9:00am (EST)
The bears controlled the majority of the action on Wednesday but it was the bulls that got the majority of the market pie as they focused on Tech and the small-caps. However, the action was lack-luster as the market has formed a mini-trading range following last week’s test to new highs.
The Dow declined 11 points, or 0.1%, to close at 16,340. The blue-chips traded to a low of 16,260 but made a brief trip into positive territory after making a 13-point run to 16,364. The battle to get under 16,200 remains for the bears while the bulls would like to get above 16,400-16,500 by Friday’s close.
The S&P 500 added a half-point, or 0.03%, to settle at 1,868.20. The index traded down to 1,854 shortly after the open but bounced and tested 1,868 before fading again and ending near session highs. We have been warning of a test to 1,850 and a close below this level could get ugly down to 1,825-1,800. However, if the bulls can clear 1,875 ahead of the weekend, next week could be bullish.
The Nasdaq added 16 points of 0.4%, to finish at 4,323. Tech kissed 4,270 at the start of trading and touched our near-term downside target of 4,275-4,250 but quickly rebounded and closed at its peak. Our upside target of 4,400-4,500 is still alive but we need 4,350 to clear first.
The Russell 2000 added 4 points, or 0.4%, to end at 1,191. The small-caps also showed some strength after falling 10 points to 1,177 on the open and holding 1,175. A close below this level will likely lead to 1,150 while a finish back above 1,200 keeps 1,225 on the bulls’ map.
The S&P 500 Volatility Index (^VIX, 14.47, down 0.33) traded in a tight range after testing a high of 15.64 on the morning dip and a low of 14.43 on the comeback off the lows.
As we head from desk to press, futures are showing a slightly higher open: Dow (+44); S&P 500 (+5); Nasdaq 100 (+11).
Morning Side Note: Caesars Entertainment (CZR, $24.10, down $1.47) fell 6% yesterday and we wanted to update a story from Tuesday real quick following the company’s earnings miss.
The company fell short of Wall Street’s estimates for the fifth-straight quarter and we said they would kitchen sink their results.
Although the March 22.50 puts (CZR140322P00022500, $0.40, up $0. 10) were NOT an official recommendation, we got tens of dozens emails asking about them yesterday and into this morning. The calls were profiled at 30 cents on Tuesday afternoon and reached a peak of 50 cents on Wednesday when shares fell to $23.24 on the open.
We had predicted a 10% pullback on the news and shares nearly got there and the purpose of the trade was a quick-in-and out play for a possible double in 24-hours or less. If you are still in the trade we would suggest exiting today or ahead of the weekend as the premiums will get whacked due to time decay.
Closed Trades for 2014: 28-8 – 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.
Zynga (ZNGA, $5.79, up $0.14)
April 5.50 calls (ZNGA140419C00005500, $0.57, up $0.12)
Entry Price: $0.55 (3/12/2014)
Exit Target: $1.10
Return: 4%
Stop Target: None
Action: If shares can reach $6.50 by mid-April these option will double. Of course, we are aiming for a much higher return if shares can push $8 but we would be happy with $6.50 and a double.
Verizon (VZ, $46.36, down $0.34)
April 45 puts (VZ140419P00045000, $0.65, up $0.05)
Entry Price: $0.62 (3/10/2014)
Exit Target: $1.30
Return: 5%
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.
Opko Health (OPK, $9.41, up $0.27)
April 10 calls (OPK140419C00010000, $0.50, up $0.05)
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, $2.60, down $0.06)
April 2 calls (DSCO140419C00002000, $0.75, flat)
Entry Price: $0.65 (2/24/2014)
Exit Target: $1.00-$1.30
Return: 15%
Stop Target: 65 cents (Hard Stop)
Action: A close above $2.70 would be bullish and yesterday’s high was $2.72. Support is at $2.50 and a dip below this level will likely force us out of the trade. Yesterday’s low was 67 cents on the options.
Kodiak Oil & Gas (KOG, $11.39, up $0.21)
June 13 calls (KOG140621C00013000, $0.45, up $0.05)
Entry Price: $0.70 (2/13/2014)
Exit Target: $1.40
Return: -43%
Stop Target: 30 cents
Action: There was heavy buying in the June 12 calls yesterday.
We believe the company is a takeover candidate that could get a bid north of $15. Support is at $11. Resistance is at $11.75. If the stock fails to hold $11 and the options fall below 30 cents, we will have to decide if we want to leave the trade open. We do not have a Hard Stop listed because we like the takeover aspect of the company being acquired. Given the time the trade has, we will likely keep it open as we have a good history of picking takeover targets.
We have said over the years Bud, Marvel Entertainment, and most recently Knight Capital would be acquired. Knight was an especially bold call given the trading debacle they went through. We could be totally wrong about Kodiak but we have a good feeling somebody will be stepping to the plate over the next few months.
Exact Sciences (EXAS, $13.76, up $0.12)
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.
iShares Russell 2000 (IWM, $118.42, up $0.36)
April 112 puts (IWM140419P00112000, $1.00, down $0.10)
Thoughts: We could go short on a drop below $117.50
S&P 500 Spiders (SPY, $187.28, up $0.05)
April 180 puts (SPY140419P00180000, $1.20, down $0.05)
Thoughts: We could use these puts for a short-term trade on weakness.
Philip Morris (PM, $79.17, down $0.35)
April 77.50 puts (PM140419C00077500, $1.30, up $0.05)
Thoughts: A back test to $75 could be coming.
Finish Line (FINL, $26.93, down $0.55)
April 30 calls (FINL140419C00030000, $0.35, down $0.15)
May 30 calls (FINL140517C00030000, $0.65, down $0.05)
Thoughts: We could be getting a good entry point but the bid/ ask on both call options is wide and may keep us out of the trade. We may try to work an order but we want to do some chart work today before pulling the trigger on a possible trade.
Morgan Stanley (MS, $31.44, down $0.26)
April 33 calls (MS140419C00033000, $0.45, down $0.10)
Thoughts: We like these calls on a break above $32.50.
Valero Energy (VLO, $55.29, up $1.62)
April 57.50 calls (VLO140419C00057500, $1.35, up $0.45)
Thoughts: There could be a run past double-nickels ($55) coming.