CBOE Holdings, Inc (CBOE) operates markets for the trading of equity, index and other exchange trade options. The CBOE also holds exclusive listing rights for SPX options and VIX futures and options. The company’s stock is currently trading around $49.55 in a 52 week range of $29.01-$51.12. The stock has been massively outperforming the market this year adding over 68% to share prices year to date. CBOE is set to report their most recently quarterly earnings tomorrow before the open. The stock is historically strong on earnings day. Over the past 8 quarters the stock has rallied 6 times on earnings day with an average move of 2.2%. Shares of CBOE are also trading above the Ichimoku Cloud, indicating the stock is in bullish territory. We believe that the historical strength in CBOE on earnings and the bullish chart set up provides us with an opportunity for a long in CBOE ahead of earnings.  Currently the options market is implying a move of $2.00 in CBOE by November expiration. Using this implied move we can calculate an upside target of $51.40. Using this upside target we can now set up an options strategy that will have a well-defined risk vs. reward profile and a low initial capital outlay. (more…)

A trader bought 3,000 BRKR Mar 22.5 Calls for $1.20 (18.1 times usual volume) with stock at $20.71
A trader bought 10,000 CBS Mar 60 Calls for $3.60 (5.6 times usual volume) with stock at $59.08
A trader bought 2,000 HNT Dec 32.5 Calls for $0.85 (5 times usual volume) with stock at $30.04
A trader bought 1,000 NVAX Nov 3 Calls for $0.25 (2 times usual volume) with stock at $3.20
A trader bought 1,000 MM Jan 2015 12.5 Calls for $1.35 (3.2 times usual volume) with stock at $7.13

A trader bought 1,300 SFI Dec 12 Puts for $0.25 (4.9 times usual volume) with stock at $12.51
A trader bought 2,655 BMRN Nov 60 Puts for $1.00 (3.5 times usual volume) with stock at $64.59
A trader bought 5,000 FBC Apr 15 Puts for $1.45 (10 times usual volume) with stock at $16.24
A trader bought 29,000 PLCM Nov 12.5 Puts for $2.05 (4.8 times usual volume) with stock at $10.61

A trader bought 10,000 CBS Mar 60 Calls for $3.60 (5.6 times usual volume) with stock at $59.08
A trader bought 2,000 HNT Dec 32.5 Calls for $0.85 (5 times usual volume) with stock at $30.04
A trader bought 1,300 SFI Dec 12 Puts for $0.25 (4.9 times usual volume) with stock at $12.51
A trader bought 2,655 BMRN Nov 60 Puts for $1.00 (3.5 times usual volume) with stock at $64.59
A trader bought 5,000 FBC Apr 15 Puts for $1.45 (10 times usual volume) with stock at $16.24

The market is on a tear—it seems to never go down.  I wake up every morning and check the market, not to see if it is up, but to see how much it is up.  This year the market has been amazing—tearing higher in spite of some strong headwinds, including:

1. Near total dysfunction in Washington.
2. When not dysfunctional, congressional action and inaction hurting the economy.  Just this year, DC anti-economy antics have included sequester, raising of the payroll tax, raising income taxes, the government shutdown, the debt ceiling debacle, and on and on.
3.  Fear of the end of tapering.  And tapering WILL occur.  The question is not “if” but “when”.
4.  Fed uncertainty.  First it was fear of the unknown, in the person of Larry Summers.  Now, it is fear of the known, as Sen. Rand Paul just today threatened to thwart Janet Yellen’s     nomination.
5.  Mediocre earnings reports and numbers out of China (some good, some bad)

Yet the market continues to go up and up—relentlessly.

There is an old saying on Wall Street that applies to strong bull rallies: “The market never goes down!!!——-Until it does.”  Yes, all rallies must end.  The question is when and at what price level. Now or later?  At 1770 or at 2100?

As we approach the end of the year, the market must contend with various year-end hurdles.  Even today, the FOMC concludes its October meeting.  While no changes in policy are expected, the fed could say something that is interpreted as putting tapering back in play.  Clearly, the market would not like that.

As we enter November and December, retail sales become very important.  Many retail stocks are way down this year.  And some experts are predicting weak holiday sales, largely because of the economy-harming dysfunctions noted above.

Many indicators are available to market prognosticators—some bullish and some bearish.  To me one of the most important is that margin debt is at a record-high, over $400 billion. This is not good.  Margin calls often pour fuel on a small correction, turning it into a sharp, quick and painful spike down.

In sum, the market has been amazing.  But all strong upward moves will end at some point. Remember, “The market will never go down!!!——-Until it does.”

Follow me on Twitter @USKOTM

Gerdau SA (GGB) is a Brazilian based seller and manufacturer of steel products. The company’s stock is currently trading around $7.70 in a 52 week range of $5.27-$9.68. The stock has been weak this year with share prices slipping over 14% year to date. Despite the stocks lackluster performance today’s session has seen some very bullish options flows. Early in today’s trading session a trader sold 3,200 GGB Mar 8 puts for $0.80. This is a very bullish order that indicates this trader strongly believes the stock will close above $8.00 on March expiration. The stock also looks good on a chart. Shares of GGB have not traded in bearish territory since late July according to the Ichimoku Cloud and the stock has been in a strong uptrend since Geradau last reported quarterly earnings on August 1^st. We believe that strength in the chart and bullish order flows present us with the opportunity for a covered call set up in GGB. (more…)

Fidelity National Financial, Inc (FNF) is a provider of mortgage, title insurance services and other diversified services. The company’s stock is currently trading around $27.85 in a 52 week range of $21.04-$28.09. The stock has been performing well this year adding nearly 19% to share prices year to date. This morning we have seen some bullish option activity in FNF that indicates traders expect the stock to head higher through March of next year. Early in today’s trading session a trader bought 6,000 Mar 28 calls for $1.45. This block represents volume in FNF 4.5 times the average daily option volume. We take this as a very bullish signal. The stock is also trading well on a chart and has been trending higher since the company reported quarterly earnings on October 25^th. Shares are also trading well above the Ichimoku Cloud with a strongly upward sloping future cloud indicating there can be more upside in FNF. With stock below its 52 week highs we believe the strong chart and unusual option activity in FNF sets up well for a long term bullish trade. We will look at out of the money call spreads in order to reduce initial capital outlay while preserving a great reward potential. (more…)

Crocs, Inc (CROX) is a manufacturer of men’s and women’s footwear that is sold in more than 90 countries worldwide. The company’s stock is currently trading around $13.05 in a 52 week range of $12.00-$17.95. The stock has been massively underperforming the market this year as it has fallen over 9% year to date. CROX is set to release their quarterly earnings report after the close today. Analysts are expecting earnings per share of $0.17 on revenues of $292 million.  CROX has had relatively mixed performance on earnings day over the past 8 quarters having rallied 4 times and sold off 4 times. On average the stock moves 9.7% on earnings day but has sold off over 20% twice in the past 4 quarters. CROX is technically trading in neutral to bearish territory according to the Ichimoku Cloud with the future cloud indicating there can be more downside in store for CROX. With the options market currently implying a move in CROX of $1.30 by November expiration we can calculate a downside target of $11.75. With relatively weak recent earnings day performance and lackluster technical we believe that CROX sets up well for a short ahead of earnings. (more…)

Tech giant Apple Inc (AAPL) is currently trading at $527.40 down around $2.45 in today’s session after reporting a better than expected fourth quarter earnings. The announcement has failed to impress investors and initially sent the stock spiraling as low as $503 in the after-hours session. Despite reporting record iPhone sales earnings per share fell nearly 8.5% over the same quarter last year. AAPL also released guidance for Q1 of 2014 with revenues falling near the high end of their previous estimates. AAPL has been in the news in recent weeks as a new line of iPads and Macs were introduced last week and as activist investor Carly Ichan continues to pressure AAPL CEO Tim Cook for a $150 billion stock buyback. Margins continue to be a concern for AAPL investors as net margins on new product lines introduced last week remain unknown. With uncertainty and the possibility of a buyback or deal with carrier China Mobile it seems likely that AAPL will continue to trade in a range. We will look at a trade setup that can profit if AAPL trades in a range while still giving the stock room higher or lower. (more…)

Diana Shipping Inc (DSX) is a provider of shipping transportation services around the world. Their specialty is dry goods such as commodities and coal. The company’s stock is currently trading around $11.70 in a 52 week range of $6.93-$13.24. The stock has performing quite well this year adding gains of over 60% year to date and over 67% in the past 12 months. Bullish order flows in the options market suggest that this trend could continue as institutional traders are betting on more upside in DSX. Earlier in today’s session a trader bought 2,250 DSX Jun 16 calls for $0.50. This is a $112,500 bet that shares of DSX will trade above $16 on June expiration. While this trader is betting on long term upside in DSX we believe there is an opportunity for a swing trade in DSX stock. Using the Ichimoku Cloud we will identify a level of support and use that as a stop. (more…)