsequent updates.
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.
Rigel Pharmaceuticals (RIGL) September 5 calls (from 6/4/15) — Continue to hold.
Bank of America (BAC) September 18 calls (from 8/17/15) — Continue to hold.
Editor and Chief Options Strategist