Dear Momentum Options Subscriber,
The bulls pushed higher highs shortly after the open on Thursday, but they struggled to hold those gains throughout the day. The bears took advantage of the nervousness ahead of this morning’s monthly jobs report, and the market finished mixed for the second-straight session.
The Dow gained 80 points, or 0.5%, to end at 16,416. The blue-chips fell to 16,266 on the opening pullback, but fresh support at 16,200 held. The bounce to 16,485 fell shy of resistance at 16,600, but the close above 16,350-16,400 was a slightly bullish signal, as it keeps upper resistance on the map.
The S&P 500 climbed 3 points, or 0.2%, to settle at 1,915. The index traded to a low of 1,900 on the opening weakness, but upper support at 1,900-1,875 held. The rebound to 1,927 shortly afterwards pushed resistance at 1,920-1,925, with seesawing action into the closing bell. There is room to run to 1,940-1,950 on a continued closes above 1,925.
The Nasdaq added 5 points, or 0.1%, to finish at 4,509. Tech tumbled to 4,463 on the open, but rising support at 4,450-4,425 held. The surge to 4,545 came thirty minutes after the low, but it failed to clear short-term resistance at 4,550. A move above this level should get 4,600 in play.
The Russell 2000 advanced 4 points, or 0.4%, to close at 1,014. The small-caps showed the most strength throughout Thursday’s session, although the index made a two-point dip to 1,008 going into the final hour of trading before rebounding. The intraday run to resistance at 1,025 during the first half of the day, while the other indices were weak, signaled that a flat session might be in store. A close above 1,020-1,025 ahead of the weekend would be a bullish sign for next week.
The S&P 500 Volatility Index ($VIX, 21.84, up 0.19) tested a high of 23.14, with resistance at 22.50-23.50 holding. The close below these levels was slightly bullish, but, again, we can’t trust any rallies until 20 is cleared and held for several sessions.
Kohl’s (KSS, $41.52, down $9.61) fell 19% yesterday after announcing same-store sales growth of less than 1%. Additionally, the company said that 2015 results would fall short of expectations. The company is expected to announce earnings on Feb. 25, and the early warning was one I predicted could play out.
The KSS February 45 puts (KSS160219P00045000, $4.02, up $3.70) were going for $0.32 into Wednesday’s close and surged over 1,150% on the news. The portfolio made a slight profit with these puts in early January before word spread that Kohl’s might go private.
Although I wasn’t targeting the aforementioned put options ahead of earnings, I did have the KSS March 45 puts (KSS150318P00045000, $3.50, up $2.81) on my watch list going into the announcement. Unfortunately, Kohl’s warned Wall Street before we could establish a position.
I bring this up because we have three current trades facing upcoming earnings. If they remain open ahead of their respective announcements, the options will be volatile. I could lock in half-profits on these trades if they are up double-digits to protect us from some of the risk. I’m also hoping we get this same type of pin action as the KSS puts if we stay in Wal-Mart Stores (WMT), Opko Health (OPK) and Garmin (GRMN) over the next several weeks.
From desk to press, futures look like this: Dow (-33); S&P 500 (-5); Nasdaq 100 (-12); Russell (-4).
Momentum Options Play List
Closed Momentum Options Trades for 2016: 15-2 (88%). 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.
Wal-Mart Stores (WMT, $66.42, up $0.15)
WMT March 60 puts (WMT160318P00060000, $0.63, up $0.02)
Entry Price: $0.65 (2/4/2016)
Exit Target: $1.00-$1.30 (Limit Order on first half at $1.00)
Stop Target: None
Action: Set a Limit Order to close the first half of the WMT March 60 puts at $1.00. My secondary Exit Target is $1.30, but it is not a Limit Order.
Shares traded to a high of $66.55 into Thursday’s close. Resistance is at $66.50 and the 200-day moving average. Support is at $65. Yesterday’s low touched $65.01 on the open, and a close below $64.75 should lead to a quick backtest to $63-$62.
Earnings are due out on Feb. 18, before the market opens, and I will cover the expected numbers on Monday.
Bank of America (BAC, $13.25, up $0.22)
BAC March 13 calls (BAC160318C00013000, $0.80, up $0.11)
Entry Price: $0.68 (2/3/2016)
Exit Target: $1.00-$1.40
Stop Target: $0.70 (Stop Limit)
Action: Set a Stop Limit at $0.70 to protect profits. I’m not too worried about being stopped out ahead of the weekend, as we can keep the portfolio light while we wait for the next major trend to develop.
Shares traded to a high of $13.59 yesterday, with the options peaking at $1. I had an itchy trigger finger with the one-day paper profit of 50%, but I decided not to close the first half at $1. However, if we get back above this level today, I will likely close the first half of the trade to protect profits while reducing our risk on a potential pullback.
Resistance is at $13.25-$13.50. Short-term support is at $12.75-$12.50 if $13 fails to hold.
Rambus (RMBS, $12.38, up $0.24)
RMBS March 13 calls (RMBS160318C00013000, $0.37, up $0.07)
Entry Price: $0.35 (2/2/2016)
Exit Target: $0.70
Stop Target: None
Action: Shares reached a peak of $12.45 on Thursday. Resistance is at $12.25-$12.50. Support is at $11.75. I could add additional call options if shares can clear and hold $12.50-$12.75.
You can read my extended write-up in the Feb. 2 Pre-Market Update.
Opko Health (OPK, $8.44, up $0.65)
OPK March 7 puts (OPK160318P00007000, $0.22, down $0.18)
Entry Price: $0.35 (1/25/2016)
Exit Target: $0.70
Stop Target: None
Action: Shares traded to a high of $8.47 yesterday to test upper resistance at $8.50. Near-term support is at $8.25-$8.
Earnings are due out on Feb. 25, after the market closes, and I’m expecting disappointing results. The company has missed estimates in three of the past four quarters.
You can read my earlier write-up in the Jan. 26 Pre-Market Update.
Trades on Hold — other 2015 Portfolio Open positions (1): 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.
Garmin (GRMN) February 30 puts — Earnings are due to be released on Feb. 17, before the market opens — Continue to hold.
Editor and Chief Options Strategist