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S&P 500
The S&P 500 closed down yesterday 0.5% to 6039.
The next week of earnings from big Tech may decide whether or not the index pushes higher from here.
We would prefer a better entry price and will wait.
SPY financed Bear Put spread expiring Feb 21st
Overview:: SPY closed at $601.81 yesterday. 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 $601.81.
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 $292 ($82+$210) 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 $210 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):
Microsoft (MSFT): Falling! Despite an earnings beat MSFT slipped 4.5% in after hours trading on slightly lower than expected growth in cloud computing.
Meta (META): Rising!. A 1.5% rise after-hours suggests investors liked their latest report. Beat by a wide margin but increase in capex spending in AI probably keeping a lid on things. Zuckerberg is bullish on new US government and AI adoption.
Tesla (TSLA): Rising! The stock was up 4.5% in after hours trading despite another earnings miss. Musk again managed to turn focus onto the future of self-driving cars, robotaxis and robotics.
LAs Vegas Sands (LVS): Rising! This was one of our long term buy and hold stocks from last year. Las Vegas Sands stock price rose after the casino and resort operator posted higher-than-expected revenue in the fourth quarter. Shares climbed 8%, to $46.92, in after-hours trading Wednesday.
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 closed down 0.6% yesterday to 698.
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 $28.24, but we've been flagging some short-term overbought signals. With natural gas prices dropping heavily recently due to warm weather forecasts, 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 fell 3% 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 £6.06, 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.
Hot Stocks: Catch the Reversal Wave!
This list features stocks primed for a short-term bounce! We've identified these potential reversal plays using our proprietary EquityScan criteria. Some we've even traded ourselves recently and are keeping a close eye on. 👀
Here's the deal:
Dive deeper: Use EquityScan to get the full scoop on each stock. We've got detailed commentary and analysis to help you make informed decisions.
Do your own research: Always do your homework before making any trades! Our insights are a great starting point, but it's crucial to conduct your own due diligence.
Ride the wave: With careful analysis and a bit of luck, you could catch these stocks as they turn the corner and head back up! 📈
See the stocks below:
MORN: Proceed with Caution! ⚠️
We've recently traded MORN, but the current setup isn't ideal for entering a new position.
If you're already holding MORN from a previous trade, continue to monitor it closely. However, we don't recommend initiating a new trade at this time.
No Immediate Earnings Risk: Earnings are not expected until February 20th.
Trade Parameters:
Yesterday's closing price: $326.48 (down 1.2% for the day)
We are staying in this trade until either of the following is met:
Profit Target Price: $337
Stop Loss Price: $315
2. BKNG: Proceed with Caution! ⚠️
Booking Holdings (BKNG) caught our eye recently, showing signs of a potential reversal from its recent downtrend. However, we did not trade it and we're not jumping in just yet. Here's why:
Cooling Momentum: The initial bullish push is losing steam, making us less confident about a strong upward move. We've adjusted our profit target accordingly.
If you're already in a BKNG trade:
Yesterday's Close: $4721 (up 0.8%)
We will stay in this trade until either of the following conditions is met:
New Profit Target: $4800 (previously $5000)
Stop Loss: $4135
Keep an eye on it, but remember that market conditions can change quickly!
TLT Short Put: February 21st Expiration
Quick update on our TLT short put position:
Current Price: TLT is trading around $88.01.
Fed Meeting: Did not move bonds or the US much!
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 1.0413. 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.
Yesterday's artificial drop was due to the February to March contract rollover (backwardation). With the RSI now at circa 40, natural gas is looking interesting 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