Adding the ProShares Short Calls Amid Market Turbulence

In yesterday’s Tematica Investing we touched on the swatch of negative earnings pre-announcements as well as the weak outlook offered by Alcoa (AA). Today we can add Ericsson (ERIC) to what seems to be the growing pile of disappointments. While we opted to tread water with the Tematica Investing Select List, here at Tematica Pro we already have inverse ETFs on the Tematica Pro Select List, but we’re going to add in a layer of call options to the mix. Our thought is to use what is likely to be a volatile period in the coming weeks to our advantage.

• As such, we are adding the ProShares Short S&P500 (SH) November 2016 $40 calls $0.32. 
• We’ll look to acquire these calls up to $0.40, and we will set a protective stop loss at 0.25. 

 

As you might imagine, the addition of these calls infers that the existing ProShares Short S&P500 (SH), ProShares Short Dow30 ETF (DOG), and ProShares Short Russell 2000 (RWM) are all Buys at current levels.

• Our recommendation is subscribers that have no exposure to any of these inverse ETFs add some as the velocity of earnings reports picks up.

We’ve seen wide swings to the downside for those companies that have disappointed and based on the breadth of those companies in terms of industries and customers served, odds are there will be more to come in the coming days. Don’t make us go all Aflac on you to drive the point home… and yes that was sarcasm, but hopefully, by now you know that already.

 

Adding Universal Display calls to the Select List

We recently added shares of organic light emitting diode (OLEDs) licensing and chemicals company Universal Display (OLED) to the Tematica Select List. Following the news that Samsung is killing off its recently introduced Note 7 smartphone that has an OLEDs display, our Universal Display shares fell 7 percent. As we pointed out yesterday, not only is that just one model that uses OLED display technology there is an increasing number of products coming to market from a growing number of vendors. Never ones to let a crisis in the markets go to waste, we’re going to use the Samsung’s misfortune to our advantage.

With the big consumer electronics show, CES 2017 likely to take the wraps off a number of new gadgets that utilize the thinner, brighter and more power friendly OLEDs display technology in early January. Given the expected pipeline and ramp up in demand for OLED’s:

• We’ll add the OLED January 2017 $55 calls that last traded at $2.57. 
• We would buy these OLED calls up to $2.90. 
• Given the volatile nature of OLED shares, which have a beta of 1.06, we’ll set a protective stop-loss at $2.00.

 

Updates

 

Amazon (AMZN)         Connected Society

Last week we trimmed back our position in the Amazon (AMZN) January 2017 $800 calls (AMZN170120C00800000), which proved to be rather fortuitous given the market environment. Even so, we continue to be bullish on the remaining AMZN call position given the growing number of holiday spending forecasts that show a pronounced shift to digital shopping. As these forecasts have rolled in, Cantor Fitzgerald upgraded their price target on the underlying AMZN shares to $1,000 from $835. We’re in the process of reviewing our own AMZN price target for the Tematica Investing Select List, but from a trader’s perspective, we’ll take it as Cantor comes around to realizing the tipping point in digital shopping we’ve been talking about these last several months.

The bottom line is we will continue to hold the remaining AMZN January $2017 call position on the Tematica Pro Select List as we move deeper into the holiday spending season and so should you. The same goes for the Consumer Discretionary Select Sector SPDR ETF (XLY) January 2017 $85 calls (XLY170120C00085000) that count AMZN shares are their largest holding. 

 

Costco Wholesale (COST)         Cash-strapped Consumer

If you read our comments on Costco Wholesale (COST) in yesterday’s Tematica Investing, then you know that last week’s September same-store-sales were rather bullish in our view for the company and for our Costco Wholesale (COST) January 2017 $170 calls (COST170120C00170000). More importantly, the company will open several new locations before our calls expire come January, which bodes rather well for high margin membership fee revenue. Tomorrow brings the September Retail Sales Report, and much like the last several such reports we expect the context and perspective to be had will once again show Costco taking consumer wallet share.

With the calls down modestly from our $0.43 purchase price, we continue to rate the Costco Wholesale (COST) January 2017 $170 calls (COST170120C00170000) a Buy at current levels. 

 

Under Armour (UA)            Rise & Fall of the Middle Class

Last week we double dipped on the Under Armour (UA) January 2017 $50 calls (UA170120C00050000) on the Tematica Pro Select List. With the NBA season upon us and new footwear bearing the Curry brand soon to drop, Wells Fargo (WFC) jumped on the UA bandwagon upgrading the shares to Outperform earlier this week.

We continue to rate the UA calls a Buy at current levels.