MomentumOptionsTrading.com Weekly Wrap for 9/22/13
11:30pm (EST)
1. Market Summary
2. Opko Health (OPK) Looks Like a Solid Buy
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.)
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1. Market Summary
“We wanted to update our thoughts on the 3 stocks we said to watch last week as we mentioned how important they would be in shaping the technical picture. The chart we drew up on International Business Machines (IBM, $192.17, up $1.44) had shares testing $187.50, or the top of its downward channel (purple lines), on continued strength. Shares rallied slightly past resistance to the 50-day MA on Wednesday after gaining $4, or 2%, on deal-making news. The pop was good enough for 28.5 Dow points as the index pushed 15,350 and its next wave of resistance. Shares could see further strength to $197.50 and a close above this level would be bullish for a push past $200.
The downtrend channel for Caterpillar (CAT, $87.01, up $0.17) was at $85 but shares broke above their 200-day MA after closing at $87.13 midweek. There is a chance shares make a run to $90 over the near-term but we are watching the $84 level as a possible short opportunity down the road.
A symmetrical triangle had formed on Apple’s (AAPL, $464.90, down $7.79) chart and is usually a classic sign a huge breakout, or breakdown is forthcoming. Shares came into the week and needed to clear $510 based on our chart work from last week. We knew when Monday’s peak only reached $508 and Tuesday’s open produced a lower high ahead of the midday announcement there could be trouble. The stock fell $12 by the close and tanked another 5%, or $27, to close at $467 after failing to announce a China deal (and no new products). The 50-day MA at $463 was tested on Thursday and Friday and a close below this level would be bearish for a test down to $450-$440. A rebound past $475 would take some of the pressure off shares.
The changes in the Dow we reported on last week were very bullish news and we wanted to comment on them in more detail as well. Alcoa (AA, $8.08, down $0.08), Bank of America (BAC, $14.49, up $0.01), and Hewlett-Packard (HPQ, $22.07, up $0.11) were dropped from the index while with Goldman Sachs (GS, $164.00, up $0.65), Nike (NKE, $67.91, down $0.17) and Visa (V, $189.00, up $3.94) taking their place.
The addition of the 3 newest “blue-chips” will significantly change the ratio of the index as it is price weighted. We mentioned International Business Machines is the heaviest weighted stock and that Goldman Sachs and Visa will now take over as the second and third heaviest, respectively, when they are added to the Dow on next Monday’s open.
Alcoa, Bank of America and Hewlett-Packard were the three lowest priced stocks in the Dow and were replaced by two in the triple-digits. Nike was trading over $100 before Christmas of last year and did a 2-for-1 split the day after. To put this in perspective, the 3 “old” blue-chips stocks totaled just over a 2% weighting in the Dow because of their low prices. IBM alone is 11%.
The 3 new blue-chip stocks will create additional volatility and larger moves in the Dow as all of them are capable of making huge price swings. The buying of these stocks could create some upside bias as fund managers add them to their portfolios. These additions should also create the juice needed for the bulls to make a run at our yearend target of Dow 16,000 we set back in February.
Gold ($1,327.60, up $6.70) continues to break down like a rented mule following the drop below $1,400. The yellow metal rebounded on Friday but had a terrible week, falling over$60, or 4%. We have said Gold could test $1,175-$,1,150 this year and following a rebound in August off the 50-day MA to a high of $1,434, this could be the slide that gets it there. The next wave of support is at $1,300 and a close below this level would be the green light to go short.
Silver ($22.28, up $0.51) tanked nearly 6% for the week after testing $22 and a late August high of $25 following a low of $19. Silver held its 50-day MA of $21.40 but a close below this level should lead to $20-$19. We have been waiting for $17.50 to come into play before we said we would start adding Silver to our portfolio and we are hoping the current tumble takes it there. However, we talked about the huge “spot” prices in the American Eagles back in August and why we didn’t nibble then.
When Silver dropped to $19, spot prices were $5-$6 on a single coin through the US mint and on eBay they weren’t much better.
One of the main reasons Gold and Silver has taken a beating is due to the easing of the geopolitical tensions concerning Syria. Expectations for a QE taper cut and a rebounding dollar also weighed on the metals. However, if Syria does something stupid during a shakedown or if the Fed doesn’t do a taper cut, Gold and Silver could rebound sharply.
The bulls finally got a positive Monday/ Friday close on the Dow for the first time since July. Monday’s have been weaker than Friday’s over the past few months and this week’s M/F closes could be crucial. If the bulls get a win to start the week and can make it past the Fed with a positive Friday close, the market could see new highs. If the Dow finishes with a lower M/F close this week it could be signs of an upcoming pullback into the current trading range.
It was too early to tell if the market had “cleared” the Syria news but as tensions eased last week, the market reached new highs. There has been some more progress this weekend on getting the country to give up its chemical weapons but nothing is a given until the U.S. ships leave the area.
The main event this week will be the Federal Open Market Committee (FOMC) meeting on Tuesday and Wednesday. A decision on whether or not the Fed will taper or cut back its bond purchases is expected at 2pm, midweek. How much of this is factored into the market is the bigger question.
Wall street has been expecting the Fed to cut its bond purchases and that might imply that a little bit of tapering is already factored into the market. We have been in the camp that a QE cutback won’t come until December and with the amount of taper talk all summer it could be a shock to the market if the zombies don’t do one.
We mentioned earlier one of our February targets for the market was Dow 16,000. We also said the S&P 500 would trigger 1,700 and the Russell 2000 would trip 1,025. When those targets were hit over the summer, we didn’t raise them like many of the Wall Street pros did. Instead, we prepared for a choppy range that we have played flawlessly as we called a test to the bottom and at the end of August we said the indexes would reach the top of their ranges.
There could be a little more fluff as the Nasdaq makes a bid at our 3,800 target (and the Dow shoots for 16K), but as we have seen with our other prices targets, when reached, there has been a pullback. We still believe these targets will trip but we are cautious as the market still must deal with a debt-ceiling resolution and upcoming 3Q earnings.” (from 9/15/2013 Weekly Wrap…)
The market got a huge pop to start the week despite a looming Fed meeting that would take center stage midweek. We aren’t sure what the Vegas odds of a taper cut were but Wall Street had the Fed as 10-to-1 favorites to cut back on its monthly quantitative easing program. Nearly 90% of the suit-and-ties had penciled-in a cut in September and we were in the 10% camp that figured the Fed would wait.
We did a tap dance of our own on Wednesday when they Fed stayed pat. Many believed Fed head Ben Bernanke chickened out by not doing at least a small cut but he is well aware of the upcoming debates in D.C. and decided he couldn’t trust the zombies (or the economy) enough to slow down the printing presses. As a result, the market soared to new highs as the shorts ran for cover.
There was a little consolidation on Thursday and into Friday’s session before the bears made a late week ambush. There were a lot of factors in play that contributed to the pullback but we doubt the bulls are through running as the look to end September on a strong note. However, a continued selloff to start the week and a break below support could give the bears optimism heading into October. (read more…)
The Dow tanked 185 points, or 1.2%, to finish at 15,451 on Friday. The blue-chips faced resistance at 15,400 coming into the week and needed to clear this level in order to make a run at 15,600. The bulls pushed a high of 15,549 on Monday and 15,555 on Tuesday. The Dow tested a low of 15,470 ahead of the Fed announcement on Wednesday but rebounded 239 points to reach an all-time high of 15,709. The close at 15,676 easily held 15,600 and set the stage for a run at 16,000. The index reached 15,695 on Thursday and 15,654 on Friday but gave up 200 points into the close while finishing 3 points off its low. Another close above 15,500 could lead to 15,600+ but a drop below 15,400 could lead to a back test to 15,300-15,200 and the 100-day and 50-day MA’s. A close below these levels would be bearish. For the week, the Dow was up 75 points, or 0.5%, after starting at 15,376. For the year, the blue-chips have zoomed 2,347 points, or 17.9%.
The S&P 500 dropped a dozen points, or 0.7%, to settle at 1,709. The index made a run past 1,700 to 1,704.95 to start the week but had to wait until Tuesday’s close at 1,704.76 to clear resistance. We mentioned a finish above this level and then 1,710 would get 1,725 in play and new all-time highs. The S&P tested 1,700 on Wednesday’s session before surging nearly 2% to 1,729.44 and ending exactly on our 1,725 fluff target. We also mentioned last week, if cleared, there could be a continued push to 1,750-1,775. Thursday’s high reached 1,729.86 (short-term double-top?) before a close at 1,722. Friday’s run to 1,725.23 was a nice bear trap as the index stumbled to 1,708 by the close. The bulls are trying to build a floor of support at 1,700 but there is still risk down to 1,675 (100-day MA)-1,650 (50-day MA) on a pullback. If 1,725 is cleared again, the bulls will be looking to push 1,750+. The S&P 500 came into Monday’s session at 1,688 and added 21 points, or 1.3%, for the week. Year-to-date, the index is higher by 284 points, or 19.9%.
The Nasdaq fell 14 points, or 0.4%, to end at 3,774. Tech reached a peak of 3,756 to start the week before falling to a low of 3,712 and holding support at 3,700. We have been mentioning a run to 3,750-3,800 would come on a close above 3,725 and Tuesday’s pop to 3,747 and close above this level was a good clue continued highs were in store. The index traded to a low of 3,737 before Wednesday’s big news and held 3,725 before a 65-point surge to 3,790. Thank you Mr. Bernanke. Thursday’s trip to 3,798.16 came within 2 points of our yearend target for the Nasdaq we set back in early February and we thought for sure it would be triggered on Friday. However, the bulls could only push 3,798.76 (short-term double top?) before giving up ground and closing a point below 3,775. There is danger down to 3,650 and the 50-day MA on a break and close below 3,700 and anything below these levels could cause some immense selling pressure if the snowball turns into an avalanche. If the bulls clear 3,800 there could be fluff up to 4,000. The Nasdaq began the week at 3,722 and advanced 52 points, or 1.4%, by Friday’s closing bell. For 2013, Tech is in the green by 755 points, or 25%. This is a nice round number for the fund managers to lock-in gains if they see weakness ahead.
The Russell 2000 slipped 2 points, or 0.2%, to close at 1,072 on Friday. The small-caps looked poised to test all-time highs after closing above 1,050 the prior week. We said the bulls needed to clear 1,060 for a run at 1,075. They pushed 1,065 to set an all-time high on Monday but failed to hold 1,060. The index quietly kissed 1,066 on Tuesday and additional all-time highs with the close before a dip to 1,058 ahead of the Fed news. After the announcement, the Russell soared to 1,080 before settling at 1,076. Thursday’s high was 1,079.76 (another DT?) and Friday’s peak came in at 1,078. A close above 1,080 should trigger a run to 1,100 while a drop below 1,060 needs to be watched. There would be additional wiggle room down to 1,050-1,040 but a drop below the 50-day MA would be troublesome. The Russell 2000 was at 1,054 before Monday’s open and was higher by 18 points, or 1.8%, for the week. YTD, the small-caps have ballooned 223 points, or 26.3%.
The S&P 500 Volatility Index ($VIX, 13.12, down 0.04) came into the week at 14.16 and we said to watch 13.50 and 15 as bullish and bearish targets. The bulls made a run to 14.49 on Monday’s open before falling to 13.87 and finishing as 14.42 despite the rally. Tuesday’s trip to 14.61 ended with a close at 14.53. The VIX traded up to 14.68 ahead of the Fed announcement on Wednesday and was a good clue Wall Street would be caught off-guard when 15 held. The index plunged to a low of 13.23 before ending at 13.59 once the dust settled. We can’t call it much better than that, folks. Thursday’s low was 13.02 and Friday’s bottom reached 12.50. We mentioned there was a chance the 52-week low of 11.05 could come into play on continued momentum but a close back below 13.50 might put this theory in jeopardy. If the bears can get above 15, watch for the Peggy Panic’s as a trip to 17.50 could come into play.
The charts from last week showed one last push to the top of the upper channels before a possible pullback. The bulls have had smooth sailing all September but we mentioned on Friday once the zombie talk heated up the close would be important. It was the perfect setup for a pullback following Wednesday’s surge to new all-time highs and Thursday’s mixed range-bound session.
From our 7/22/2013 Weekly Wrap:
“All of the major indexes are rapidly approaching our yearend target of Dow 16,000; S&P 1,700; Nasdaq 3,800; the Russell 2000 has cleared our 1,025 target and has even triggered our 1,050 fluff target. The 2013 gains aren’t unbelievable because we predicted them at the beginning of February. What is body-tingling is how fast the market has climbed in 6+ months and the incredible bounce off the 100-day MA’s.
It feels like the current rally could last through July and our other yearend targets could come into play on continued strength. At that point, it could be time to look at short positions heading into August and September but betting against the bulls or waiting on them to fall out of bed has punished a lot of traders this year.” (END)
From our 7/29/2013 Weekly Wrap:
“We have fluff targets of Dow 15,800-16,000; S&P 1,700-1,725; Nasdaq 3,650-3,700 and Russell 1,075-1,100 on a continued move higher but some of these are our yearend targets so we are a little cautious on how much further the bulls can push before there is a pullback. We have mentioned the rally could last through the end of July but the bulls appear to be stumbling at the finish line as the market experienced lower lows throughout the week after higher highs to start.
We will need to be careful in going long put options or short the market because it is possible a trading range forms if there is a pullback and support holds.” (END)
We mentioned September options would be expiring on Friday and “quadruple-witching” made for a volatile second half of trading. The rebalancing and shuffling of the S&P 500 and the Dow also added fuel to the fire.
The S&P 500 assigns new weightings to each of the stocks in the index depending on share buybacks and other factors so there was heavy action in Apple (AAPL, $467.41, down $4.89) and Google (GOOG, $903.11, up $4.72).
We talked about the upcoming musical chairs on the Dow as old blue-chippers Alcoa (AA, $8.29, down $0.15), Bank of America (BAC, $14.44, down $0.17) and Hewlett Packard (HPQ, $21.22, down $0.09) were booted on Friday’s close.
The new kids on the block will be Nike (NKE, $69.37, down $0.13), Goldman Sachs (GS, $169.75, up $1.97) and Visa (V, $198.83, up $4.12). Nike announces earnings this week and will be a preseason preview of upcoming 3Q earnings.
The debt ceiling, budget, and ObamaCare debates now take center stage and it is going to be an ugly battle. This is perhaps the Republicans last chance to try and do away with ObamaCare by not funding it.
The debt ceiling has been raised 82 times since America has been in the red. The increases have become more common since the 1960’s as the debt ceiling has been raised 73 times with Obama accounting for 3 of them.
On Friday, the House zombies passed a budget bill that would keep the government running through mid-December while defunding Obama’s healthcare law. The Senate zombies will reject it early this week and the hot potato will be back in the Houses’s hands.
The wrangling could continue throughout the week but without a a budget deal by the first of October, a government shutdown could become a real possibility.
The US Treasury has indicated that mid-October is when the zombies will run out of “extraordinary measures” and when a default would occur. The Treasury has been helping the zombies pay the bills for more than a month and prioritizing what they pay first and what can wait. This story will gain more traction the longer the bickering lasts as we doubt a solution is reached by next Monday.
As we head to press, futures look like this: Dow futures are up 27 points to 15,430 while the S&P 500 futures are higher by 2 points to 1,705. The Nasdaq 100 futures are advancing 7 points to 3,223.
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2. Opko Health (OPK) Looks Like a Solid Buy
By Michael Bryant
Dr. Frost is a genius and his company Opko Health (OPK, $8.38, down $0.02) seems to have a bright future. Shares have made a strong run this year and we can easily see a push past double-digits on the horizon.
In 1972, he partnered with Michael Jaharis to purchase struggling Key Pharmaceuticals. The two met at Miles Laboratories, where Jaharis had been a manager for 18 years and Frost, a dermatologist, was a consultant. The Miami-based Key Pharmaceuticals had just lost $700,000 on revenue of $1.5 million and had no new products in development. Frost decided the company should develop and market new delivery systems for proven drugs, which would cut the time, costs, and risk associated with developing entirely new drugs.
To start, the partners perfected the company’s theophylline product. Theophylline is a methylxanthine, a drug with similar structure and medical properties as caffeine, used in therapy for respiratory diseases such as COPD and asthma. The product became Theo-Dur, the first sustained-release theophylline. Jaharis noticed that none of the competing products had sales forces to teach doctors how to use them, so he developed a sales force to promote the product to the allergists and immunologists and taught them how to use it. By 1984, the company reported $22.1 million in profits. The company was sold for $826 million to Schering-Plough, now a division of Merck (MRK, $x), in 1986.
Later that year, Frost purchased Ivaco, specialty chemicals manufacturer based in New Jersey. He also bought Diamedix, a medical diagnostic kit manufacturer, and pharmaceutical company Pharmedix in 1986. In December 1987, he merged the three to form Ivax Corporation. Frost planned to use Ivaco as a cash cow to fund the purchase of drugs that already had passed the regulatory approval process. Then, cash flow from those drugs would be used to purchase drugs that were not yet approved but had shown promise in preliminary clinical trials. Lastly, earnings from those drugs would be devoted to the internal development of new drugs by Ivax’s own scientists.
Through acquisitions, Miami-based Ivax grew to become a global producer of brand-name and generic drugs, with operations in more than 70 countries worldwide. With sales over $1 billion, it was one of the world’s largest generic drug companies. Frost served as CEO and Chairman. In 2006, he sold the company for $7.6 billion to Teva Pharmaceutical (TEVA, $x) which is based in Israel. Based on 2004 data, Teva was the USA’s #1 generic-drug maker with worldwide sales of $4.8 billion. Ivax was #6 in the USA with sales of $1.8 billion. Following the acquisition, Frost became Vice-Chairman of Teva in 2006 and has been the Chairman since 2010.
Dry AMD, the thinning and drying out of the macula, is the most common type of macular degeneration. Froptix developed lead compounds for the treatment of dry AMD and retinitis pigmentosa, an inherited eye disease that causes severe vision impairment and often blindness. Over 35 million patients suffer from dry AMD in the developed world. In some patients, dry AMD progresses to wet AMD, a leading cause of adult blindness.
Frost and his private equity group, the Frost Group, provided funding for the merger of Acuity Pharmaceuticals, a company developing candidates for wet macular degeneration using small interfering RNA (siRNA) technology, with eXegenics and Froptix. In wet macular degeneration, swelling of blood vessels causes vision loss. The merged company, which was formed on March 27, 2007, used the name eXegenics and traded over-the-counter (OTCBB) under ticker EXEG. The stock closed at $3.28 a share. Then on June 11, 2007, it changed its name to Opko Health and started trading on the American Stock Exchange (AMEX) under the ticker OPK. The stock closed at $4.08 a share. Frost installed former Ivax talent to the Board of Directors, along with Scripps Research Institute President Dr. Richard Lerner, one of the nation’s most accomplished researchers. Frost became the CEO and Chairman of the company.
Although the company’s drug Bevasiranib, which used siRNA technology to deactivate the gene that promotes the swelling of blood vessels, passed phase II trials, clinical trials were terminated in March 2009 after it seemed unlikely that the drug would meet primary endpoints. Genetech, which was purchased by Swiss-based Roche, sells Lucentis to treat wet macular degeneration, but doctors have recently been administering off-label doses of Genetech’s cancer drug Avastin to treat it at nearly one-10th of the cost. Thus, competition in the space was tight, and Bevasiranib would have had to work better than Lucentis but match Avastin’s price.
Opko Health’s growth strategy is similar to that of Ivax: investing in early-stage companies that it perceives to have valuable proprietary technology and significant potential to create value. This year, it made two important acquisitions.
- On April 18th, it acquired an approximate 10% stake in OAO Pharmsynthez (MICEX: LIFE), a growing Russian pharmaceutical company, for approximate $60 million.
- On August 29th, it completed the acquisition of Prolor Biotech. With the inclusion of Prolor’s pipeline, it added five drug candidates: two for growth hormone disorders, two for hemophilia, and one for diabetes Type II and obesity. One of the candidates for growth hormone disorders (hGH-CTP) is in phase III trials while the other is in phase II trials. The other three are in preclinical trials.
Cytochroma, whose assets the company acquired in 2008, has three products in development including the vitamin D treatment Rayaldy. Rayaldy capsules are modified-release formulations of 25-hydroxyvitamin D3 (calcifediol) being developed as a monotherapy for secondary hyperparathyroidism (SHPT) associated with vitamin D insufficiency in patients with Stage 3 through 4 chronic kidney disease (CKD). The market is estimated at $12 billion annually in the U.S. alone, and Rayaldy is estimated to take 35% of the U.S. market. That would equal $4.2 billion annually.
Cytochroma’s Alpharen (Fermagate) tablet, a calcium-free non-absorbed phosphate binder, is in phase 3 development in the U.S. and Europe for the treatment of hyperphosphatemia in dialysis patients. Its Lunacalcipol (CTA018) injection and capsules are under development for the treatment of moderate-to-severe SHPT in Stages 3-5 CKD patients.
In June 2009, the company acquired exclusive, worldwide rights from the University of Texas Southwestern to an innovative platform technology for the rapid identification of disease-specific antibodies that can serve as diagnostic biomarkers for various diseases. Currently only used for a simple blood test for Alzheimer’s disease, the technology could be used for Parkinson’s, and pancreatic and lung cancers. Dr. Frost estimates that this diagnostics tool could bring in more than $3.6 billion in annual revenue.
In October 2011, OPKO acquired Claros Diagnostics, a company that has developed a microfluidics-based device that requires only a drop of blood before the analyzer can run up to 20 separate tests, producing lab-quality results in about 10 minutes. This development has the potential to revolutionize the field of medical diagnostics, eliminating long lab result wait times for patients and yielding greater clinical efficiency and cost effectiveness for practitioners.
It also operates OURLab, a full-service medical laboratory specializing in urologic pathology. In 2012, it acquired OURLab, a Nashville-based CLIA laboratory with 18 sites throughout the U.S. and a national sales force of urologists. The division provides independent laboratory testing services and will serve as a commercial platform for the launch of 4Kscore, a prostate cancer biomarker panel.
On July 31, 2013, the company’s market cap past S&P 500 component U.S. Steel (X, $x). If the company does end up replacing U.S. Steel in the S&P 500, this would be a big boost in the stock as fund managers who track the index are forced to buy.
In September, it was reported that OPK would be listed on the benchmark TA-25 (Tel Aviv) Index next month after it completed the acquisition of Nes Ziona, Israel-based Prolor Biotech.
Looking at their numbers, analysts estimate that revenue will decline slightly to $23.17 million in the 3rd quarter before rising in the 4th quarter.
At its current price, the stock is below its low target of $9.00 made by the 3 analysts recorded by Thomson/First Call. Mean target is $9.67, and median and high target of $10.00. Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 1.0, unchanged from a week ago.
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Current Month |
Last Month |
Two Months Ago |
Three Months Ago |
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Strong Buy |
3 |
3 |
3 |
3 |
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Buy |
0 |
0 |
0 |
0 |
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Hold |
0 |
0 |
0 |
0 |
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Underperform |
0 |
0 |
0 |
0 |
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Sell |
0 |
0 |
0 |
0 |
We like the stock at current levels and believe shares can reach $12 over the next 6-12 months.
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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 9/20/13 close)
By Catherine Tierney
Monday
CMTL, DFS, ELMD, EBF, IDT, OFIX, PKE, Red Hat (RHT, $53.22, down $0.37) possible calls/ puts, SANW, THO
Tuesday
AIR, ASNA, CPRT, KB Home (KB, $17.63, down $0.67), LNDC, LEN, NEOG, CarMax (KMX, $51.19, down $0.06), Carnival (CCL, $37.08, down $0.62)
Wednesday
AutoZone (AZO, $420, down $2.79) possible put options, Bed Bath & Beyond (BBBY, $75.47, down $0.12) possible puts, FUL, PRGS, SNX, Jabil Circuit (JBL, $23.11, down $0.56)
Thursday
ACN, CMN, TAX, MKC, WOR, Nike (NKE, $69.37, down $0.13)
Friday
AZZ, BlackBerry (BBRY, $8.73, down $1.80), Finish Line (FINL, $23.41, up $0.41), USAT, Vail Resorts (MTN, $69.16, up $0.28)
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4. Weekly Wrap Covered Call Portfolio Update (Closing prices as of 9/20/13)
Our Weekly Wrap Closed Trade Track Record for 2013 is 34-3 (77-5, overall since the start of 2011)
Special Notice: Shares of Pizza Inn (PZZI) were volatile on Friday and we were stopped out on the dip below $7. We still want to hold this company for the longer-term and we would love to see drop to $6.50-$5.50 where we would establish another position. If we don’t get that chance and shares clear $7.50, we will add shares for the run past double-digits as it would indicate strength if support holds.
Opko Health (OPK, $8.38, down $0.02) Covered Call
October 9 calls (OPK131019C00009000, $0.25, flat)
Original Entry Price: $8.34 (9/19/13)
Lowered Price from Selling Options/ Dividends: $8.09
Exit Target: $10+
Return: 4%
Stop Target: $6
March 10 calls (OPK140322C00010000, $0.80, flat) LEAP Option Trade
Original Entry Price: $0.75 (9/19/13)
Exit Target: $1.50
Return: 7%
Stop Target: $0.30
Action: We suggested buying shares of Opko Health at $8.34 and selling the October 9 calls for a quarter to lower the cost basis to $8.09. Support is at $8 and the 50-day MA. We would like to see a run past resistance at $8.75 that would likely get $9 in play.
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, $19.99, down $0.12) Strangle Option Trade
October 20 calls (VRA131019C00020000, $0.90, down $0.10)
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, $0.20, flat)
Original Entry Price: $0.80 (9/10/13)
Exit Target: $1.60
Return: -75%
Stop Target: None
Action: We closed the call options last Monday after shares failed to make a run past $21. The high for the session check-in at $20.54 and we got out at $1.10 when shares were pushing $20. Shares made lower highs and lower lows throughout the week and our put options are still in good shape as we are expecting $17.50 to be tested over the next few weeks. The trade is down 19% overall.
Kodiak Oil & Gas (KOG $11.35, up $0.12)
Original Entry Price: $10.80 (9/9/13)
Lowered Price from Selling Options/ Dividends: $10.80
Exit Target: $15
Return: 5%
Stop Target: $10.80
Action: Shares traded to a fresh 52-week peak of $11.31 to start the week and we said a close above $11.50 and resistance would be bullish for a run to $12. Thursday’s high reached $11.55 and we would like to sell options on a close above $12. Shares tested a low of $11.12 on Friday and near-term support is at $10.75. If shares fall below $11, we could play it safe and close the trade, but if we do, we will send out a Trade Alert.
March 11 calls 2014 (KOG140322C00011000, $1.40, up $0.10)
Original Entry Price: $1.20 (9/9/13)
Exit Target: $2.40
Return: 17%
Stop Target: $1.00
Action: We have a Stop Target of $1 on a pullback but it is not a Hard Stop. We will also send out a Trade Alert if we take action but we plan to hold this trade into next year, regardless.
Sonus Networks (SONS, $3.45, down $0.05)
Original Entry Price: $3.73 (9/9/13)
Lowered Price from Selling Options: $3.73
Exit Target: $5
Return: -2%
Stop Target: $3
Action: Shares traded in a tight range all week and closed a penny below its 50-day MA. There is further risk down to $3.20 and the 100-day MA followed by $3. We are waiting for a run past $4 before selling call options but the bulls need to clear $3.75, first.
Annaly Capital Management (NLY, $11.93, down $0.32)
Original Entry Price: $11.70 (9/6/13)
Lowered Price from Selling Options/ Dividends: $11.70
Exit Target: $15
Return: 2%
Stop Target: $10
Action: Shares kissed $12.30 on Monday before a slow fade and close at $11.92. Another failed run past $12 came on Tuesday with a close at $11.95 before Wednesday’s 5% surge to $12.54. We probably should have sold some near-term call options on the move as shares ended the week below $12 with risk down to $11.75 and the 50-day MA. There is additional support at $11.25. A close above $12.50 would be bullish and where will will try to sell call options. The current yield on the stock is 11.7% and the quarterly dividend payment is at 40 cents that should be paid by the end of the month.
Krispy Kreme Doughnuts (KKD, $19.91, down $0.20) Short Position
Original Entry Price: $18.92 (9/4/13)
Lowered Price from Selling Options: None
Exit Target: $16
Return: -5%
Stop Target: $22
Action: Krispy Kreme pushed resistance at $20.50 and the 50-day MA with Monday’s pop to $20.12 but finished the session with a 3 cent gain to $19.63. Wednesday and Friday’s highs were $20.27 and $20.24, respectively. There is a “gap” to fill at $16 and our target is $15 once the bears get below $19.
NPS Pharmaceuticals (NPSP, $30.37, up 1.36) LEAP Option
January 31 calls (NPSP140118C00031000, $3.70, up $1.05)
Original Entry Price: $1.40 (8/29/13)
Exit Target: $2.80 (closed half at $2.90 on 9/10/13)
Return: 136%
Stop Target: $1.40, raise to $2.50
Action: We said a run to $30 was coming and Friday’s high was $31.72. The options traded to a high of $3.90. We can rollover this trade by adding more call options if $30 holds. We have mentioned shares could reach $35 on a break above $30 and continued momentum but we will likely close the other half of the trade if there is a pullback and our Stop Target of $2.50 comes into play.
Galena Biopharma (GALE, $1.99, up $0.01)
Original Entry Price: $2.12 (7/8/13)
Lowered Price from Selling Options: $2.12
Exit Target: $5
Return: -6%
Stop Target: $1
Action: GALE tested $2 to start the week before ending flat. The rest of the week produced a tight range with support at $1.80. Near-term resistance is at $2.20.
Exact Sciences (EXAS, $12.19, down $0.18)
October 14 calls (EXAS131019C00014000, $0.20, down $0.10)
Original Entry Price: $13.55 (6/11/13)
Lowered Price from Selling Options: $12.40
Exit Target: $16+
Return: -2%
Stop Target: $10.45
Action: Shares closed at $12.60, down 2 cents, on Monday after reaching $12.84 but the rest of the week produced lower highs and lower lows. Support at $12 was tested with Friday’s low of $12.06 and there is additional help at $11.50 on a close below this level. Resistance is at $13.
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%.
Pizza Inn Holdings (PZZI, $7.07, down $0.28)
Original Entry Price: $5.40 (6/11/13)
Lowered Price from Selling Options: $5.40 (no options available)
Exit Target: $10+
Return: 29%
Stop Target: $6.95 (Hard Stop)
Action: We were stopped out at $6.95 on Friday as shares fell to a low of $6.58 on an 8-K filing. Earnings may be coming out soon and we will see where shares are at when the smoke clears.
Trades on HOLD (7): DryShips (DRYS, $2.90, down $0.01), AKS Steel Holding (AKS, $3.98, up $0.04), Rare Element Resources (REE, $2.49, up $0.14), Rambus (RMBS, $8.46, up $0.01), Bebe Stores (BEBE, $5.72, down $0.09), Vivus(VVUS, $10.12, down $0.03), Dendreon (DNDN, $3.02, down$0.09)
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5. Week Ahead
Here is a chart of the events for the week ahead:
