Adding Some Zest to Our Thanksgiving Investments

You’ll recall, last Thursday we added two new call option positions to the Tematica Pro Select List — the Alphabet (GOOGL) January $800 (GOOGL170120C00800000) calls and the McCormick (MKC) December $95 calls (MKC161216C00095000). Both of these calls opened up . . . and then sold off quickly.

The Alphabet calls fell from $22.20 to $15.90 by the end of last week, before closing last night at $16.25. The McCormick calls were also hard hit, opening well below the $0.87 they closed out last Wednesday at $0.75. As those McCormick calls came under pressure, our $0.70 stop loss kicked in limiting losses on the position to just 7 percent.

Normally we’d be inclined to give the McCormick calls a bit of time to cool off, but as we detailed in yesterday’s Tematica Investing, we’re not only heading into the holiday eating season, which should benefit from consumers flocking back to grocery stores (and lead to us breaking out the holiday sweatpants!), but in all likelihood we will soon hear some  news that this dividend dynamo company will once again bump up its quarterly dividend before too long. That is a potent combination and one that is likely to move McCormick shares higher over the coming weeks and months, which is why we added them to the Tematica Investing Select List. Now today, in Pro, we’re making the following move:

• As such, we are going to dip back into a call option position with the McCormick (MKC) December $95 calls (MKC161216C00095000) that closed last night at $0.60. 
• This time, however, we are going to hold off on applying a protective stop loss to the position. 
• We’d be inclined to buy these MKC calls up to $0.75.

Thematic Tailwinds for Alphabet Still Blowing Like a Winter Storm

Before we move onto a new recommendation that fits with the debut of real wintry temperatures and snowfall with the first winter storm of the season punishing Rochester, NY, we’d remind you that we see no slowdown in the drivers behind Alphabet’s business. Rather we see the accelerating shift toward digital shopping benefitting Alphabet’s search and advertising business as well as its Google Shopping offering.

• We continue to rate Alphabet (GOOGL) January $800 (GOOGL170120C00800000) calls a Buy at current levels. Our protective stop loss at $12 remains intact.

Now let’s turn to those wintry temps

Snowfall across the Northeast is poised to make Thanksgiving travel for roughly 49 million Americans far more unpleasant this year. Even though it seems like the mild weather was just here, and it was as evidenced by the second consecutive month over month drop in utility production according to the October Industrial Production Report, old man winter has arrived. According to the National Weather Service, however, cold temperatures and more snowfall are on the way in several parts of the US, which means we are likely to see a pronounced pickup in utility production in November and beyond. We say beyond because a weak La Niña could bring far colder temperatures in the East, especially early in the season according to The Weather Company and the National Oceanic and Atmospheric Administration.

As utility production corrects, shares of the Utilities Select Sector SPDR ETF (XLU) have fallen 5 percent since Election Day 2016 lagging the overall move higher in the stock market over the last 9 days. To us this makes for a well-timed opportunity for which we are going to embark upon a split strategy with the following trades:

• We are adding the Utilities Select Sector SPDR ETF (XLU) January $48 calls  (XLU170120C00048000) that last traded at $0.50 with a protective stop loss at $0.30. We would be buyers of this call option up to $0.65
• We are adding the Utilities Select Sector SPDR ETF (XLU) January $50 calls (XLU170120C00050000) that last traded at $0.14 with no protective stop loss at this time. We would be buyers of this call option up to $0.20

This layered approach allows us to capitalize on any pronounced movement in the short-term for the underlying XLU shares. As we’ve seen in the past, as the cold and snow hit, XLU shares tend to react and that tends to have a pronounced positive effect on XLU calls.

For those wondering why we didn’t opt for calls on any one particular electric utility, the answer is the cold is going to fairly well spread across the US and (and this is the big one) the XLU calls have far more open interest than those for Dominion Power (D) and NEE Energy (NEE). The XLU calls also have a strike date that matches the trade rational timetable, unlike those for PG&E Corp. (PCG) with only December 2016 and March 2017 strike dates.