WEEKLY ISSUE: Putting Some Defensive Calls in Play

WEEKLY ISSUE: Putting Some Defensive Calls in Play

Key Points From This Issue


Given the way the Fourth of July holiday falls this year, we strongly suspect the back of the week will be quieter than usual. For those reasons, we’re coming at you earlier than usual this week. And while we have your attention, Tematica will be dark next week as we recharge our batteries ahead of the 2Q 2018 earnings onslaught that kicks off on July 16.

 With the housekeeping stuff out of the way, let’s get to this week’s issue…


Putting some defensive calls in play ahead of earnings season

With trade, tariffs and uncertainty taking the pole position in investor conversation, which comes as no surprise given that more companies are sharing the negative impact that might result if these tariffs go through. I go through that in far greater detail in this week’s issue of Tematica Investing, which will be hitting your inboxes and the website later this morning.

The nutshell view is we are starting to see companies warn about the potential impact of these various tariffs and right so investors are growing increasingly uncertain about the expected rate of earnings growth to be had in the back half of 2018. With it looking like neither side is going to back down — Commerce Secretary Wilbur Ross told CNBC on Monday that there’s no level on the downside in the stock market that would alter the way President Donald Trump approaches trade – it looks like we are in for an earnings recasting lower that could make what seems like a moderately priced stock market that much more expensive.

To prepare ourselves, we’re going to add two positions to the Tematica Options+ Select List. The first one is a call option on the inverse ETF for the S&P 500 that is ProShares Short S&P500 (SH). Given the timing of the 2Q 2018 earnings season, I’m selecting the August 17 strike date, which will allow us to capture the majority of quarterly earnings reports. Based on the current share price for SH shares and my preference for out of the money calls, I’m utilizing a 30.00 strike price. In sum this means we are making the following trade:

The second trade is also a defensive one in nature, but it is also one that factors in the sweltering temperatures sweeping the country. The National Oceanic and Atmospheric Administration’s Climate Prediction Center has updated their July forecast and more heat is expected for the month ahead over most of the nation.  While some may see that as heading deeper into summer, the reality is many will be facing higher electric bills as they look to keep cool and that has me adding a Utilities SPDR ETF (XLU) call option play to the Select List.

Breaking down the selection process as I did above for the SH call trade, we’ll use the same strike date – August 17, 2018 – but given where XLU shares are trading it means selecting the 53.00 strike price. Putting it all together:


JPMorgan upsizes dividend and buyback program

Last week we added a call potion in JPMorgan Chase & Co. (JPM), the world’s biggest investment bank by revenue, ahead of the Fed’s annual “stress test” results for U.S.-bank holding companies. Last Thursday night, following the results of the Comprehensive Capital Analysis and Review (CCAR) that is part of the Fed’s annual financial “stress tests” JPMorgan announced it would boost its quarterly stock dividend to $0.80 per share from $0.56 cents and authorized gross common equity repurchases of up to $20.7 billion from July 1, 2018 to June 30, 2019. That dividend hike is in line with expectations for a 3.0% dividend yield at or near the current share price.

While the JPM calls have traded off with the market, we expect the company will deliver a favorable earnings report on July 13 as it discusses this latest move to return capital to its shareholders.


Sticking with our media call plays

Recently, Walt Disney (DIS) upped its bid for assets of Twenty-First Century Fox (FOXA) and last week the Department of Justice made its sign-off official on Disney’s $71.3 billion of those assets, which provides for the divestment of 22 Fox regional sports networks within 90 days after closing the deal. It was then announced Disney and Fox would each hold a special meeting on July 27 to hold a definitive shareholder proxy vote to approve the transaction.

I continue to think the bidding war is not yet finished, and while I see Fox’s assets offering many synergies with Disney, I will monitor how far Disney is willing to stretch to win the deal. Here’s the thing – if Disney wins the bid, it means Comcast (CMCSA) loses; if Comcast surprises with a new winning bid, it means Disney loses. Either way, the race to add content is on and it likely means additional M&A activity will soon be had. For that reason, we are keeping our AMC Networks (AMCX) and Discovery (DISCA) call options in play. I am, however, boosting our stop loss on the AMC Network call options to 2.00 from 1.25. In sum:


Weekly Issue / Trade Alert: A New Put Play as Kids Stop Playing with Toys

Weekly Issue / Trade Alert: A New Put Play as Kids Stop Playing with Toys

Key Points from this Alert:

  • We are adding the Mattel (MAT) April 2018 13.00 put (MAT180420P00013000) that closed last night at 0.50 to the Tematica Options+ Select List. We are setting a buy stop order at 0.30 to limit potential downside associated with this trade.
  • Given spillover concerns for Toys R Us and the findings in the February Retail Sales Report, we are keeping our short trade in Target (TGT) shares intact.
  • We are also adjusting our buy stop order to $75 from $80.
  • We continue to have a Buy rating on GSV Capital (GSVC) Jun 2018 10.000 calls (GSVC180615C00010000) that closed last night at 0.65.
  • We continue to have a Buy rating on microcap Cashless Consumption company MoneyOnMobile (MOMT).


As I alluded to in yesterday’s weekly issue of Tematica Investing, volatility remains with us, stoked by investor concerns over a potential trade war with China. My perspective remains unchanged as I see this as more saber rattling on the part of President Trump to negotiate new trade deals.

Over the coming days, as attention is refocused on the Fed’s next monetary policy meeting that concludes next Wednesday, I expect the investment community will be parsing even more closely comments to be had from new Fed Chair Jerome Powell on the economy, interest rates, and how the Fed has updated its view on tax reform benefits and a potential trade war. While we may see a calm day or two between now and next Wednesday, odds are we are far more likely to see the recent market choppiness continue. This can make for a challenging market for stocks in the short-term, and even more so for options, particularly call options.


Adding a put play on Mattel

Today, we are adding a put option on the shares of beleaguered Mattel (MAT). As I pointed out in yesterday’s Tematica Investing, Mattel shares are staring down the bankruptcy of a key customer – Toys R Us – and the likely liquidation will cause problems for other key customers, such as Walmart (WMT) and Target (TGT). We’ve seen this before with Nike (NKE) and Under Armour (UAA) when Sports Authority went out of business.

The second challenge Mattel is facing comes from our Connected Society and Content is King investment themes in the form of digital entertainment and gaming that are replacing traditional action figures, dolls, board games and related items. It seems this is not lost on Wall Street as MAT shares have been racking up downgrades following Toy Fair 2018, one of the preeminent events in the toy industry. In my view, the comments from the analyst at D.A. Davidson summed up what many saw from Mattel at the event – “We came away from MAT’s analyst meeting and Toy Fair booth with no incremental positive data points.”

With Toy Fair 2018, a key event for the toy industry, behind us by several weeks, we are in a no man’s land for toy sales at least until Disney’s next Avenger’s movie hits theaters in late April. That leaves few positive surprises to offset the potential negative to be had by Toys R Us going belly up. Given prospects for greater harm in the near-term, I’m adding the Mattel (MAT) April 2018 13.00 put (MAT180420P00013000) that closed last night at 0.50 to the Tematica Options+ Select List.

For those wondering why Mattel vs. Hasbro (HAS), Hasbro has the licenses for Star Wars and several other high profile properties as well as a dividend stream that should help support the shares. By comparison, Mattel has arguably dated franchises (sorry to say that to all you Barbie fans out there) and no dividend.

As I put this put option into play, I’m setting a buy stop order at 0.25, which will contain any potential losses should the rumor mill begin chatter of a bid to save Toys R Us.


Remaining bearish on Target shares

Given my comments on the spillover to be had from Toys R Us as well as the findings in the February Retail Sales Report that showed sales at general merchandise stores like Target falling month over month. The same report also showed continued year over year declines at sporting goods stores during February. In keeping with our bearish thesis on Target shares, as well as our bullish one on Amazon (AMZN), nonstore retail sales rose more than 10% year over year in February and also by more than 10% year over year for the Dec. 2017-Feb. 2018 period – both were more than double comparative results for retail and even more so vs. general merchandise stores for the same periods. In my view, this confirms that consumers continue to migrate toward digital shopping rather than wander the aisles at Target stores and others.

In short, I see more pain ahead for TGT shares, which have already fallen more than 5% since put the position into play a few weeks ago. This is leading me to move our buy stop order for this short position to $75 from $80, just above our $74.66 entry point for this short trade.

  • Given spillover concerns for Toys R Us and the findings in the February Retail Sales Report, we are keeping our short trade in Target (TGT) shares intact.
  • We are also adjusting our buy stop order for this short trade to $75 from $80.


GSV Capital reports its December quarter – what does it mean?

On Tuesday night GSV Capital, an Asset-Lite investment theme company that invests in private technology companies reported its December quarter results with EPS smashing through expectations even though its revenue slightly missed expectations. Candidly, the December quarter saw a lot of fine tuning in the investment portfolio, but also the adoption of a lower management fee structure by the company as well as efforts to streamline its investment portfolio and investment focus. In my opinion, this is a positive step that should lead to better returns and greater earnings to GSV’s bottom line.

The key driver to our thesis on the shares is the monetization of its Dropbox and Spotify shares as well as the potential for its largest holding in big data company Palantir to go public in the coming quarters. While GSV didn’t spill the beans, it reminded us that Spotify will hold its Investor Day today ahead of going public in late March or early April. Also this week Dropbox announced a price range for its pending IPO of $16-$18.

All in all, the timetable for these IPOs rest well within the June expiration for our GSV Capital (GSVC) Jun 2018 10.000 calls (GSVC180615C00010000).While the underlying shares are trading off in response to the quarterly report, I expect the focus to return to the windshield instead of the rearview mirror following Spotify’s analyst meeting and as these two transactions move closer to reality. If one is successful, we should see a nice move up in the net asset value (NAV) for GSV’s investment portfolio, which stood at $9.64 exiting December. If both IPOs are successful, then we are likely to see a more pronounced move in GSV’s NAV, which should boost the underlying share price for our GSV calls.



Later this week the Utilities Select Sector SPDR ETF (XLU) March 16, 2018 54.00 calls (XLU180316C000540000) will expire. Unless you have several thousand of these calls, odds are it will cost you more to trade out of them than simply letting them expire. My advice is to do the latter. Win some, lose some as they say and this winter season despite the record cold, our trades on XLU shares did not pan out for us this year.

With MoneyOnMobile (MOMT) shares, it has been a quiet week following the LD Micro Virtual Conference. That said, there was a good article on the company and the opportunity to be had in India that ran on PaymentsSource, which you can find here.Of particular note, CEO Harold Montgomery reiterated the timetable for MoneyOnMobile to move into profitability later this year. The larger opportunity as well as the transition into the black, keep my Buy rating intact on this microcap Cashless Consumption play.



Housekeeping and adding a heavy truck supplier option play

Housekeeping and adding a heavy truck supplier option play



  • We are issuing a Buy on the Cummins (CMI) March 2018 170 calls (CMI180316C00170000)that closed last night at 2.15. As we add these calls, we’ll set a protective stop at 1.25, and as the calls move higher I’ll raise that stop loss level.
  • We are issuing a sell on the ProShares Short S&P500 (SH), ProShares Short Russell2000 (RWM) and ProShares Short Dow30 (DOG) ETFs.
  • Because it will cost more to trade out of the Utilities Select Sector SPDR ETF (XLU) Feb. 16, 2018, 54.00 calls (XLU180216C000540000) than subscribers will see in returned capital, subscribers should let these XLU calls expire on Friday.


Yesterday, I shared my initial take on how the market herd knee-jerk reacted to the January Consumer Price Index report and as the day’s trading wore on moving from losses to gain it seems the herd once again saw the light. Over the coming days, we’ll get several other economic reports, but it was this CPI report that had the stock market on pins and needles. With that report passed, the market breathed a sigh of relief as it looks like the Fed may stick with just three rate hikes this year…. At least right now.

This morning, we’ll get the January Producer Price Index, and odds are much like the January CPI report energy costs – read that as oil, gas and fuel – will have increased dramatically. As I explained this yesterday, we’re already seeing oil prices retreat as inventories build and more U.S. capacity comes on stream, and I suspect the market will see through the January PPI report.

With this behind us, we’re apt to see the market move higher albeit at a more measured pace than we’ve seen in 2017. As such, we’re going to trade out of the inverse ETF positions that we’ve held onto and served us well this month as the market gave back much of its gains.

  • We are issuing a sell on the ProShares Short S&P500 (SH), ProShares Short Russell2000 (RWM) and ProShares Short Dow30 (DOG) ETFs.
  • As we close these positions out, we’ll record a mix of meaningful short-term and long-term losses that we’ll apply to other positions on the Tematica Investing Select List as well as here at Tematica Options+


Adding a heavy truck supplier play to the fold

Earlier this week, I added shares of heavy truck manufacturer Paccar (PCAR) to the Tematica Investing Select List given rising freight costs due in part a national truck shortage as well as prospects for a firming domestic economy that is driving freight tonnage higher. As much as I would like to follow through with a call option recommendation to positions on the Select List, it’s not always a smart thing to do, largely due to the lack of trading volume for the corresponding options.

In the case of Paccar, the vast majority of the call options trade single digit volumes most days. That level of volume, or more correctly that lack of volume, makes it a very dicey situation to trade and tends to give rise to very wide bid-ask spreads that can make it a challenge to achieve a profitable trade. The same is true with Rush Enterprises (RUSHA), the largest dealer of commercial truck vehicles in the U.S. and one that counts Paccar as a key supplier.

This had me looking into the heavy truck industry supply chain, and one of those key suppliers is Cummins Inc. (CMI), which competes in the diesel and natural gas engines and engine-related component products for the truck markets in the U.S., China and Brazil markets as well as power generation applications. The market indigestion has weighed on CMI shares to $166 as of last night’s market close from just under $193 in late January.

Much like the PCAR share on the Tematica Investing Select List, the opportunity to be had from the mismatch between heavy truck demand and Cummins’ share price is more than favorable in my view. Unlike PCAR shares, the call options associated with CMI shares are far more liquid by comparison. Cummins reported better than expected December quarter results and guided 2018 in-line with consensus expectations even as it offered its view that domestic heavy truck engine shipments would grow 20% year over year.

In the next few weeks, the Cummins management team will present at the Barclays Industrial Select Conference 2018 and soon after we’ll get the flash heavy truck order report for February. Both events should be a positive for Cummins business, and serve as a catalyst for the currently oversold shares.



Later this week our Utilities Select Sector SPDR ETF (XLU) Feb. 16, 2018, 54.00 calls (XLU180216C000540000) will expire – my advice is given the sharp fall and nearly zero value currently attached to them let them expire. It will cost you more to trade out of these call options than odds are the capital you will get back. Let’s be smart here and do the prudent thing.



Weekly Issue: Taking an alternate track to gain exposure to several expected 2018 IPOs

Weekly Issue: Taking an alternate track to gain exposure to several expected 2018 IPOs



As we look back on 2017, there were 160 initial public offerings (IPOs), up from 105 in 2016. While there were several successful IPOs over the last 12 months — like Roku (ROKU), which soared 133% — most tend to leave a bitter taste in investors’ mouths.  Blue Apron (APRN) and Snap (SNAP) are still fresh in the market’s memory. I’ve been critical of both companies and their shares over the last several months, so I will take a mini-victory lap of sorts on both. Of course, as we’ve all learned, it’s always best not to focus too much backslapping on what was.

As we look ahead, one area to examine is the IPO market in 2018. Even though we’re just a few weeks into 2018, we are already hearing about the companies lining up to become publicly traded entities in the coming year. One list formulated by MarketWatch suggests some likely 2018 IPO candidates include:

  • Docusign, a company that developed technology to manage digital documents and signatures;
  • Smartphone company Xiaomi;
  • Sports merchandise company Fanatics;
  • Streaming music service Spotify, which has filed with the Securities Exchange Commission for a direct listing instead of an IPO. With a direct listing, the company wouldn’t raise any money and use no underwriters to sell the stock, which equates to a less expensive going public transaction that doesn’t dilute existing shareholders;
  • Biotech company 23andMe;
  • Online storage company Dropbox.

Those are the likely candidates for IPOS. The MarketWatch article also shares some “long shots”, like Pinterest and big data company Palantir Technologies, which is backed by Peter Thiel and the Central Intelligence Agency’s venture capital arm called In-Q-Tel.

In the interest of full disclosure, I use both Spotify and Dropbox, and I have to say they are both great and worth every dime.

In reviewing that list of candidates and long shots, we find that three of them — Spotify, Dropbox and Palantir — are top five holdings at GSV Capital Corp. (GSVC). The company describes itself as a publicly traded entity “giving growth equity investors access to the world’s most dynamic, VC-backed private companies.” In short, it’s a public company that invests in private companies and looks to monetize its portfolio of holdings through either an IPO or other strategic exits such as an acquisition.

A full list of the company’s top 10 investments can be found here, but if were to aggregate the investments, we would find that roughly 35% of its portfolio is centered on cloud computing and big data. Those are two heavyweights inside our Connected Society and Disruptive Technologies investing themes.

Exiting the third quarter, GSV’s portfolio contained net assets of $209.4 million, or $9.69 per share, yet GSVC shares are currently trading at a deep discount. The key for GSVC shares will be the company’s ability to successfully monetize its investments, and with both Spotify and Dropbox going public, that looks increasingly likely over the coming months. Historically when holdings in GSV’s portfolio go public, it drives the company’s overall net asset value higher especially when those going public companies have been higher in profile like Spotify and Dropbox. As we saw in 2012, 2013 and this year, the shares tend to move in tandem with its more notable holdings, which included Facebook (FB), Twitter (TWTR) and Snap.

I know from experience, the road from filing to become public to becoming public can be fraught with several up and downs, most notably with the IPO price talk — and not all IPOs “work out.” Remember, I was rather critical of Blue Apron (APRN) and those shares cratered during 2017 and have fallen even further in 2018. I see Dropbox benefiting from the growing use of cloud and web-storage, while Spotify continues to benefit from the shift to streaming services as it monetizes its platform across its growing base of 70 million subscribers.

With the news that both Spotify and Dropbox will go public this year, GSVC shares have soared 42%, which is one reason why I’ve held off adding them to the Tematica Investing Select List… for now. I do see the follow-on IPO news driving GSVC shares incrementally higher in the coming months, especially if the two transactions are deemed “hot” IPOs. This should drive GSVC call options dramatically higher along the way.

Factoring in likely IPO timetables:

  • We’re adding the GSV Capital (GSVC) Jun 2018 10.000 calls (GSVC180615C00010000) that closed last night at 0.63.
  • Note these calls have a wide berth about them between their bid/ask spread, which means using a limit order instead of a market order. Subscribers should be looking to buy the calls up to 0.85.
  • Given that wide spread, we’ll hold off with a stop loss recommendation for now, but will look to add one as the calls move higher.


Continuing to hold with our XLU calls

Over the last five days, our two Utilities Select Sector SPDR ETF (XLU) call positions – the XLU Feb. 16, 2018 54.00 calls (XLU180216C000540000) and the XLU March 16, 2018 54.00 calls (XLU180316C000540000) were little changed. As we saw in yesterday’s December Industrial Production report, Utility output jumped 5.6% month over month as the initial impact of the cold winter weather was felt. Following that news, XLU shares have started to reverse the downward course they have been on in the recent past.

Earlier this month, the country was gripped with record or near-record low temperatures and that likely mean another jump in utility production as people crank the heat in their homes to stay warm. We’ll see that in the January Industrial Production report that lands in mid-February.

One potential strategy is to sit back and be patient with the two XLU call options we have in place. Another one would be to use the recent sell off in XLU shares to our advantage and add a third call option position – another layer if you will. From the looks of the forecast offered by the National Weather Forecast, it looks like we will continue to see relatively cold temperatures across the US in the upcoming weeks.

Putting that together, I am adding the XLU March, 16 2018 51.00 calls (XLU180316C00051000) that closed last night at 1.00 to our active trading positions. As we do this, let’s set a stop loss of .50, and plan on increasing it as the calls move higher. Subscribers should not look to acquire this new XLU call past 1.40, and should continue to hold their existing XLU Feb. 54 calls as well as the XLU March 54 calls.

As CES 2018 ends, we are booking a big OLED win

As CES 2018 ends, we are booking a big OLED win

Key Points from this Issue:


CES Buzz Around OLED’s Leads to Big Rally in Universal Display Calls

Coming into this week, I was very focused on the catalyst for our Universal Displays (OLED) January 2018 $170 calls (OLED180119C00170000) that was CES 2018. As I shared in yesterday’s issue of Tematica Investing, the annual tradeshow didn’t disappoint as there were more than several organic light emitting diode (OLED) TV announcements to be had from Sony (SNE:NYSE), Samsung and LG. The takeaway is that 2018 is the year for OLED TVs to go mainstream, a sharp reminder that shares of Universal Display are being driven by more than just Apple, the iPhone X and purported 2018 iPhone models.

These TV announcements popped Universal Display shares nearly 10% over the last few days, and this sent our Universal Displays (OLED) January 2018 $170 calls (OLED180119C00170000) higher. Even though they closed off some yesterday as the stock market closed lower, the OLED calls finished last night at 23.20, up more than 135% from our 5.00 entry point just over a month ago.

  • With the catalyst that was CES 2018 behind us and Apple not expected to report its December quarter results until February 1, we are closing out this OLED call option position at market open this morning. 



The cold snap didn’t help our XLU calls, but patience is warranted

Given the brutal cold snap that was expected to hit the country last week, as well as the harsh winter storm known as Grayson that buried the northeast in the snow, last week we added a layered call option approach on Utilities Select Sector SPDR ETF (XLU) shares. Historically, cold weather — particularly severe cold weather — tends to lift XLU shares higher. This time, however, that was not the case. Over the last week, XLU shares have traded off 2% and moved into oversold territory, hitting our two XLU call positions hard.

Here’s the thing, with corporate earnings for 4Q 2017 really hitting stride next week we’re apt to hear about weather-related disruptions incorporated into current quarter outlooks. In a few weeks, we’ll get the January Industrial Production report that will show a pick-up in utility activity due to the January cold snap, and that should send XLU shares and our layered call positions higher.

The word with our XLU calls is patience. With that mind, even though we are in the red for now we will continue to hold both:



What’s next?

As I mentioned above, we’re heading into the quarterly maelstrom that tends to be quarterly earnings. As we’ve seen in the past, sometimes it can start of with a bang, others with a thud. This time around, we’re likely to see more of a bang due to tax reform and solid economic footing, which combined should lead more companies than not to boost their respective EPS outlooks for 2018.

Next week also brings the December Industrial Production report, an indicator that is closely correlated with truck demand. Manufacturing industrial production data for the September-October period was positive – quite a different picture compared to the prior months – and should we see that again in December, it would be the confirmation I need to get long on some Paccar (PCAR) calls. More on this as the data is had.



Getting ready for CES and baby it’s cold outside!

Getting ready for CES and baby it’s cold outside!

Key Updates In This Issue:

Welcome back active thematic traders! We’re a few days into the new year, which means we’ve got some catching up to do as well as a new call option trade recommendation to share given the cold snap that is covering much of the country.


Getting caught up

This week we are back in the saddle as we put the year-end holiday season into our rear-view mirrors. On Tuesday, I shared my thoughts on what I’ll be watching this month in this week’s Monday Morning Kickoff and expanded a bit further in yesterdays’ Tematica Investing, where I boosted several price targets for positions on the Tematica Investing Select List.

It’s been a little bit since our last Tematica Options+ missive to you and that means we should first revisit the active positions we had heading into the holidays. The news, I’m afraid, is bittersweet. On the one hand, our Universal Displays (OLED) January 2018 $170 calls (OLED180119C00170000) are doing rather well, closing last night up 29% from our December entry point. As I shared in yesterday’s Tematica Investing, next week we have the annual technology trade show, CES 2018, and organic light emitting diode TVs should be in abundance and odds are we’ll see a few smartphone announcements as well. Even ahead of the event, I’m now hearing that Apple (AAPL) could introduce an iPhone XPlus model with a larger screen compared to the iPhone X, and yes it will feature an organic light emitting diode display. The bottom line is we have a few weeks to go until our January OLED options expire, and we will continue to keep the position in play at least until the news from CES 2018 is digested.


As I mentioned, the update news is bittersweet and that was the sweet part. The bitter part is we were stopped out of both the Amazon (AMZN) January 2018 $1200 calls (AMZN180119C01200000) and the Applied Materials (AMAT) January 2018 $55 calls (AMAT180119C00055000) last Friday. For those keeping score, they generated returns of -56% and -78%, respectively. I’m not pleased with that, especially given the rebound in both AMZN and AMAT shares this week, but the glass is half full view is we were stopped out right at the end of 2017, which means we can use those losses to offset gains from the 10 positions that returned in the range of 60% to 393% during the last four months of the year.


Adding XLU calls ‘cause baby it’s cold outside

One of the common topics across the news these last several days has been the cold temperatures that have hit much of the country setting dozens of daily record lows along the way. As bad as it has been, it’s poised to get even worse as arctic cold air is set to keep the cold outbreak intact across the Plains, Midwest, South, and East into the end of this week. Based on reports, we’re likely to see more daily record lows with wind chills sending temperatures to dangerously cold levels. At the same time, the Northeast is preparing for winter storm Grayson that will feature heavy snow and blizzard conditions. As Grayson makes its way north it is leaving a trail of snow and ice in the South.

When it gets cold outside, people turn up the heat plain and simple and that is leading me to once again add a call option play on the Utilities Select Sector SPDR ETF (XLU). With XLU shares back in oversold territory and temperatures hitting new or near new record lows, we’re adding the Utilities Select Sector SPDR ETF (XLU) Feb. 16, 2018 54.00 calls (XLU180216C000540000) that closed last night at 0.19 and the Utilities Select Sector SPDR ETF (XLU) March 16, 2018 54.00 calls (XLU180316C000540000) that closed last night at 0.39.

This layered call option approach means we’ll get at least two Industrial Production reports that should show a pickup in utility output due to the current cold temps. We’d be buyers of the February XLU calls up to 0.30 and buyers of the March XLU calls up to 0.55. Given the current oversold nature of the underlying XLU shares, we’ll hold off adding stop losses for these two positions for now, but as they climb higher we’ll look to add them.


UA Calls Kill It This Olympic Season

Yes, for the second time in a week we’re coming to you with a special trading alert for one of our option calls. This time, it’s for the Under Armour (UA) calls we issued a buy recommendation on last week. 

If you’re like us here at Tematica then you’ve been enjoying the Olympic coverage and yes, we too don’t understand the green water in the diving well. Better not to ask!

While we’ve enjoyed the games, we’ve also seen a signifiant move in the Under Armour (UA) January 20, 2017 (UA170120C00045000) calls that are on the Tematica Pro Select List. Those same UA calls closed last night at 2.40, 80% higher than our buy-in on August 4th. When we see pronounced moves like that, particularly given that we are entering a slow season for the stock market, we want to be opportunistic.

That means we are selling half the UA call position, but keeping the other half in play to benefit from both the current Back to School spending season as well as the year-end holiday shopping season. Between these two events, Under Armour should be bringing a wide range of products to market, including more footwear and the launch of its sportswear line.

As you trim back your UA call position, be sure to put a protective stop loss in place at $2.00, which is where we will be placing ours on the Tematica Pro Select List. At that level, if the stop is triggered it should lock in roughly a 50% gain on the remaining calls.

Recap of Actions from this special alert:

  • Issuing a Sell on half the position on Under Armour (UA) January 20, 2017 (UA170120C00045000) that reached 2.40 yesterday, locking in an 80 percent return.
  • We are keeping the other half of the position; however we are boosting our protective stop from 0.80 up to 2.00, thereby locking in a 50% gain on the remaining calls.
Taking Some Profits on A Hyuuuuuuge Move in our Back to School Delivery Calls

Taking Some Profits on A Hyuuuuuuge Move in our Back to School Delivery Calls

Yesterday we issued a Buy rating on United Parcel Service (UPS)  UPS September 2016 $112 calls (UPS160923C00112000). We added the calls to the Tematica Pro Select List soon after the market open, but an hour after the market opened, the calls started to climb higher. At the close of trading yesterday, the calls reached 1.00, up more than 65 percent.

UPS Call ChartWhen we see such moves, we are inclined to hang on for more, but we are also reminded of the ol’ Wall Street adage — “Bulls make money, bears make money, but pigs get slaughtered.”

As such, we are selling half the call position, and keeping the other half in tact as we move deeper into Back to School spending. While it may be rather obvious, we would not commit new capital at current levels, and given the sharp pop, we are boosting our protective stop to 0.80 from 0.35. At the new level, should the stop loss be triggered, the remaining calls will lock in a profit of roughly 33%.

Another Move that should deliver on Back to School Shopping

Another Move that should deliver on Back to School Shopping

Key Points from this Alert

In last week’s Tematica Pro we added two call option plays for the Back to School shopping season. These were our Consumer Discretionary Select Sector SPDR Fund (XLV) September 16, 2016 calls (XLY160916C00082000) and Under Armour (UA) January 20, 2016 $45 (UA170120C00040000) additions, both of which closed last night essentially unchanged from where we added them last week. As you may recall, clothing and accessories, as well as footwear are expected to be in high demand this Back to School season, and those positions offer us ample exposure.

With Back to School shopping getting into gear over the coming weeks, both of those call options remain Buys at current levels. Our protective stop losses remain intact as well.


Another Move that should deliver on Back to School Shopping

As we’ve shared over the last few months in Tematica Investing, particularly when discussing our Amazon (AMZN) shares, we’ve seen a pronounced pick up in the transition to online and mobile shopping. As you more than likely know, this means ordering through a Connected Society device, such as a tablets, smartphone or even a computer, with your parcels showing up a few days later. This, of course, has been a boon to United Parcel Service (UPS) shares especially as it’s become clear that Amazon is not going to replicate UPS’s vast delivery network, but rather incremental capacity to meet its growing logistical needs.

Another confirming data point was found in this year’s back-to-school sales forecast from retail consultant Customer Growth Partners (CGP). Per CGP, back-to-school sales this year are expected to climb 3.3 percent to $540 billion (the back-to-school shopping period is defined as July through September). Digging into the data, online sales (roughly 18 percent of overall back-to-school sales) are expected to grow far faster, 11 percent year over year, meaning this area once again will take consumer wallet share. Much like we do, CGP expects Amazon to be a strong beneficiary, with the company accounting for “at least a quarter of back-to-school’s projected $17 billion rise this year.”

This bodes extremely well for UPS shares over the coming weeks and as such we are adding the following to our list:


On Friday, we’ll get the July Retail Sales Report, which could show some pull-forward in Back to School sales. We’ve noticed in recent outings to Costco Wholesale (COST) and Target (TGT) that the season items associated with Back to School spending were out in full force, and the schools in our area aren’t back in session until the week before Labor Day. Inside the report, we’ll be looking at the various line items, such as those found under Clothing & Clothing Accessories for our UA and XLY call options, while for our UPS calls the nonstore retailers will be the one to watch.

One interesting fact on all of these tax-free shopping holidays that have cropped up and coincided with Back to School shopping: Kansas, North Carolina, Nebraska, Rhode Island and Wisconsin are among the states that have decided against holding new tax holidays or reinstating them during the last few years. The reason according to the Institute on Taxation and Economic Policy, or ITEP, a nonpartisan think tank, is they will be saving money. ITEP estimates that state and local governments that retain the holidays will lose out on more than $300 million in revenue due to the holidays this year. Those losses in revenue come as states are also poised to see aggregate tax revenue growth below 4 percent this year, down from 5.5 percent in 2015, according to Moody’s Investors Service.

If you’re wondering if you are in one of those 17 states where you can shop tax free for Back to School, click here to find out.


VIX chart


A few weeks ago, we cautioned that as the frequency of June quarter corporate earnings slowed, we would be entering a seasonally weak time for the market. It seems that once again, the financial media is catching up to our way of thinking — this headline “Traders bet on another late-August volatility spike” appeared on CNBC.com yesterday, with the gist of the story being that if the Volatility Index (better known as the “VIX”) was below 12 in August, “there was almost a sure bet that the VIX will be higher three months out by more than 6 percent with a fair possibility of an outsized move.”


While the VIX closed last night at 12.05, it’s spent some time below 12 thus far in August. With a few weeks left to go, we’ll continue to keep an eye on the VIX, but with the market at increasing stretched valuation levels on expectations now for a dip in 2016 S&P 500 earnings year over year, we’ll continue to keep the inverse ETFs that are SH, DOG and RWM shares on the Tematica Pro Select List.

Apple’s Newest Business Isn’t at All What You Would Expect 

Apple’s Newest Business Isn’t at All What You Would Expect 

On Apple’s June quarter earnings call CEO Tim Cook shared expectations for the company’s Services revenue “to be the size of a Fortune 100 company next year.” We like the move into subscription services that generate recurring revenue and predictable cash flow, but we tend to doubt Apple Energy will share in those favorable characteristics. We’ll keep watching to see if this initiative becomes something of size to qualify Apple for our Scarce Resource investing theme.

Filings for Apple Energy list several assets, including a 130-megawatt solar farm near San Francisco, a 50-megawatt facility in Arizona, and another 19.9 megawatts in Nevada.

Rather than selling to the public, Apple is believed to be using Apple Energy simply to sell excess power to public utilities, helping to offset the cost of running its infrastructure. When and where possible, Apple uses solar as a primary source of “green” power for offices and datacenters.

Source: Apple Energy gets federal approval to sell power into wholesale markets