Shortly after the open today, I filmed my weekly In The Money segment with Fidelity Investments. Click below to watch and see my notes below the video:
Macro: The SPX has staged a heck of a rally over the last 3 weeks, up about 9% since Sept 24, after suffering a 10% peak to trough decline in the prior weeks from an all-time high. As the market re-tests those all-time highs, investors are faced with a couple of disappointments on the vaccine and therapy front (JNJ & LLY) this week, fear that there will not be another stimulus bill signed before the election, both pushing out the prospects of a steady economic recovery at a time job (re)gains are slowing.
The SPX has clear technical resistance near 3600, the Sept 2nd high and technical support near 3200, the Sept 24 the low, with its 50-day moving average right in the middle near 3400:
If we don’t get a Stimulus deal announced this week between Dems in the House and the WH the likelihood of one happening before the election is NOT great. After that, the focus will be on corporate earnings which kicked off this week so far with bank stocks disappointing and of course any progress on coronavirus vaccines and therapies.
Trade Idea #1
Pfizer (PFE – $37), the company has stated they might have data about the viability of their phase 3 coronavirus vaccine by month-end. two companies working on competing vaccines, JNJ & LLY have this week halted their trials due to the illness of a participant. If PFE does have good data stock probably breaks out above the downtrend towards prior 52 week highs
Bullish Trade Idea: PFE ($37) Buy Nov 37 call for $1.50
-Profits above 38.50
-Losses of up to 1.50 between 37 and 38.50, max loss below
Rationale: this trade idea risks 4% of the stock price, when positive data for its early trials was announced in early July the stock was near $33, any disappointment on late-stage trials and the stock could go back there.
Trade Idea #2
TXN ($154.50) reports Q3 earnings Tuesday after the close. The options market is implying about a 5% move in either direction which is slightly rich to the 3.5% avg move over the last four quarters.
Stock trading at very rich multiple, sales and earnings are only supposed to snap back 8% next year after two consecutive years of losses.
The stock is well ahead of its fundamentals, play for a move back towards the breakout at $140
Bearish Trade Idea: TXN ($154.50) Sell Nov 155 – 160 call spread at $2.30
-Sell to open 1 Nov 155 call at $6.40
-Buy to open 1 Nov 160 call for $4.10
Break-even on Nov expiration:
Profits of up to 2.30 between 155 and 157.30, the max profit of 2.30 if the stock is below 155,
Losses of up to 2.70 between 157.30 and 160 with max loss of 2.70 above 160
VZ Buy 100 shares at $57.35 and sell 1 Oct 60 call at 75 cents.
With a few days to expiration, VZ is up $2, and the short Oct 60 call is offered at 21 cents for a 39 profit, so a gain of $2.39,
How to manage a BuyWrite?
1. close the position and take the gain, sell stock buyback call.
2. Buy to cover short call, leave stock long
3. don’t touch and risk having the stock called away at 60 if there or higher on Oct expiration
4. or roll up, buy to cover short Oct call and sell to open 1 call, maybe Nov 62.50 call at 55 cents, nearly 1% in a month up 5%