1:15pm (EST)
We warned of a nasty open this morning as futures were way in the red when we started our Sunday evening homework. The futures market opens at 6pm (EST) on Sunday and with the Dow showing a triple-digit loss to start trading, here were our comments for our Weekly Wrap and for the Daily:
“At 8pm (EST) Sunday night, Dow futures were down 145 points to 16,162. The S&P 500 futures were lower by 19 points to 1,838. The Nasdaq 100 futures were declining 37 points to 3,658.
This means the Dow will likely open below 16,200 and the S&P 500 below 1,840. The Nasdaq will likely see an open below 4,275.” (END)
The Dow is currently down 180 points to 16,141 while the S&P 500 is lower by 16 points to 1,843. The Nasdaq is declining 42 points to 4,266 after opening at 4,261. The Russell 2000 is off a 12-pack to 1,170. The S&P 500 Volatility Index ($VIX, 16.24, up 2.24) is up 15% and is back over 15. No worries until 17.50 trips.
We were prepared for the pullback as we have been locking-in profits on our call option trades while trying to keep our portfolio light. While it may be too early to enter the shark tank today, there will be plenty of opportunities for new trades this week.
We saw the same type of action to start February and we talked about higher price action into March and April if support levels hold. The bulls have a little more wiggle room to the downside but today’s close will be super important as they will need to hold prior support levels.
A bounce off the lows would be bullish depending on how high it is but we aren’t expecting too much of a recovery until tomorrow and the rest of the week – providing key support levels hold.
We have a Profit Alert on one of our trades that made us 40% over the weekend despite today’s drop. We have other trades showing some nice pin action that have been unscathed by today’s pullback so we are in great shape. We also have a few put option trades from February that are up nickels and dimes so our insurance policy is also paying off.
We could have additional Profit Alerts today and/ or New Trades as there are some earnings plays we like. For now, let’s go over the updates. Remember, stay locked-and-loaded into the close!
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. Closed Trades for 2014: 21-8 – the Weekly Wrap is 9-2 for 2014 (94-9, or 91% win rate, since 2011) and is designed for traders that want to use options with less risk.
Ingersoll-Rand (IR, $60.10, down $1.04)
April 62.50 calls (IR140419C00062500, $0.85, down $0.35)
Entry Price: $0.90 (2/27/2014)
Exit Target: $1.80
Return: -6%
Stop Target: 90 cents
Action: We have a near-term target of $64-$65. If reached, these options will easily double from our entry price. Support will try to hold at $60 on any pullback with $59 serving as backup. The April options have 46 days before expiration.
S&P 500 Spiders (SPY, $184.62, down $1.67)
March 188 calls (SPY140322C00188000, $0.60, down $0.55)
Entry Price: $0.75 (2/27/2014)
Exit Target: $1.50 (closed half @ $1.35 on 2/28/14, half @ $0.75 on 3/3/14)
Return: 40%
Stop Target: $1 (Hard Stop)
Action: We have been stopped out of the other half of the trade after the calls opened at 75 cents. Our Hard Stop was set at $1 so we didn’t get filled at these levels but we are happy to walk away with a profit after we closed half on Friday. We will keep the Spiders on our Watch List for possible additional plays going forward.
Discovery Laboratories (DSCO, $2.63, down $0.01)
April 2 calls (DSCO140419C00002000, $0.80, flat)
Entry Price: $0.65 (2/24/2014)
Exit Target: $1.00-$1.30
Return: 23%
Stop Target: 60 cents
Action: Shares continue to climb higher after the break out of the symmetrical triangle but Friday’s close felt bearish. Support is at $2.50 but we are still looking for shares to test $3.
World Wrestling Federation (WWE, $22.92, flat)
March 30 calls (WWE140322C00030000, $0.25, flat)
Entry Price: $0.40 (2/18/2014)
Exit Target: $0.80
Return: -38%
Stop Target: None
Action: We are expecting a pop past $25 with a possible run to $30. Support is at $22.
Kodiak Oil & Gas (KOG, $11.98, up $0.16)
March 12 calls (KOG140322C00012000, $0.60, up $0.15)
Entry Price: $0.60 (2/13/2014)
Exit Target: $1.20
Return: 0%
Stop Target: None
June 13 calls (KOG140621C00013000, $0.80, up $0.10)
Entry Price: $0.70 (2/13/2014)
Exit Target: $1.40
Return: 14%
Stop Target: None
Action: Support is at $11.50 with $11.25 serving backup. We are still expecting a run to $12.50-$13 over the near-term
Ariad Pharmaceuticals (ARIA, $8.50, down $0.19)
March 10 calls (ARIA140322C00010000, $0.30, down $0.05)
Entry Price: $0.95 (1/28/2014)
Exit Target: $1.90
Return: -68%
Stop Target: None
May 11 calls (ARIA140517C00011000, $0.70, down $0.10)
Entry Price: $1.05 (1/28/2014)
Exit Target: $2.10
Return: -33%
Stop Target: None
Action: We are expecting a pop to $10 over the next few weeks. Support is at $8 with $7 serving backup.
Revenues should grow during the current quarter with the re-launch of Iclusig in the U.S. The company could also have a new drug debut in the second half of 2014 and why we also suggested longer-term options on this trade as well.
The water cooler talk is that Eli Lilly has made a “friendly approach” to buy the company and is willing to pay up to $20 a share. GlaxoSmithKline is also in the hunt along with Shire.
We have said there is a HUGE gap to fill on the stock’s drop from $23 to a 52-week low of $2. Eli is trying to get the company for cheap as it currently has a $1.25 billion market-cap.
Exact Sciences (EXAS, $13.45, flat)
April 19 calls (EXAS140419C00019000, $0.45, flat)
Entry Price: $0.88 (1/22/2014)
Exit Target: $1.75
Return: -49%
Stop Target: None
Action: Resistance is at $15 and a move above this level should get us back near even. Support is at $12.50.
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 (5): 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, 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
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.
We will update this section in the morning.