MomentumOptionsTrading.com Weekly Wrap for 10/13/13
11:30pm (EST)
1. Market Summary
2. Infoblox (BLOX) Close to a Breakout
3. Earnings
4. Weekly Wrap Portfolio Update
5. Week Ahead
(To view the charts, please log into the Members Area and go to the Weekly Wrap Premium section.)
= = = = = = = = = = = = = = =
1. Market Summary
“There always seems to be calm before a big storm and last week’s market action felt that way despite the choppy waters the market is in. The Dow and S&P 500 continue to fold like cheap lawn chairs while the Nasdaq (Tech) and the Russell 2000 (Small Caps) hit new 13-year and all-time highs.
The Nasdaq made good on our outlook it would trip 3,800 this year and now joins the S&P 500 and the Russell 2000 in nailing our 2013 targets from early February. The Dow is the last holdout and will need to reach 16,000 by the end of December to make us a perfect 4 for 4.
Besides the current drama that is still unfolding with the zombie shutdown, the next big catalyst that could have a profound effect on the market and our yearend targets are upcoming earnings. The start of 3Q earnings season is finally here and it is great news as it will add to the current volatility. Even better, we finally have a new kicker!
After years of being the “official” Dow component to kick-off earnings season, Alcoa (AA, $7.96, up $0.10) was booted from the index last month and no longer carries that title.The first Dow component to report earnings this week will be JPMorgan Chase ($57.67, up $0.73) and we are officially giving them the crown although they won’t report until Friday. Alcoa reports earnings on Tuesday and is now considered preseason ball.
The recent additions of Nike (NKE, $72.14, up $0.50), Goldman Sachs (GS, $156.55, down$0.30) and Visa (V, $190.48, up $1.83) were perfect stocks to add to the index as they are high-priced momentum traded names. We certainly wouldn’t classify them as “industrial” stocks as a model the Dow Jones Industrial Average was originally created by but these names are classic “blue-chippers”. A rebound and run back to new highs from these stocks would be enough to get the Dow to 16,000 at some point over the next 3 months assuming the rest of the blue-chips follow suit.
The 3 new musketeers could bring some much needed muscle to possibly get the Dow past resistance and towards our-year end target but they will need help if other headlines worsen. Nike recently reported their1Q earnings and posted another solid quarter that pushed shares to fresh all-time highs. The company is on a fiscal year different from a normal calendar year and why Nike reported in late September. Otherwise, they would be the official kicker for earnings season if they had waited a week.
Goldman and Visa will report their numbers on 10/17 and 10/30, respectively. Both stocks rallied to new 52-week highs after the announcement on September 10th they would be added to the Dow.
Goldman Sachs was just below $160 and reached $170 before officially being added to the Dow a few weeks later. Shares are now below $160 again and could move $15-$20 points based on their results and outlook next week. Note to ourselves, REMEMBER to check the Weekly options for GS next Wednesday as they will be dirt cheap. There will be a lottery play with cheap call and/ or put options that could do very, very well.
Visa was just under $185 and rallied just north of $200 over the same time period. Visa could also be a nice earnings trade using November options. The company reports after the October options expire and we can look to see where shares are at the following week.
Wall Street’s expectations are mostly cautious as the suit-and-ties aren’t expecting blowout numbers. Most analysts are looking for revenue growth to be flat or lower but there are some companies that will pull off better growth than others. It remains to be seen if the healthier companies will be rewarded with a higher stock price or if they will be dragged down by the weaker links.
As we head into the upcoming earnings season, 90 S&P 500 companies have given negative earnings guidance which tops the 88 that warned last quarter. This has knocked the expected growth rate for the just ended quarter down from 6% to under 3% and there could be even more warnings in the weeks ahead.
Companies now have the perfect excuse next to my dog ate my homework. The government shutdown will now be the top dog, uh, excuse to blame for no work getting done.
The Dow experienced another negative Monday, its third-straight and was down 2-straight Friday’s entering the weekend. The 5-session M/F slide came to an end with this past Friday pop and a positive Monday could be bullish signals if there is follow through. We often mention when there are multiple negative Monday/ Friday closes, it usually means money is moving out of the market. Last week, $1.3 billion in worldwide cash left the market while $2 billion was taken off the table in the emerging markets.
This could be a bullish sign as we have seen this movie play out all year when the market appears to be on the verge of a selloff. Each time there has been a powerful snapback rally as investors and the Wall Street pros have missed the train rides higher.
We saved the worst for last because we hate talking politics but it is something we must cover.
Come Monday, the first government shutdown in 17 years will be at day number 6 and is the average length of the past 17 zombie vacations since 1976. While some workers will be returning on Monday, the chances of the current one ending today to make this a nice little statistic are slim and none. Slim left the building last week and if there are “None” breakthroughs this week, October 17 could become the biggest (and saddest) day in American history.
October options expire on the 18th. If the zombies wait until the last minute or after the market closes on October 17, that Friday could be one of the most volatile days in stock market history.
We are still getting great clues from most of the technical indicators we follow on the market’s direction that has allowed us to stay one step ahead of most all year long. There is no need to do anything differently and no reason to panic as we have a number of ways we can profit on a continued breakdown or another break to the upside out of the current 3-week trading range.
Hopefully, cooler heads will prevail this week and the Keystone Kops running our country will come to some type of agreement, resolution, can-kicking, or handshake. If not, it means next week could be one of the biggest events in American history and one that will severely affect Wall Street.” (from 10/6/2013 Weekly Wrap…)
The market started the week off with its fourth-straight Monday loss as the bears were looking to do some damage as the government shutdown rolled on. The 1% pullback continued into Tuesday as the bears double down and pushed the major MA’s (Moving Averages) on a 2% haircut.
The bulls battled back on Wednesday to stop the bleeding but Tech and the small-caps lagged, confusing Wall Street even more. We said in our midday update to remain bullish as the market flushed out the weak hands and futures were strong ahead of Thursday’s open. Word that the zombies might start to negotiating sent the indexes to the moon as they recovered 2% of their losses with Tech and the small-caps leading the way.
Friday’s session added more fluff as chatter spread the knuckleheads would reach a deal over the weekend. However, in typical Obama fashion, he rejected 2 proposals over the weekend and appears willing to hold America and Wall Street hostage until he gets everything HE wants. (continued…)
The Dow gained 111 points, or 0.7%, to settle at 15,237 on Friday. The blue-chips gave up the 15,000 level on Monday’s drop to 14,936 and low of 14,947. We said 14,800 would come into play on a break below this level and Tuesday’s close at 14,776 opened the door for a test to 14,600. The bears cracked the 200-day MA and pushed a low of 14,719 on Wednesday’s pullback before recovering to close at 14,802. It was a good clue 15,000 would be triggered as the bulls held 14,800 into the close and Thursday’s surge reached a peak of 15,126. Friday’s finish above the 50-day and 100-day MA’s was bullish as the index went out near its high. Resistance is at 15,350 and a break above this level could lead to 15,600. Support is back at 15,000-14,800 and could get stretched to 14,600 if the zombies drop the ball. For the week, the Dow added 165 points, or 1.1%, after starting at 15,072. For the year, the blue-chips are up 2,134 points, or 16.3%.
The S&P 500 added 10 points, or 0.6%, to finish at 1,703. We said the bulls needed to hold 1,675 to start the week or they faced risk down to 1,650 and they did on Monday with a close at 1,676. However, the low checked-in at 1,674.70 and the action was an omen as Tuesday’s low reached 1,655 and failed at the 100-day MA. The bears pushed 1,646 on Wednesday’s dip but the bulls ended the session in positive territory by a point. The hold at support was crucial. Thursday’s 36-point pop easily cleared 1,675 along with the 50-day and 100-day MA’s with the close at 1,692. We mentioned a close above 1,690 would be a good sign 1,700 was still in play and the index also went out at its highs on Friday’s. Resistance is at 1,710 and then 1,725 before the 52-week high of 1,729. Support is at 1,675-1,650 but there is risk down to 1,625. The S&P 500 came into Monday’s session at 1,690 and slipped was higher by 13 points, or 0.8%, for the week. Year-to-date, the index has advanced 278 points, or 19.4%.
The Nasdaq zoomed 31 points, or 0.8%, to close at 3,791. Tech came into the week looking to clear its 52-week high of 3,819 after holding the 3,800 level on the prior Friday’s close. The bears were having none of this as they punished the bulls for 37 points and pushed 3,770 by Monday’s closing bell. The break back below 3,775 set up a test to 3,750-3,700 and Tuesday’s selloff bottomed at 3,694. The close below its 50-day MA spooked a lot of the suit-and-ties that don’t do homework as they bailed. The bears made a run at the 100-day MA just south of 3,600 and pushed 3,650 before ending at 3,677. Thursday’s run past 3,700-3,750 by the bulls was good to see as they rested at 3,760 heading into Friday’s action. The index reached 3,794 but couldn’t clear 3,800 into the close. If cleared, the bulls could push 3,825-3,850 a fresh 52-week peaks. A close below 3,750 could lead to a retest down to 3,700-3,650 again. The Nasdaq began the week at 3,807 and slipped 16 points, or 0.4%, by Friday’s close. For 2013, Tech has gained 758 points, or 25.6%.
The Russell 2000 roared 15 points, or 1.4%, to end at 1,084 on Friday. The small-caps came into the week needing to hold 1,075 but fell a dozen points to close at 1,065. We said there would pressure down to 1,060-1,050 if this level failed and Tuesday’s close at 1,048 made us look brilliant. The close below the 50-day MA exposed further risk down to 1,025-1,000 and Wednesday’s low reached 1,037. Thursday’s rebound carried the index back above 1,050-1,060 with the close at 1,069.50 to set up Friday’s showdown. Following the opening dip to 1,065, the bulls came within 3 points of the 52-week and all-time high of 1,087. The Russell 2000 was at 1,078 before Monday’s open and added a half-dozen points, or 0.6%, for the week. YTD, the small-caps are higher by 234 points, or 27.7%.
The S&P 500 Volatility Index ($VIX, 15.72, down 0.76) dropped 5% but stayed above 15. We mentioned volatility would be picking up and to watch the 20 level for a possible hint the market would test fresh lows. On Monday, the VIX zoomed 16% to end at 19.41 and went out at it high before Tuesday’s pop to 21.01 and close at 20.34. We said the selling pressure could reach 30 if the VIX cleared 22 and Wednesday’s peak of 21.34 and close back below 20 to 19.60 were the perfect clues a possible top was in. We said there was a chance 30 could come into the mix if the zombies dragged their feet but Thursday’s “negotiations” shaved 16% the other way off the VIX as it closed at 16.48. We said in our Friday morning premarket update for the Daily the battle would be over 17.50 and 15, A close above 17.50 would favor the bears coming into this week while a close below 15 and the 100-day MA would help the bulls. Same deal going into Monday.
The market hates uncertainty and survived a major breakdown last week as the bears pushed fresh lows following the continued uncertainty over the debt ceiling debate and government shutdown. There have been a handful of times this year where the market may have gotten ahead of itself and when it does and starts to pullback, the worst is feared.
We mentioned last week the trading ranges could get stretched to the downside if talks stalled between the zombies stalled and by Wednesday, 3-month lows were in play. Although it may not have been a capitulation moment, the bulls got a bounce off the midweek lows following nearly a 1,000 point pullback on the Dow.
The blue-chips reached an intraday all-time peak of 15,709 on September 18 and bottomed to a low of 14,719 on last Wednesday’s pullback. The bulls were able to recover over half of the losses in 2 sessions by Friday’s close.
In August 2011, the last time the zombies played musical chairs with the debt ceiling, the Dow started the month at 12,143 and proceeded to fall to a low of of 10,801 by August 19. The index then rallied to a high of 11,550 over the next month and closed at 11,408 on September 20 after the zombies kicked the can down the road to the current fork. Side Note: Three days later (September 23, 2011) the Dow was at 10,638 and had made a lower lows after the Fed pushed Operation Twist. By the end of October 2011 the Dow was pushing 12,250 before ending the month at 11,955.
The whipsaw action from last week could pick up dramatically this week and over the next month and we wanted to cover this to prepare you for what could happen if volatility remains high.
The market rallied off its lows in hopes that the zombies were close to an agreement and that the government would open up on Monday as a deal would be reached over the weekend.
Well, believe it or not, negotiations between the zombies have reached an impasse as the Head Zombie continues to play hardball. The President is trying to squeeze the Senate Republicans after they sent their zombies home for the holiday following a breakdown in talks on Saturday.
The latest news is the Senate has proposed a deal that would effectively increase the borrowing limit for 3 months instead of the rumored 6 weeks offered by the House with less purse strings.
If the knuckleheads have not made any meaningful progress ahead of Monday’s Wall Street open, Columbus Day could be a hot mess. The bond market will be closed due to the holiday but stocks and options will trade.
Our boots to the ground research unveiled some interesting stories that could be developing and some things to think about in the upcoming weeks.
Our local CarMax (KMX, $47.93, up $0.64) is located 50 miles outside of the zombie’s headquarters and have cut back the hours of some of their employees during the government shutdown. It seems they do a ton of business with the workers commuting to DC but with the shutdown, they were “forced” to furlong their workers.
Problem is, the hard-working employees at CarMax won’t be getting any back pay like the zombis that are on “vacation” during the shutdown. Again, not our words and one of the zombie’s quotes, and we said there would be a “bill” passed that will give the government workers their back pay. There were a number of other companies, especially ones tied to government contracts, that we could talk about as they furloughed their employees but the zombie shutdown will have a huge impact on jobs and the economy.
The President was hoping the market would tank so the Republicans would cave in. He warned Wall Street should be worried and that the current government shutdown is different. Neither has happened, yet, so we are wondering if he is now worried.
The zombies were due for recess starting Sunday and were hoping they would be on vacation on Monday. We mentioned ahead of the shutdown that prior zombie strikes had little impact on the market with stocks rising in the month following a resolution. This time could be different as the market could breakout to new highs or crumble like a cookie.
While headlines out of DC will have a major impact on the market, 3Q earnings are also underway and kick in to second gear this week. We have listed a ton of the companies confessing and possible options trades in our Earnings section for the Weekly Wrap and we will be following them throughout the week in our Daily to take advantage of the volatility.
We don’t like trading options when the market is range bound, the volatility mKs it worth it as some of our biggest trades of the year have come in recent weeks and why it is important to always have some chips on the table than none at all. The 3-week trading range continued last week as the market will now enter a fourth week of volatile action with possible head fakes to the upside and downside.
It will be another important Monday as the Dow started last week with its fourth-straight Monday loss. The blue-chips had been down 2 of the 3 past Friday’s and made it back-to-back Friday wins. The mixed M/F closes usually define trading ranges and that is what we are seeing. With futures pointing towards a lower open to start this Monday’s session, downside support levels we have outlined will come into play once again. If support holds and a deal is reached before the zombies turn into pumpkins, we could see a repeat of last week’s action with a breakout to the upside. A deal would have to wow Wall Street though as a 6-week can kick could have adverse affects.
As we head to press, the bulls will be under attack on the open: Dow futures are down 94 points to 15,081 while the S&P 500 futures are lower by 12 points to 1,687. The Nasdaq 100 futures are getting hit for 16 points and are at 3,210.
= = = = = = = = = = = = = = =
2. Infoblox (BLOX) Close to a Breakout
By Michael Bryant
Infoblox (BLOX, $44.47, up $3.26) has made an impressive run this year and is on the verge of a breakout.
A Dynamic Host Configuration Protocol (DHCP) assigns a unique IP address to each domain that is connected to the internet. A Domain Name System (DNS) is a server which connects the domain name like www.yahoo.com into the Internet Protocol (IP) address like 70.42.251.42 that computers use to identify each other on the network. Internet Protocol Address Management (IPAM) tracks and manages the IP space and integrates DNS and DHCP so that each is aware of changes in the other. For example, it lets DNS know the IP address taken by a client via DHCP, and updates itself accordingly.
Network configuration and change management (NCCM) is a part of information technology that allows organizations to automate changes, increase efficiency, reduce network downtime, and meet security and other compliances. NCCM tools focus on discovering and documenting network device configurations; detecting, auditing, and alerting on changes; checking configurations with the policy for a device; and deploying configuration updates to network devices. From 2005 to 2009, there has been a lot of consolidation in the NCCM market. Some top companies in this technology sector are: Opsware Network Compliance Manager (now part of Hewlett Packard) and Voyance (now part of EMC).
For many organizations, lack of automation is becoming a major barrier to network expansion and the broad adoption of initiatives like virtualization and cloud computing. Before virtualization, networks remained fairly static. As virtualization is adopted, automating network changes will be the only way to keep pace with network requirements. This is where Infoblox comes in.
Infloblox was founded in 1999 by Stuart M. Bailey. Bailey was born on May 4, 1971 in Evanston, Illinois. He received a bachelors of science in computer engineering from the University of Illinois at Chicago in 1994. From 1994 to 2000, he worked for Dr. Robert Grossman at the university and was technical lead (lead programmer) for the Laboratory for Advanced Computing/National Center for Data Mining, where he led teams in developing high performance computing, database systems, and distributed data mining. From 1999 to April 2012, he served as a director of Infoblox, and is now the Chief Technology Officer.
The company revolutionized network services in 1999 when it delivered the first hardened DNS appliance, bringing a level of security and reliability network managers could not achieve previously. It has led the market ever since, and has the largest installed base of DNS, DHCP, and IP Address Management appliances.
In May 2010, it acquired Netcordia, a developer of network change and configuration management software, to add core network services products with its leading technologies for network task automation and automated change and configuration management.
The company turned a profit of slightly less than $7 million in its 2010 fiscal year, though it fell back to a loss of $5.3 million in the 2011 fiscal year as a result of higher spending on research and development and sales and marketing. But revenue increased from $61.7 million in the company’s 2009 fiscal year to $102.1 million in 2010 and to $132.8 million in 2011.
On Friday April 20, 2012, the company went public, pricing shares at $16, higher than the initial proposed range of $12 to $14, before the bell. It sold 7.5 million shares, raising $120 million. But share began trading on the New York Stock Exchange 41% higher at $22.57, and ended the day at $21.51. The IPO price valued it at $824 million, but the stock’s closing price gave it a valuation of more than $1.1 billion.
It has continued its rapid revenue growth in 2013. On September 20, 2013, it released 4th quarter earnings for the fiscal year ended July 31, 2013. As shown in the graphs below, revenue growth has been almost linear. But so has total expenses. While non-GAAP earnings were positive in 2013, GAAP earnings just turned positive in the 4th quarter. In the 3rd quarter, funds holding the stock rose from 274 to 304.
The company reports 1st quarter earnings on Monday, November 25th after the bell. Analysts estimate the company will earn $0.09 per share on $63.53 million. As shown in the graphs below, analysts’ revenue estimates seem attainable from previous quarter. And the earnings estimate seems easy to beat.
At $44.47, the stock is above its median target of $43.00 and its low target of $35.00 made by the 8 analysts recorded by Thomson/First Call. Mean target is $42.38, and high target is $48.00. Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 1.9, unchanged from a week ago.
|
|
Current Month |
Last Month |
Two Months Ago |
Three Months Ago |
|
Strong Buy |
3 |
3 |
3 |
3 |
|
Buy |
5 |
5 |
5 |
5 |
|
Hold |
2 |
2 |
3 |
2 |
|
Underperform |
0 |
0 |
0 |
0 |
|
Sell |
0 |
0 |
0 |
0 |
If shares move above $46, considering using the November 50 calls (BLOX131116C00050000, $1.50, up $0.55) or the January 55 calls (BLOX140118C00055000, $2.60, up $0.60) for a bullish push past $50. On a close below $36 it would be time to look at put options. Our Price Target for the stock is double-nickels ($55) based on momentum.
= = = = = = = = = = = = = = =
3. Earnings
The companies in BOLD, we are looking at as possible trades and we may list call or put options on them in our Daily Newsletter. If they become official recommendations, we sent out Trade Alerts or include them in our 9am and 1pm updates that come out during the week (Quotes are from 10/11/13 close)
By Catherine Tierney
Monday
AROW, BKMU, BKYF, BRO, CVCY, CPSS, DRH, FFKT, GenCorp (GY, $16.84, up $0.52), JB Hunt (JBHT, $74, up $1.86), LBAI, RBCAA, SIFY, SCIE, WTFC
magicJack (CALL, $14.27, up $0.69)
November 15 calls (CALL131116C00015000, $0.60, up $0.25)
November 12.50 puts (CALL131116P00012500, $0.40, down $0.25)
Thoughts: We have traded bullish positions on magicJack in the past but shares can be very volatile both ways. This spreads are a little wide to play this as a possible strangle trade but it could do okay if shares move 10%.
El Paso Pipeline Partners (EPB, $41.22, up $0.01)
November 42.50 calls (EPB131116C00042500, $0.40, flat)
Thoughts: Shares could move significantly based on earnings as the range is for a profit of 40-55 cents with the average at 47 cents. The company has beaten estimates in the last 3 quarters by 4, 7, and 4 cents. The dividend yield is at 6% and the 52-week high is at $44.99.
Tuesday
Charles Schwab (SCHW, $21.78, up $0.39), Coca-Cola (KO, $37.77, up $0.01) , CSX, FRC, IBKR, JNJ, LLTC, MRTN, MBWM, OMC, PMX, PNFP, RNST, RMCF
Domino’s Pizza (DPZ, $68.36, up $1.18)
November 75 calls (DPZ131116C00075000, $0.55, up $0.20)
Thoughts: Shares could make a run past $70 and fresh 52-week highs on better-than-expected numbers.
Citigroup (C, $49.22, down $0.05)
November 50 calls (C131116C00050000, $1.10, down $0.15)
Thoughts: If the market is going to break out to new highs, the Financial stocks will need to show some strength.
Intel (INTC, $23.25, up $0.15)
November 24 calls (INTC131116C00024000, $0.33, flat)
Thoughts: These options are a cheap way to play a 5%-7% move in the stock. Analysts are bearish on the stock but we like Intel for the long-term.
Yahoo (YHOO, $34.15, up $0.28)
November 36 calls (YHOO131116C00036000, $1.00, flat)
Thoughts: We have been bullish on Yahoo all year long as we have said shares would test $30-$35. We are still bullish on the stock but with shares near our year-end target, we are a little hesitant to go long given the recent volatility.
Wednesday
ABT, ALB, BLX, Bank of America (BAC, $14.19, down $0.04), BK, BLK, CNS, CMA, CTBI, CLB, CCK, eBay (EBAY, $54.37, up $0.94), EXPO, FRS, HCCI, HNI, KEY, KMP, KMI, KMR, KNL, LHO, NE, NTRS, NVEC, Pepsi (PEP, $80.83, up $0.14), PJC, PNC, RLI, SanDisk (SNDK, $62.17, down $0.09) bullish/ bearish, SLM, STJ, SWK, USB, URI, WSO, WNS, XLNX
American Express (AXP, $75.40, up $0.74)
November 77.50 calls (AXP131116C00077500, $1.05, up $0.15)
Thoughts: We usually play bullish options if we trade AXP and these options will double if shares make a run at $80.
International Business Machines (IBM, $186.16, up $1.39)
November 175 puts (IBM131116P00175000, $1.70, down $0.55)
Thoughts: Shares usually do well after an earnings report and it is hard to go against Big Blue. However, analysts have been lowering their numbers so IBM may have to pull a rabbit out of their hat when they report their numbers.
Mattel ( MAT, $41.75, up $0.53)
November 43 calls (MAT131116C00043000, $0.85, up $0.10)
Thoughts: We like the company as a longer-term hold and a test to $45 could come on a beat-and-raise on earnings.
Select Comfort (SCSS, $26.02, up $0.29)
November 22.50 puts (SCSS131116P00022500, $0.70, down $0.10)
Thoughts: These put options are expensive and will probably keep us on the sidelines but could do well if the company misses wall Street’s expectations.
Thursday
AMD, ALGN, ADS, BGS, BMI, BAX, BBT, CMG, CY, CYT, DHR, DOV, EGP, FNB, FCS, LION, Goldman Sachs (GS, $160, up $1.99), Google (GOOG, $871.99, up $3.75), HUBG, HBAN, ISRG bearish, Las Vegas Sands (LVS, $68.33, up $2.05) bullish, MTB, NUE, BTU, POOL, PPG, Rambus (RMBS, $9.31, down $0.13), SNA, SON, SYK, Travelzoo (TZOO, $27.16, up $1.38), UNP, VMI, VZ, WD-40 (WDFC, $64.85, up $2.05) bullish
Capital One (COF,$71.91, up $1.15)
November 75 calls (COF131116C00075000, $0.80, up$0.15)
Thoughts: Shares are at 52-week highs.
Friday
ACU, BHI, HON, IR, KSU, LH, MS, PH, SLB, STI, TXT
General Electric (GE, $24.40, up $0.15)
November 24 calls (GE131116C00024000, $0.85, up $0.10)
Thoughts: A safe bet with in-the-money calls and a pullback wouldn’t crush the premium as much as the October calls if shares pull back on a disappointing quarter.
= = = = = = = = = = = = =
4. Weekly Wrap Covered Call Portfolio Update (Closing prices as of 10/11/13)
Our Weekly Wrap Closed Trade Track Record for 2013 is 38-3 (82-5, overall since the start of 2011)
Special Notice: We closed our Kodiak Oil & Gas (KOG $12.47, up $0.36) stock trade for a 13% Profit after shares fell below the $12.25 Stop Limit. We also closed the March 11 calls 2014 (KOG140322C00011000, $2.15, up $0.20) for a 67% return after our Stop Limit of $2 triggered on Tuesday’s pullback. Our NPS Pharmaceuticals (NPSP, $29.74, down $3.41) LEAP PLAY, the January 31 calls (NPSP140118C00031000, $4.20, down $2.60) returned 182%. Annaly Capital Management (NLY, $11.69, up $0.03) was closed for a slight profit after the $11.40 stop limit triggered last Tuesday.
Pizza Inn Holdings (PZZI, $8.16, up $0.51) Stock Trade
Original Entry Price: $8.10 (10/11/13)
Lowered Price from Selling Options/ Dividends: No options available
Exit Target: $12+
Return: 1%
Stop Target: $9
Action: Our first 2 trades have made 40% and 29% and we love this stock as a core long-term holding. Shares fell below their 50-day and tested the 100-day MA in September that knocked us out of our last trade and we were trying to establish another position under $7.50. We decided to get in on the move above $8 that we are looking for to hold as near-term support with $7.50 as backup. We believe shares can clear $10 by yearend.
Aruba Networks (ARUN, $19.19.40, up $0.02) LEAP Option Trade
January 20 calls (ARUN140118C00020000, $1.50, up $0.05)
Original Entry Price: $1.45 (10/11/13)
Exit Target: $2.90
Return: 3%
Stop Target: $0.70
Action: Shares traded to a high of $19.62 and just missed closing above its 50-day MA. A print past $20 should get $22 in play and we believe shares could make a run at $25 over the next month if momentum comes into play. We would like to see $19 hold on any pullback but there is there is risk down to $18. Earnings aren’t due out until late November so we don’t have this headline risk but shares are volatile.
Opko Health (OPK, $10.07, up $0.08) Covered Call
October 9 calls (OPK131019C00009000, $1.10, up $0.05)
Original Entry Price: $8.34 (9/19/13)
Lowered Price from Selling Options/ Dividends: $8.09
Exit Target: $10+
Return: 24%
Stop Target: $9
March 10 calls (OPK140322C00010000, $1.45, up $0.05) LEAP Option Trade
Original Entry Price: $0.75 (9/19/13)
Exit Target: $1.50, raise to $2.00
Return: 93%
Stop Target: $1.00 (Limit Stop)
Action: Shares traded to a 52-week high of $10.31 to start the week but tested a low of $9.23 on Wednesday’s market pullback. If shares can hold $10 there is a chance $12-$14 comes into play. Prior resistance at $9 will now try to hold as support if there is a pullback. We will get called away on the stock for an 11% win as the October 9’s will be exercised if shares stay above the strike price. The March 10 calls dipped to $1.15 but didn’t trigger our stop limit that is set at $1.
We recommended buying Opko Health at $8.34 on 9/19/13 and selling the October 9 calls for 25 cents which lowered our cost basis to $8.09. If we are called away in mid-October at $9 the trade will make 11%.
Vera Bradley (VRA, $21.00, up $0.22) Strangle Option Trade
October 20 calls (VRA131019C00020000, $1.25, up $0.40)
Original Entry Price: $0.80 (9/10/13)
Exit Target: $1.60(closed at $1.10 on 9/16/2013)
Return: 38%
Stop Target: None
October 17.50 puts (VRA131019P00017500, $0.05, flat)
Original Entry Price: $0.80 (9/10/13)
Exit Target: $1.60
Return: -88%
Stop Target: None
Action: Shares fell below $20 midweek and the 50-day MA but recovered to hold this level on Thursday’s market surge. Shares are still below the 100-day MA but the puts will likely run out of time as they expire this Friday. The losses will be limited to 31% if the put options expire, meaning shares stay above $17.50 by mid-October. The trade is down 28% overall.
Sonus Networks (SONS, $3.45, up $0.11)
Original Entry Price: $3.73 (9/9/13)
Lowered Price from Selling Options: $3.73
Exit Target: $5
Return: -8%
Stop Target: $3
Action: We said a break below $3.20 would get $3 in play and last week’s low checked in at $3.09. We have said a move above $3.50 would be bullish for a run to $3.80. Earnings are due out on October 29.
Krispy Kreme Doughnuts (KKD, $23.02, down $0.06) Short Position
Original Entry Price: $18.92 (9/4/13)
Lowered Price from Selling Options: None
Exit Target: $16
Return: -18%
Stop Target: $24
Action: Krispy Kreme made a run at $24 and traded up to resistance at $23.50 last Tuesday. We will likely exit the trade on a close above $24. The low checked in at $22.55 and we need a break below $21 and the 100-day MA to get the trade back in our favor.
Galena Biopharma (GALE, $2.13, flat)
Original Entry Price: $2.12 (7/8/13)
Lowered Price from Selling Options: $2.12
Exit Target: $5
Return: 0%
Stop Target: $1
Action: Shares tested $2.01 by midweek and held support at $2. A break below $1.90 would be bearish while a close back above$2.20 would be bullish.
Exact Sciences (EXAS, $10.01, up $0.18)
October 14 calls (EXAS131019C00014000, $0.05, flat)
Original Entry Price: $13.55 (6/11/13)
Lowered Price from Selling Options: $12.40
Exit Target: $16+
Return: -19%
Stop Target: $10.45
Action: Shares plunged below $10 to start the week and tested the bottom of the downtrend channel we drew up from last week. By Wednesday, shares had tested the next wave of resistance at $9.50 before recovering to clear double-digits. There is further risk down to $8 on a drop below $9.50 while a close back above $11 would stabilize the stock.
We recommended buying Exact Sciences at $13.55 on 6/11/13. On 7/11/13 we sold the August 15 calls for 55 cents which lowered our cost basis to $13.
On 9/10/13 we sold the October 14 calls for 60 cents which lowered our cost basis to $12.40. If we are called away in mid-October at $14 the trade will make 13%.
Trades on HOLD (7): DryShips (DRYS, $3.42, down $0.07), AKS Steel Holding (AKS, $4.13, up $0.20), Rare Element Resources (REE, $2.25, down $0.02), Rambus (RMBS, $9.31, down $0.13), Bebe Stores (BEBE, $5.86, down $0.02), Vivus (VVUS, $11.19, up $0.88), Dendreon (DNDN, $2.65, down $0.03)
= = = = = = = = = = = = = = =
5. Week Ahead
Here is a chart of the events for the week ahead:
