On Friday’s Options Action on CNBC I detailed a bearish trade idea in the Nasdaq 100 etf (QQQ). As part of the broader tech discussion I updated my prior near term bullish view in Microsoft (MSFT), a trade idea that I closed on Friday (here).
Mike Khouw detailed a bearish trade in Netflix (NFLX) which I included in this post, and he gave quick update on his bullish trade in the Gold Miners etf (GDX) from two weeks ago.
Additionally we discussed a massive long dated bullish trade in General Electric (GE):
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New Trade – $QQQ The CurtainsNew Trade – $QQQ The Curtains
Here is a synopsis of my near term bearish thesis for Tech shares:
The rally in the Nasdaq 100 is becoming increasingly narrow, as the top five holdings (AAPL, AMZN, FB, GOOGL, & MSFT) make up about 30% of the entire index, the top 10 make up 50% and what’s apparent is that fewer and fewer stocks are doing more and more of the heavy lifting. The top five QQQ holdings have nearly $2 trillion in market cap, nearly equal to the remaining 90 stocks. That was a mouthful.
AAPL’s concentration and unnatural sentiment should scare the crap out of investors as it seems few have a care in the world with most every major equity index at or approaching new all time highs. Also, you have a recent resurgence of some bubble stocks (AMZN, NFLX, LNKD & TWTR) while you have under-performance coupled with potentially nasty technical formations in some mega-cap prior market leaders (INTC, MU & MSFT).
TRADE: QQQ ($109) Buy to Open May 108 / 98 Put Spread for 2.00
-Buy to open 1 May 108 put for 2.70
-Sell to open 1 May 98 put at .70
Break-Even on May Expiration:
Profits: gains of up to 8 between 106 and 98, max gain of 8 at 98 or below
Losses: up to 2 between 106 and 108, max loss of 2 above 108
Read more here, and watch discussion from Friday’s show here:
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Name That Trade – $GE: Electric Boogaloo
The largest options trade across single stocks, etfs and index was a massive long dated bullish trade in GE, that was likely a large investor levering an existing position.
When GE was $25.93 a trader paid .52 for 125,000 of the Jan2017 30 /35 call spread to open, spending $6.5 million in premium for long exposure in between $30.52 and $35 on Jan 2017 expiration with a break-even up 18%, and a max gain of $4.48 (17.5% of the underlying stock price) or about $56 million if the stock is $35 or higher, up 35%.
Read more here, and watch discussion from Friday’s show here:
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Netflix (NFLX):
Mike laid out a bearish thesis on NFLX and offered the following trade idea: With the stock around $475, sell to open the April 485/505 Call Spread at $7.50, at $485 or lower you collect $7.50, losses of up to $12.50 between $492.50 and $505.
My View: I agree with Mike’s thesis, but I don’t have a strong view on timing. $500 should serve as very healthy technical resistance near term, and Mike interestingly chose April expiration as it will not catch earnings which should come in late April and serve as the next identifiable catalyst for the stock. If I were to risk $12.50 on a short call spread I may look to really go for it and use that premium to finance the purchase of puts, but that would be a matter of conviction on the bearish thesis and probably a catalyst to get paid, and it seems for the moment Mike is more interested in playing for a consolidation as opposed to an outright collapse of the stock.
Watch here:
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Trade Updates:
Mike and I also gave quick updates of trade ideas in GDX and MSFT from two weeks ago. Mike and Carter are sticking with their bullish view in GDX (watch here).
I closed my bullish trade in MSFT as the stock has lost a little bit of momentum from the lows a couple weeks ago, and the longer the stock sits in and around the long strike in March, with expiration quickly approaching these calls will start to decay and fast. Also I highlighted and impending death cross in shares of MSFT when the 50 day moving average crosses below the 200 day moving average:
If the stock can not establish a new range above $44 this week I will look at trades isolating a move back to $40. Stay tuned for that.
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