Intra-Day Market Update
Monday turned out to be the consolidation day and what was expected in yesterday’s letter. The Dow Jones made a new all-time high today and so did the NASDAQ 100. However the S&P and the Russell 2000 are lagging.
The Transportation Index is benefiting slightly from the drop in oil; however, with oil and interest rates moving lower, it doesn’t set up a bullish scenario to support the market short-term. At the time of this writing (12:40 ET), the broader markets are backing off from the day’s highs so we’ll have to see where they all end.
That being said, option traders are heavy on the put side intraday and that is in opposition of the move lower in oil and interest rates. Overall, it’s a standoff, so we don’t expect much on the upside or downside for equities but that weakness in oil and interest rates is certainly helping gold and gold stocks.
The Pharmaceutical Sector that we mentioned in yesterday’s letter continues to outperform, but don’t chase them here since they are now at price resistance. Let’s see how they handle this area. If they go sideways, rather than pull back or only pull back a little bit, that’ll be a bullish sign. Start to review stocks in that sector. While that happens, we will provide recommendations after that assessment.
Oil and gas stocks are taking a hit today with the drop in crude oil. Anadarko Petroleum (APC) had been showing relative strength but is breaking down today. Others in the sector appeared to be oversold although that doesn’t mean they can’t go lower.
While airlines are benefited from the drop in oil, American Airlines (AAL) and Delta Air Lines (DAL) are entering their respective overhead resistance areas after having broken down from them. Those are areas where sellers should show up and we should see a reversal and sell set up form in the coming days. Unless of course they push through that resistance, so wait-and-see. JetBlue (JBLU) has been the weakest of the airlines, but the consolidation is not that long after having broken down.
It’s interesting that Alaska Air (ALK) and Southwest Airlines (LUV) are still near their recent highs. It’s unusual to see such a divergence between these airlines. While strong, don’t consider buying breakouts in these.
Although the broader markets selling off a little bit intra-day, that doesn’t change anything as far as the weekly and daily time frames. Good luck in the rest of the day’s trading.
Adjustments and Comments on Open Trades
SALT – Sold 10 Jun $5 puts for a net credit of $500. Nice breakout so move stop loss at $5.88. Because spreads widened, place GTC limit to close at $.10/share for 80% max profit.
HD:
- Purchased 10 Mar $130 calls for $6.90/share.
- Sold the weekly (2/3) $139 calls for $.80 to bring in premium to reduce cost basis on long call to $6.10/share (i.e., leg into a bull diagonal). The weekly (2/3) $139 calls for sold for $.80 expired worthless.
- Sold the weekly (2/10) $138 calls for $.70 to bring in premium to reduce cost basis on long call to $5.40/share. .
- Move stop 136.38 for bull diagonal position (note: mid-point cost to close now is $8.26 so we have almost $3 open gain with the call writing).
CPLP – Purchased stock $3.63. Targets low $5 and $6.25. Move stop loss to $3.34.
TWLO – Sold 10 Feb $26 puts for $700. Closed at $200 for $500 gain to avoid earnings risk.
MOS;
- Sold 10 March $30 puts for average basis of $650.
- We rolled down the March $30 puts to the March $29 puts for $300 (lowering our maximum gain on the trade to $350).
- Sold Feb $29.5 puts for $260 to bring in additional premium (increasing our maximum gain on the trade to $610).
- Move stop loss $30.68. Acting well with bullish engulfing, negating earnings gap down. Volatility crush made this trade profitable.
NFLX – Shorted 10 Feb 136/130 bull put spread for $1,200. Mid-point to close is $.60/share (50% of Max Gain, so nothing wrong with booking ½ profits, although pattern remains bullish so we are holding). Tighten stop loss to $138.48 to protect gains.
AG – Purchased 10 April 7 calls and sold Feb 10 calls for $3,050 (a bullish diagonal). The stock had a bullish break out with the market. Although we are making money, we are capping our gains on the short Feb 10 call. As such, we recommend rolling the Feb 10 calls to the March $11 strike calls for no cost. Move stop loss to $9.38.
GDXJ:
- Sold 10 Feb 40/45 bear call spread for $500.
- Sold Feb 35/32 bull put spread for $250 to bring in additional income to convert to short iron condor. Closed at $.05/share to book $200 gain.
- On the bear call spread, bought Feb $36 ITM calls (filled at $4.15/share on 2/6 gap after selling the $45 calls for $.100) to convert our $40 short calls into a bull call spread.
- The cost basis of the Feb 36/40 bull call spread is $3.45/share ($4.15/share – $.50/share opening trade – $.20/share from put spread).
- Close now for $.37/share, booking a small $180 gain. Would have been much higher if we didn’t initiate the call spread which went against us, but the adjustments we made turned the trade profitable. Will watch on pull back.
XBI – Sold 10 Feb 61 naked puts for $350. Maintain stop to $61.48. Under $64.30, we recommend selling a Feb $67/70 bear call spread since then the pattern would then look range bound. This will take in additional income into expiration to increase profit.
FB – Sold 10 Mar 140/150 bear call spread for $720. It held support in the $130 range so we recommend selling 10 Mar 125/120 bull put spread for $650 or better (current mid-point) to convert to a short iron condor and increasing our Max Gain to 1,370 (from 5-point spread). Stop loss on call spread is $136.02. Stop loss on put spread is $126.28.
DOW – Sold 10 Mar (3/24 weekly) $56 puts for $500. Stop Loss: $56.68.
MS – Sold 10 Mar $41 puts for $440. Stop Loss: $41.28.
DO – Sold 10 Mar $15 puts for $400. Stop Loss: $14.88.
Happy trading! If you have any questions or comments, please e-mail Greg Capra at Greg@mastertrader.com or Dan Gibby at Dan@mastertrader.com
All the best,
Greg Capra
Managing Director and Pristine Founder
Dan Gibby
Chief Options Strategist
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