Recording
S&P 500
The S&P 500 rebounded yesterday after the fall from Deepseek and closed higher by 0.9% to 6067.
Nasdaq (chart below) rebounded by 2%.
We will wait for a better entry price.
SPY financed Bear Put spread expiring Feb 21st
Overview:: SPY closed at $604.52 yesterday. S&P 500 futures are neutral today. Nothing to do today with our positions.
Here's a breakdown of the trade so far:
Original Trade:
Bought $590 put, sold $580 put, sold $560 put (Feb 21st expiry)
Initial credit: $45
Recent Action (Jan 22nd):
Sold the long $590 put for $295
Total credit to date: $340 ($45 + $295)
Current Position:
Holding two short (naked) puts at $580 and $560 strikes.
Profit target: $340 per contract if both strikes above expire worthless on Feb 21st.
SPY is now trading at $604.52.
What's next? We're now benefiting from time decay ("theta") on the remaining short puts. As time passes, their value erodes, working in our favor. There is still $305 ($92+$213) of time value left in both ‘short’ options (this jumped yesterday because of the increase in IV). Each day this value will erode assuming the price of SPY remains above $580 at expiry.
Risk Management Options:
Conservative: Close the $580 short put to reduce risk. This will cost $213 per contract based on yesterday’s closing price.
Active: Hold onto the $580 short put. However, if SPY declines to $590, we can roll the $580 put down to $560 with a March expiry. This lowers our breakeven point and potentially generates additional credit.
My Plan: I'm opting for active management and keeping the $580 short put open for now, monitoring SPY closely for potential adjustments.
Earnings Season
Notables from yesterday:
Some big names made waves after earnings yesterday. Here's a quick look at how a few popular stocks reacted (find full details in EquityScan):
Boeing (BA): Soaring High! Up 1.5% on positive news about 737 production and a strong defense backlog.
Starbucks (SBUX): Brewing Gains. A 1% rise after-hours suggests investors liked their latest report.
Royal Caribbean (RCL): Smooth Sailing! This long-term buy-and-hold pick from last year jumped 12% after a strong earnings report.
General Motors (GM): Stalling Out. A 9% drop signals some concerns from investors.
This is just a taste of the action! EquityScan gives you the full picture on these and many more companies, so you can stay ahead of the curve.
Reporting Today:
Long Term Buy Watchlist
We've identified fundamentally strong companies with long-term growth potential for our watchlist. However, market sentiment can shift, so we're combining technical analysis with our fundamental views to pinpoint optimal buying opportunities. We're also factoring in potential impacts from the new US administration's policies. Here's an update on stocks from our long-term watchlist that we've recently bought or are considering buying soon.
Recent Buys or considering buying soon:
Entain PLC (ENT.L): A Winning Bet, But Mind the Resistance
Entain PLC continues its winning streak, up about 14% since we added it to our portfolio! The stock climbed another 2.7% yesterday, showing strong momentum.
While we see potential for a 38% gain from here, it's approaching short-term resistance levels. This means there could be some price pullback in the near term.
Here's what we recommend:Maintain a 5% portfolio allocation: Don't get overexposed, even with a promising stock like Entain.
Use GBP funds on IBKR: If you're buying on Interactive Brokers, make sure you have British pounds in your account to avoid unnecessary foreign exchange fees.
Entain remains a solid long-term pick, but it's always smart to manage risk and be aware of potential resistance points.
Coterra Energy (CTRA): Riding the Energy Wave, But Proceed with Caution
Coterra Energy saw a slight uptick yesterday, closing at $27.90, but we've been flagging some short-term overbought signals. With natural gas prices dropping another 6% due to warm weather, a pullback is not unexpected after the stock's recent rally.
What's the outlook?Long-term investors: Stay the course! Our $35 price target suggests a 30% upside, and we believe Coterra is poised for strong earnings growth thanks to higher energy prices.
Short-term traders: It might be wise to lock in some profits now.
Coterra remains a compelling long-term play in the energy sector, but short-term volatility is likely. Keep a close eye on market conditions and adjust your strategy accordingly.
JD Weatherspoon (JDW.L): Shares rose 1.54% yesterday. The stock price is showing promising signs, breaking a downtrend and surpassing its 50 day moving average. We believe the stock, currently priced at £6.25, could reach £8.45 within the next 18 months, a potential 37% gain. Despite recent tax pressures in the UK, we see value in JDW.L at its current price.
Here's what you should keep in mind:
Dollar-cost averaging: Spread your investment over time to mitigate risk.
Position sizing: Limit your exposure to a maximum of 5% of your portfolio value.
Currency risk: If you're not a UK investor, ensure you have GBP funds to avoid interest charges on negative FX balances.
Potential Reversal Stocks: Short-Term Trading Opportunities
Key Points:
This watchlist highlights stocks showing potential for a short-term price reversal.
Not all stocks listed have triggered a buy signal yet.
Carefully review the commentary for each stock to understand its current status and potential entry points.
Exercise caution with stocks approaching their earnings announcements in the next few days. Volatility around earnings can increase risk.
We have 4 stocks on the active trade reversal watchlist. See charts below with messaging on each stock.
Removed from Watchlist:
AAPL - no longer fits our criteria.
GEN - No longer fits the criteria.
Stocks remaining on the Watchlist:
MORN: Tradeable with Bullish Signals
MORN is showing positive signs and remains a potential short term trade. Here's why:
Bullish Momentum: The stock has triggered a buy signal with the RSI crossing above 30, indicating increasing momentum.
Trend Reversal: MORN has broken its recent short-term downtrend, suggesting a potential shift towards an upward trajectory.
No Immediate Earnings Risk: Earnings are not expected until February 20th.
Trade Parameters:
Yesterday's closing price: $330.45 (down 0.9%)
Profit Target Price: $337
Stop Loss Price: $315
BKNG: Tradeable with Bullish Signals
BKNG is showing positive signs and remains a potential short term trade. Here's why:
Bullish Momentum: The stock has triggered a buy signal with the RSI crossing above 30, indicating increasing momentum.
Trend Reversal: BKNG has broken its recent short-term downtrend, suggesting a potential shift towards an upward trajectory.
No Immediate Earnings Risk: Earnings are not expected until February 20th.
Shares rose 0.2% yesterday to close at 4684. This may present a good opportunity today.
Trade Parameters (if trade is triggered):
Profit Target: $5000
Stop Loss: $4135
FICO: WAIT - Earnings
Positive Signals:
The Share Price remains above 200 day moving average
Buy Signal given on RSI a couple of days ago.
the stock has stopped making lower lows
Reason to Hold off:
Earnings on Feb 4th
Trade Parameters (if trade is triggered):
Profit Target: $2034
Stop Loss: $1700
DSV: WAIT - Earnings imminent
Why We're Waiting: Earnings next week.
Trade Trigger:
Earnings to pass without incident
A pullback to 1440 level.
Trade Parameters (once triggered):
Profit Target: 1,481 Danish Kroner
Stop Loss: 1,347 Danish Kroner
TLT Short Put: February 21st Expiration
Quick update on our TLT short put position:
Current Price: TLT is trading around $88.19.
Our Position: We sold the $84 put for $100 premium, giving us a breakeven of $83.
Original Goal: We initially wanted TLT to drop below $84 so we could be "assigned" the shares at that price. This would allow us to buy TLT at a discount, anticipating a future price increase.
What's Changed: With TLT currently well above $84, assignment is looking less likely.
New Plan: We'll let the trade expire on Feb 21st. If TLT stays above $84, the put expires worthless and we keep the $100 premium as profit.
In Summary: While our initial plan to acquire TLT shares may not pan out, we're still in a good position to profit from this trade.
EUR/USD Put Option: March 7th Expiration
Here's a summary of our EUR/USD put option trade:
Current Status: The EUR/USD is currently trading at 1.0439. We sold a put option on the March futures contract with a strike price of parity (1.0000) and received a premium of $488. We are now in substantial profit on this trade. This has been an excellent trade!
Profit Scenario: If the EUR/USD remains above parity (1.0000) through expiration on March 7th, the option will expire worthless and we keep the $488 premium as profit. This scenario favors continued USD strength.
Assignment Scenario: If the EUR/USD falls below parity, the option may be assigned. This means we would be obligated to buy EUR/USD at 1.0000. Note: that this is cash settled.
Current Outlook: No action is needed on this trade for now. We will continue to monitor the EUR/USD and assess the situation as we approach the expiration date. We will let Theta work for us.
Natural Gas
Natural gas is back on our radar after a significant dip in recent days!
What caused the drop? Milder weather forecasts and the fallout from Deepseek's potential impact on electricity demand from data centers are playing a role. While some argue this could actually increase demand as AI investment ramps up, the market remains uncertain.
Today's artificial drop due to the February to March contract rollover (backwardation) presents an interesting opportunity. With the RSI now below 40, natural gas is looking attractive again.
Why we're watching:
We believe the short-term outlook for natural gas is positive. Expected storage drawdowns could push inventory levels to lows not seen since 2022, potentially driving prices higher.
This isn't a "buy now" signal just yet, but we're adding natural gas back to our watchlist and will be monitoring it closely for the right entry point.
Any questions?
Call me or book a web meeting.
Happy Investing & Trading
Stephen
Invest with Confidence