Dear Momentum Options Subscriber,
Monday’s action was a test of will and nerves, as bullish and bearish traders took positions in a very volatile market. It is too early to say which side will be right, but the action has been both breathtaking and exciting. The wild price swings will likely be here to stay all week, so it is important that we remain patient until the dust settles.
The Dow declined 588 points, or 3.6%, to end at 15,871. The blue-chips traded to a low of 15,370 on the open before rebounding to push 16,000. The close above 15,800 was a good sign that a bottom could be near, but there is still risk to 15,600-15,400 on a close below this level. Resistance is at 16,000, followed by 16,200.
The S&P 500 sank 77 points, or 3.9%, to settle at 1,893. The index tested a low of 1,867 on the open before recovering the 1,900 level shortly afterwards. Although the bulls failed to hold 1,900, they did hold the October 2014 low of 1,820. Another drop below 1,875 could lead to 1,850-1,825, so we have to be careful before possibly going long with new trades. Near-term resistance is at 1,900-1,925.
The Nasdaq tanked 179 points, or 3.8%, to close at 4,526. Tech opened at 4,351, or 355 points lower, and tested 4,292. The jaw-dropping 414-point decline preceded a recovery towards 4,700. This level failed to hold, which puts short-term resistance at 4,575-4,600. Support is at 4,500, with risk to 4,300-4,100. The October 2014 low on the Nasdaq reached 4,116.
The Russell 2000 fell 45 points, or 3.9%, to finish at 1,111. The small-caps opened below 1,125 at 1,119 and tested a low of 1,109. Support at 1,100 held, but there is risk to 1,075-1,050 on a close below this level. The October 2014 low on the Russell 2000 reached 1,040. Resistance is at 1,120-1,125.
The S&P 500 Volatility Index ($VIX, 40.71, up 12.71) zoomed to a high of 53.29 and easily eclipsed the October 2014 high of 31.06. I mentioned that I would be surprised but not shocked if the VIX cleared 50. The move represented a six-year high. In 2008, the VIX reached a high of 89.53. If the VIX can hold 40 over the next few days, it would be a good sign that the height of the panic selling is over. However, the bulls need to get the VIX back below 25-20 this week to confirm that a bottoming process is complete.
I could issue a New Trade on Apple (AAPL, $103.12, down $2.64) ahead of the open this morning with a Limit Order and very specific trade instructions. This will help us to get filled at our price and not the market’s.
If you do not here from me by 9:30 a.m. ET, however, I could go with Plan B and issue a New Trade after the open. If I go with Plan C, which is to stay on the sidelines, I will chat with you in the Mid-Market Update.
From desk to press, futures look like this: Dow (+589); S&P 500 (+73); Nasdaq 100 (+177); Russell (+50).
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 8:00 a.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, $16.71, down $0.59)
KKD November 17 puts (KKD151120P00017000, $1.70, up $0.45)
Entry Price: $0.95 (8/19/2015)
Exit Target: $1.90, raise to $2.50 (Limit Order on first half)
Stop Target: $1.00, raise to $1.25 (Stop Limit)
Action: Raise the Exit Target from $1.90 to $2.50, and set a Limit Order to close the first half of the trade there.
Also, raise the Stop Limit from $1.00 to $1.25.
Support is at $16.75-$16.50. The 52-week low is at $16.41, and yesterday’s low touched $16.50. Resistance is at $17-$17.25.
The company is scheduled to report earnings on Sept. 9, after the close.
iShares Russell 2000 (IWM, $110.54, down $4.49)
IWM September 123 calls (IWM150918C00123000, $0.04, down $0.19)
Entry Price: $0.78 (8/19/2015)
Exit Target: $1.60, lower to $0.90 (Limit Order)
Stop Target: None
Action: Lower the Exit Target to $0.90 and make it a Limit Order.
Support is at $110. There isn’t much premium left in this trade, so we have a decision to make.
I could close the trade to save the premium, but I would rather have a few call options open in case there is a V-shaped recovery into September.
There is a slim chance that the position could recover and, while it may be a stretch to get back to even, I do believe we can get a better price to close this trade by mid-September. There is a chance that we will get filled if the action stays volatile, but I’m placing the trade on hold this morning, and it will appear in the “Trades on Hold” section of subsequent updates.
I will be monitoring the action hourly and daily to see if the trade gets filled.
Trades on Hold — other 2015 Portfolio Open positions (3): 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.
JPMorgan Chase (JPM) September 70 calls (from 8/10/2015) — Continue to hold.
Editor and Chief Options Strategist