Partial Closing Trade

• AAPL – 82.53% Loss: Sell to Close 2 Contracts (or 50% of your Contracts) June 16th $165 Puts @ $0.94 Credit. DailyPlay Portfolio: By Closing 2 of the 4 Contracts, we will receive $188.

Investment Rationale

Stocks rallied on Friday to their best levels of the year, as mega cap tech names continued their large outperformance. (On the week, the XLK was up 4.19% vs. the SPX being up 1.65% (and the latter figure includes tech’s performance within it.) The sentiment figure on the NDX is at 74% bulls, while it’s only 46% bullish for the SPX. With the QQQ on a weekly Setup +9 count and the SPX only on a Setup +1 count, one could say that the tech move could easily peter out in relative terms.

Last week’s rally pushed the SPX definitively above the 4155 weekly cloud top, neutralizing the negative bias that’s been in place since last May. In order of bullish cloud structure, the four major US stock indexes are ranked as: 1) Dow Industrials; 2) SPX; 3) NDX; and 4) Russell 2000 (despite 2023’s returns showing an order of NDX, SPX, Dow, and R2K).

Position-wise, based on what I wrote last week, you should now be out of the long SPY put spreads, and let’s also take down the long AAPL puts from 4 to 2 contracts.

Let’s look at a good example of what option traders are facing these days. After looking through a bunch of potential breakout candidates, I see that Accenture (ACN) is a good candidate to buy based upon its chart showing a trend line breakout, and a move up into the weekly cloud after 5 weeks in a row that the weekly high was at/near its cloud bottom. To me, this is a stock that looks headed higher, and very possibly to test the $312 level (where we see the bullish Propulsion Momentum level.) So, bingo, I think to myself that I have today’s Daily Play idea.

ACN – Weekly

But, buying a June 16th $290/$310 call spread costs $6.48 – some 32% of the strike differential. That’s more than we like to spend, as we try to be in the 25% to max 30% range if we can be.

So, what if we were to sell the $290/$275 put spread? Well, that collects $4.10, only 27% of the strike differential, and well beneath the 40% we look to collect on a credit spread.

That means that despite my bullish outlook on the stock, there’s no way to capture that potential upmove at a fair price in the options market.

This is the same thing I have seen for the past two months or so: the options market is no longer priced such that you can take on a new bullish position at a fair price. You essentially need to “overpay” to get the bull exposure you want, which means that the upmove needs to come virtually immediately to be able to offset the upped price you are paying for the right to get long the underlying stock in the future.

There are times in my long career that this has been the situation – that the best way to get long exposure is to actually buy the stock (and not use its options). Surely, you give up the leverage you get with options, and you also have to have the money to buy shares of stock (and in the case of something like ACN, you can only buy a small amount for your 2% of portfolio value). But frankly, the market-makers are basically now saying to you, “Pay our price to get bullish option exposure or go play something else”.

Investment Rationale

The market flew yesterday, marking new a new 2023 high close for the SPX just shy of 4200.  The AI-related tech buying of the mega cap names continues, and with renewed thoughts of a debt ceiling agreement likely to be met in time, buyers completely controlled the day.  The biggest effect on us is that the rally will now also knock us out of the remaining two SPY $412 and $413 (vs. $385) put spreads we were long.  Mr. Market has spoken, and he’s not saying he wants to go down. (The next SPX tactical target is the unfilled gap from 4203 to 4219, which could easily get filled today.)

I have espoused to you that one should do what has worked in the past until it no longer works, and in this case, with the SPX looking like it will breach the 4155 top of weekly cloud resistance (after last week’s down close relative to the week before) – and the move being “qualified” – it sets next week up to confirm the upside breakout to still potentially push the market higher (despite the still unknown debt ceiling result and upcoming early-June FOMC rate announcement).  Price action like this does neutralize the 2022 decline to no longer be a structural bearish picture.

NYSE market breadth is still not bullish, and its chart shows two prior highs right at the top of its weekly cloud.  Watch this going forward to see if it can break above its cloud top, to at least then potentially test its major downtrend line.

NYAD – Daily

Closing Trades

• SPY – 36.55% Loss: Sell to Close 1 Contract (or 100% of your Contracts) June 16th $410/$385 Put Vertical Spread @ $3.49 Credit. DailyPlay Portfolio: By Closing this 1 Contract, we will receive $349.
• SPY – 32.01% Loss: Sell to Close 1 Contract (or 100% of your Contracts) June 16th $411/$385 Put Vertical Spread @ $3.76 Credit. DailyPlay Portfolio: By Closing this 1 Contract, we will receive $376.

Investment Rationale

Investors came back strongly yesterday, bidding stocks well higher on hopes of a debt ceiling deal coming sooner than later (albeit only 14 days remain till the deadline), but the hope of it happening reversed Tuesday’s seeing bidders disappear – the opposite happened yesterday. The SPX, NDX and Dow all closed up about 1.2%, and again find themselves nearing their best levels of the year.

Rates are also moving higher, with the TNX reaching 3.58% and honing in on last month’s high print of 3.64%. Why stocks are moving higher with rates moving up – the latter indicating that traders are less convinced that the Fed will be done raising rates at their upcoming June meeting – is as silly as it was seeing stocks rally 1.2% yesterday. There is certainly little rhyme and reason in the equity market for what we’re seeing occur, and you can be sure that the computer algos are doing more daily push and pull to stocks than it is big institutional money getting in or out.

Position-wise, we were able to get into selling the ARKG June 15th $30/$31 call spread on yesterday’s rally at about 45 cents. We’ll stop ourselves out of that trade on a close (or two; your choice) above $31.35, and look for the stock to potentially get to the $28 neighborhood.

ARKG – Daily

Given more losses that I like that we’ve recently had, let’s remove the SPY $410/$385 and $411/$385 put spreads we’re long to cut those losses now. A Friday close above 4155 in the SPX will also then take us out of the $412 and $413 spreads, too.

Personally, I have not put on any new trades this week. In fact, I’ve trimmed a bit in one of my large cap tech holdings. Otherwise, I am content on waiting for more clarity to come from both Congress and the Fed, and given the lack of clarity evident in most of the major asset classes’ charts right now, the big money managers are doing the same. And the way I look at things with my 40+ -years of trading experience eyes, if the big boys and girls don’t want to be playing these markets – and they minimally are – why should we?

ARKG Conditional Bearish Opening Trade Signal

View ARKG Trade

Strategy Details

Strategy: Short Call Vertical Spread

Direction: Bearish

Details: Sell to Open 36 Contracts June 16th 30/31 Call Vertical Spreads @ a current cost basis of $0.46 Credit per contract.

Total Risk: Based on the current cost basis this trade has a max risk of $1,944 (36 Contracts x $54) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $54 to select the # contracts for your portfolio.

Counter Trend Signal: This stock is bullish and is expected to pull back from this level.

1M/6M Trends: Bullish/Neutral

Technical Score: 3/10

OptionsPlay Score: 111

Condition: Open this trade when ARKG trades between $30 to $30.25 anytime this week.

Investment Rationale

Home Depot’s less than stellar forward guidance pulled stocks lower on Tuesday, as upped fears of a slowing consumer and economy led bidders to shy away, making sellers become more aggressive to get their orders filled – and netting out to a loss of some 26 SPX points for a close at 4110. The clock is also ticking down on the debt ceiling debate, with just 15 days to go  (including weekends) for Congress to get their act together to stave off a US default on monies they owe to creditors and government employees.

EBAY got hit for a 4.7% loss yesterday, turning what had been a winning trade into a current losing one. It happened to have marked a daily -13 on Tuesday, too, so we’ll see if this gets a bounce from it to look to reduce our position in coming days. I’d take half off on a rally to near $44.

EBAY – Daily

We’ll still look to sell the June 9th SLV $22.50$23.50 call spread if SLV rallies up to $22.35 to $22.50 area anytime this week.

SLV – Daily

For a new idea, I found a Cathy Wood fund (ARKG) that has continually failed over the past month at its bullish Propulsion Momentum level at $31.14. Yesterday it fell well more than the market was down, so we’ll look to sell June 16th $30/$31 call spread into a minor rally in the stock up $30 to $30.25 any day this week. That should get us near 45% credit of the strike differential. I’ll look for the stock to fall to $28 – the bottom of its recent range. We’ll stop ourselves out on any daily close  above $31.35.

ARKG – Daily

Partial Closing Trade

• GOOGL – 4.40% Loss: Sell to Close 3 Contracts (or 50% of your Contracts) June 16th $112/$122.50 Call Vertical Spreads @ $3.91 Credit. DailyPlay Portfolio: By Closing 3 of the 6 Contracts, we will receive $1,173.

Investment Rationale

Stocks edged higher on Monday, with no major catalyst behind the move other than some believing that a debt ceiling deal HAS to get done, and thus, the worries about it not happening become somewhat decreased. It’s as silly a reasoning as it is the press trying to identify the impetus for an up or down move every single day. Moreover, the people they often get their quote from have absolutely no idea themselves, so they just make it up. And the press eats it up because, well, they have to. After all, there has to be some reason why the market moves each day; right?  ;))))

LIT: our position expires on Friday, and the negative news article on the space that came out right after we got into our calls a month ago has cost us all of the theta. It’s a shame, because this may get north of $64 next week.

LIT – Daily

Last week’s bullish GOOGL trade was one of the more interesting ones to learn from, because it gapped up a few dollars the morning we wanted to buy them, and my initial target was reached by 10am that day – the same time of day that we price our portfolio entry price. Frankly, I would not have actually put the trade on myself because of that gap and then the target getting achieved so quickly. Then last Friday some Street firm downgraded the name, so that $117.44 top-of-cloud target has been the right one for starters. I think it makes sense to cut this trade in half, and it’s fairly close to where we put it on, so it should be a minimal loss on this portion.

GOOGL – Weekly

Don’t forget that we’ll still be looking to put on yesterday’s bearish SLV trade if SLV rallies to $22.35/$22.50 on any day this week. (We’d be looking to short the June 9th $22.50/$23.50 call spread at the then current bid/offer spread.)

Lastly, I have found 4 ideas in the past hour while searching to find a new DP I would put on today.  But not one of them has a call spread that we can buy for under 40% of the strike differential, or bearish put spread for more than 25% of the strike differential. It tells me that there is now so very little opportunity to put on equity option trades that have fair pricing. And it’s just another reason that given a meandering market that also has some potential big news coming out any day, that it remains wiser to keep your cash ready for more favorable times to trade than it is to spend it on an over- or underpriced option trade that you hope sees the upcoming news go your way.

SLV Conditional Bearish Opening Trade Signal

View SLV Trade

Strategy Details

Strategy: Short Call Vertical Spread

Direction: Bearish

Details: Sell to Open 30 Contracts June 9th ATM/+$1 Call Vertical Spreads @ a current cost basis of $0.38 Credit per contract.

Total Risk: Based on the current cost basis this trade has a max risk of $1,860 (30 Contracts x $62) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $62 to select the # contracts for your portfolio.

Trend Continuation Signal: This ETF is mildly bearish to bullish and is expected to pull back from this level.

1M/6M Trends: Mildly Bearish/ Bullish

Technical Score: 7/10

OptionsPlay Score: 96

Condition: Open this trade when SLV trades between $22.35 to $22.50. Use the then-current price of SLV (ATM) as the Sell leg strike and +$1 for the Buy leg strike.

Investment Rationale

A loss of 29 bps in the SPX last week, but the Dow lost over 1% while the Nasdaq gained 40 bps. Having fun yet determining which way “the market” is going?

To me, the unresolved potential insolvency of the US government on June 1 is the biggest issue of the day – far more important right now than what the Fed will do next, or where is inflation, or even which regional bank is next to go belly up. There’s just over two weeks till that date, and if our leaders can’t come to terms on raising the debt ceiling by then, few will be happy – most especially every other government in the world that issues debt – because the rates they need pay are all based upon what the US pays. Send ours’s higher on a default, and it costs every government elsewhere more. No es bueno.

As I write this Sunday night, the three major US equity futures markets are down a tad, meaning no major news story came out over the weekend to give the market any real direction yet. But then again, the market hasn’t really wanted to make a decision on which way it really wants to move for several months. And along with my opening salvo, above, the weekly DIA chart is trading above its cloud top; the SPY one just a tad above its own; and the QQQ still beneath its cloud top = No definitive confirmed upside breakout for the US equity markets. (And the IWM is still beneath its cloud bottom.)

My goal is to not only keep you abreast of what’s happening across the major asset classes, but also to help you best navigate the markets. I’ll again mention what I said to you last week: There is little reason to employ new risk capital now; the more important goal is managing your current investment and trading portfolios. We see almost daily that there is no definitive overall trend right now in stocks (and bonds), so deciding to be newly long or short a corporate stock name does not come with an edge. And in my book, no edge = no trade.  It’s that simple.

But I don’t mind trading in the commodity area, because here’s there’s more chance for exploiting what appears to be a bunch of trapped buyers in the silver market.

SLV – Daily

Right now, the SLV June 9th ATM/+$1 higher call spread collects about 38% of the strike differential. I’d like to get a bit more, but the last few days have been sharply lower, so calls have gotten hit hard. If SLV can consolidate at all this week, and we get a chance to sell a rally in the SLV ETF up to the $22.35 to $22.50 level, let’s then sell the SLV June 9th $22.50/$23.50 call spreads for the current bid/offer spread at that time. The credit shouldn’t be meaningfully less than the 38% strike differential, and hopefully it will be a bit more.

Investment Rationale

Stocks saw profit-taking yesterday, though once again, you’d never really know it by looking at the large cap SPX index, where the mega-cap tech names are holding this index up far more so than the equal-weighted SPX (the RSP ETF) or the Russell 2000 index of small cap stocks. They are meaningfully lower than the FANG-y led SPX. Right now, the unresolved debt ceiling issue is the biggest issue overhanging the market, and the closer we get to May 31 with no resolution, the more that investors will be hesitant to commit new capital to the equity market. Personally, I have little intention of doing much at all in stocks until month’s end if this situation is not resolved. A default on US debt is a messy situation all around, and it will affect every debt-issuing government there is.

Yesterday’s DP was getting long June 16th $112/$122.5 call spreads – the former strike being where the stock closed on Wednesday. The stock gapped up yesterday to open at $115.39, and in my view, it would have called for you to buy the $115/$125 call spreads instead. Nonetheless, the stock traded as high as $117.92, which means that the first of two upside targets I posted ($117.44) was already achieved in just hours – instead of days.

GOOGL – Weekly

I assume many of you put the trade on, and the portfolio will P&L this as the adjusted strikes because of the large gap up. I’ll keep you informed as time goes on as how to play this, but do understand that this is already at a place that if it took days or weeks to have gotten to, we’d be taking half off now.  Do as you choose keeping this in mind.

The Michigan Consumer Confidence number is out this morn, as are earnings from energy heavyweights XOM and CVX. Watch for the equal-weighted SPX to continue underforming the large cap-weighted SPX until there is a debt ceiling resolution. 

GOOGL Bullish Opening Trade Signal

View GOOGL Trade

Strategy Details

Strategy: Long Call Vertical Spread

Direction: Bullish

Details: Buy to Open 6 Contracts June 16th $112/$122.50 Call Vertical Spreads @ $3.24 Debit per contract.

Total Risk: This trade has a max risk of $1,944 (6 Contracts x $324) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $324 to select the # contracts for your portfolio.

Trend Continuation Signal: This stock is bullish and we expect this trend to continue.

1M/6M Trends: Bullish/Bullish

Technical Score: 9/10

OptionsPlay Score: 110

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

Please note that these prices are based on Wednesday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

Investment Rationale

After what looked to be a very surprising non-positive reaction to the better-than-expected CPI number yesterday, investors pushed forward over the final 2.5 hours of the trading day to send stocks out higher – but still beneath the high of the day that was made just after the open. The bulls will claim victory – and it was a mild one – but it was a fairly reluctant one. In fact, one of the sentiment figures I watch actually showed less S&P 500 bulls after Wednesday’s session than there were after Tuesday’s close. It’s just another indicator of just how fickle this market remains.

A reminder that the PPI figure comes out this morn at 8:30am ET. Here is the consensus forecast:

One of the names that looks like it could be picking up some upside momentum is Alphabet (GOOGL). To me, there are two important resistance levels within striking distance: 1) the top of the weekly cloud ($117.44) and, 2) where the Lagging Line would hit the top of its cloud in a few weeks ($126.71). As such, let’s look to get long the June 16th $112/$122.5 call spread. It went out yesterday at $3.24 mid, or some 31% of the strike differential. (Though the VIX remains depressed, many names do not have “cheap” calls. The play I laid out is not expensive, but it’s not a bargain either. This is one of the problems when the VIX gets “cheap”, as calls are bought up on any name that looks even remotely promising.) We’ll probably take off some of the trade when/if the cloud top gets tested, and then more if the $126 area comes into play.

GOOGL – Weekly

Investment Rationale

Yesterday was a profit-taking day ahead of today’s CPI release. All eyes are on this critical inflation figure – most especially amongst Fed Chair Powell and crew. The numbers are expected as below in the far right column:

Remember that last month’s OPEC cuts spiked the price of crude oil, and that prior price move has all been given back, so I expect that some will argue that the number may come in higher than what is really relevant now. That may not be the wrong way of looking at things, but stubborn bulls will almost always come up with a reason that the Fed is close to ending their rate hikes and that they’re close to cutting this year. I still don’t think they’re likely to do that this year, and if they are forced to do so because of a problem arises in the system, you can make the case that a rate cut would mean that things are really quite bad, after all.

Though Thursday’s PPI number is not generally as meaningful as today’s CPI figures, if it is way high out of line, it can still be a problem for stock holders.  I suspect, however, that today’s number – if enough above or beneath expectations – will set the stage for the next 100+ SPX point move. And in that event, don’t be surprised if that 2.5% move comes quickly.

Portfolio-wise, the four individual SPY put spreads we have on: June 16th $410; $411; $412; and $413 long puts – all vs. selling the $385 puts against, show up as a single 4 contract $411/$385 trade. Our team is diligently looking into seeing how they can separate them into individual listings.

Also, IF CSX trades down to near $31 tomorrow or Thursday, let’s exit 7 of the remaining 17 long $31/$29 put spreads we have on that expire on May 26th.

The fun and games will be evident in the futures markets today at 8:30am ET when the CPI gets released. It will be interesting to see if the futures will make the 9:30am open become a large gap.

Investment Rationale

Monday was a sleeper of a session, with the SPX having but a 19-pt. range – less than 40% of the 54-pt. range averaged over the past 10 days. Why was it so small? It was likely because most investors are going to wait for the CPI figure on Wednesday before deciding how to next proceed. So, if one doesn’t need to do something now, they’re not. (Hint, hint.)

Where we did see some action yesterday was in the bond market, where UST 10yr. rates moved up another 7.5 bps., for as much as 25 bps. since last Thursday’s low yield at 3.3%. I showed you yesterday that the TNX marked a daily -13 signal last Wednesday, and that occurred at the same time that a prior gap got filled down to 3.305%. As an FYI, there still remains a large upside gap from 3.83% to 3.89%, and a continued move up in rates may very well want to test that.

TNX – Daily

With tomorrow’s CPI number potentially being a major determining piece of data to what the Fed may do in the June FOMC meeting, I can tell you that I am personally not now looking to buy or sell anything new in my own accounts — I am simply continuously managing the positions that I already have on. I see little to no reason to employ new capital when we are at the top of the range, and it seems like it’s a pure flip of a coin to where the next 100-200 SPX point move goes.