With the New Year under way, we find ourselves with a raft of trades to report.
So pour yourself a tall mug of mead and light up a Camel…
Why the goat?
Our first trade was launched in a letter called China at New Highs; Buy China! back on the 1st of June, 2015. It was a very long dated affair that didn’t prove itself in the end. We urged you at the time to trade the Chinese market in bullish fashion, specifically recommending you purchase the FXI January (2017) 51 CALL for $5.20 and sell the FXI June 44 PUT for $0.22, the July 44 PUT for $0.48, the August 44 PUT for $0.81, and the November 44 PUT for $1.56. Total debit on the trade was $2.13
And when all was said and done, we owned the shares and took on quite a bit of water, as we summarized in our March 29th, 2016 letter called The Urban Banking Reversal. See there for details.
As for today, suffice to say that we now bury the hope contained in the 51 CALLs that expired with the inauguration last Friday.
On a related matter, we subsequently wrote a trade on the first of December, 2015 that also played on bullish FXI prospects. The letter was called Why Go to Hell in a Golden Hearse, and there we suggested you add to your already open long FXI January (2017) 51 CALL position … by purchasing two more. They sold at the time for $0.52 each, making for a debit of $1.04 – that we immediately erased by selling two FXI February 33 PUT options for $0.54 each. We ended up with a credit of $0.04 on the deal.
And that’s precisely how it ended. The PUTs expired out-of-the-money eleven months ago and the CALLs breathed their last at the swearing in of Doctor Trump on Friday.
Call it a $0.04 profit – or 100% – whatever makes you feel better.
Moving Right Along…
Our next trade was mailed out on the 11th of October. The letter was called Multiples, Expanding Multiples and the Energy Sector, and in it we recommended you buy one KOL January 12 PUT for $0.90 and sell one KOL January 12 CALL for $0.85. Total debit on the trade was $0.05.
Last week, we sold the CALL in a pre-emptive move that cost us exactly $1.25. That put us underwater on the trade a total of $1.30, and all we had thereafter was the hope that KOL shares would tank and give us something on the PUT.
But it didn’t happen.
KOL closed Friday at $12.85. Had we held the CALL we would have suffered a net loss of just $0.90.
Sometimes that’s the way the cookie bounces.
Before we move into our trade for the week, we want to address an issue that a number of you raised just over a week ago, and that is, our closure of the December 20th trade that matched XLP and XLF in a long/short effort.
You’ll recall that the letter was named The Finale, and in it we urged you to buy the XLP January (2018) 47 PUT for $1.67 and sell the XLF January (2018) 23 PUT for $1.72. Total credit on the affair was $0.05.
After that, things got complicated.
Well, we closed the trade in last week’s missive, Commodity Resurrection, writing as follows –
The XLP PUTs are now fetching $1.53 and the XLFs just $0.52. Sell off the first and buy back the second and you achieve $1.06 on nothing laid out. Again, adjusted for commissions, your return is a giant 607%.
But that wasn’t the way a number of you saw it. In fact, we got quite a few emails from readers worldwide who informed us that the XLF PUTs were still trading in the $1.80 vicinity when they read our advice on Tuesday last.
“Whoa–ho!” we cried at the thought of so egregious an error. How could that have happened?
And we went back to our sources to check the issue.
What turned up surprised us.
On close inspection, you can see the pricing is flawed up and down the PUT chain, and why that happened, BigCharts couldn’t explain to us, though they admitted it was a serious error.
The numbers align, however, with those we offered you to close the trade. Our error occurred in not running our eye up and down the PUT chain to ensure the numbers were valid (a practice, incidentally, that we have never engaged in to date, trusting fully in the data the service has offered us for years).
It’s a screenshot of the market as it closed last Friday, and as you can see, the error in the 23 PUT was corrected.
All of which is to stay that the trade remains open. Ignore the order to close. We’ll be in touch as soon as action has to be taken.
We’re very interested in tech/internet issues, particularly those that have massive market caps, oversize floats and ample liquidity. The biggest of the big, we’re talking, Amazon, Facebook, Alphabet (Google) and Twitter, to name just a few.
Because their post-Trump trajectory was nowhere near as exciting as the rest of the mega-caps. For whatever reason, these names just didn’t attract the buying attention of the Dow’s 30 pachyderms.
And among them all, we find that Alphabet (NASDAQ:GOOGL) has the best technicals today.
As of yesterday, GOOGL broke out to new all-time highs (in red). In general, all-time highs come in packages of eight or ten over a month, so we’re banking on exactly that occurring now.
RSI and MACD are not overbought, either, as they were back in August, for example, when new highs were set (in green).
We believe the stage has been set for a big move in Alphabet stock over the near term.- Content protected for Normandy Executive Lounge, Wall Street Elite, Executive Lounge members only]
GOOGL currently trades at $844.43.
With kind regards,
Hugh L. O’Haynew