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Wednesday, May 17, 2017


Trade #1 - Trex (TREX) 

Buy to open the Trex (TREX) Jun 85 calls (TREX170616C00085000) at $0.95 or lower. After entry, take profits if the stock price hits $81.60 or the option price hits $2.90. Exit if the stock price closes below $71.30.
Remember, if a profit target is hit intra-day, exit and take profits immediately. If the position closes at or below the stop loss, exit the trade the next morning at the open.
Additionally, if a trade has neither hit the stop-loss nor the target within three weeks of entry, close the position. Not recommend holding an option play for more than three weeks.
If possible, pay less than the recommended value. By doing so, you'll save money and make more.
Extra Credit: Profiting from Spreads
Here is the strongest spread candidate for you right now:

Trade #2 - KLA-Tencor (KLAC)

New Ratio Call Debit Spread in KLA-Tencor (KLAC):
Using a spread order, buy to open 1 KLAC June 16th $100 call and sell to open 2 KLAC June 16th $105 calls for a net debit of about $0.95.
A ratio debit spread is simply a way to lower the cost of buying options, as the two options that you sell to open (short) help offset the cost of the option that you buy to open. Therefore, this ratio call debit spread is a way to lower the cost of establishing a bullish call option trade. Many brokers will require the use of margin and/or a set amount of reserved capital to execute a ratio debit spread; contact your broker directly for specific requirements.
Because you are short a naked call in this ratio call debit spread, one risk is that the underlying stock could unexpectedly move up sharply. If that happens, we would need to buy back to cover and close the naked call option for a loss.
The other risk due to the naked call is if the stock moves up sharply the call could be assigned. This means that for every 1 call option we sold to open (shorted), we would need to buy 100 KLAC shares on the open market at an unknown higher price and then sell the shares at the $105 strike price for a loss. So, this is inherently a higher risk play. Keep your positions small.
Exit if KLAC gets up to $105.

Trade #3 - Ally Financial (ALLY)

Auto sales tanked again today, which looks largely priced-in with the big automakers and sellers. However, Ally Financial (ALLY) has lagged the bearish breakout, which we think a very attractive opportunity. The company is incurring rising hedging costs and defaults are becoming a bigger issue. The ongoing decline in sales and car prices is another factor that investors don’t seem to be pricing in yet. John and Wade feel that this has created a dramatic mispricing opportunity that should play out in their favor with a short-term drop to the downside.
‘Buy to open’ the ALLY June 20 Puts (ALLY) for a maximum price of $0.85.

Trade #4 - Las Vegas Sands (LVS)

Better gaming numbers in China and a strong dollar are helping the sector and should support the inverted “head and shoulders” pattern that completed in late April on Las Vegas Sands (LVS). I would like the trade as a very short-term position right now as it approaches 2016’s highs. They recommend remaining flexible if the stock consolidates at $61-62 per share, as that may act as short-term resistance.

‘Buy to open’ the LVS June 60 Calls (LVS) for a maximum price of $1.60.

Trade #5 - D.R. Horton (DHI)

D.R. Horton (DHI) is the largest publicly traded homebuilder in the U.S. The number of homes delivered in fiscal year (Sep) 2016 was 40,309 with FY revenues of $12.2 billion. Management’s expectation is to deliver 44,500 to 46,000 homes in FY 2017, which would be an increase of 10% to 14% over FY 2016.
The average selling price is estimated by Standard & Poor’ to increase by 3.5% to 4% for FY 2017. EPS estimates are $2.75 in FY 2017 and $3 in FY 2018 (S&P). Land costs are not considered a negative factor since DHI stock mostly builds in the Sunbelt region of the U.S. Although these numbers are estimates, a known value is its backlog value which on March 31, 2017 was at $4.4 billion.
S&P’s target price of $38 is based on a forward price-to-earnings ratio of 13.8X FY 2017 and 2018 earnings. This company is the leader in the U.S. building industry and as such may deserve an even higher forward P/E since U.S. Census Bureau trends show that new residential permits are up 17% for March 2017.
Technically, daily charts can be misleading. DHI’s daily looks like a double-top at about $35. However, the weekly chart shows that the recent high at $35 is part of an overall broad bull channel with support at under $30 and resistance at about $38.

There has been recent profit-taking, which probably resulted from the announcement of a 10% tariff increase on Canadian lumber imports. But that increase should, according to analysts, have slight to no impact on U.S. home sale prices, since demand for new construction remains high. Thus, try to buy DHI stock at $31 or lower for a trade to $38 for a proposed gain of over 20% by October.

Trade #6 - Range Resources (RRC)

Range Resources (RRC) is an oil exploration company that drills and develops oil and gas properties in the Marcellus Shale of the Appalachian Basin in the U.S.
For the last two years, RRC has reported losses of $4.29 and $2.75. However, for 2017 Standard & Poor’s predicts that production will grow at between 33% and 35% at current oil/gas price levels, especially in the “super-rich” wet gas areas of the Marcellus, Utica and Mississippi areas.
S&P also projects that overall dry gas could have a 30%-plus lift with exposure to the Gulf Coast. Costs, too, are falling, as noted by a $1M reduction in costs in North Louisiana in Q4.
In 2016, proven reserves increased 11%, and with RRC’s efficiencies any increase in prices could quickly increase drilling, and thus earnings. In late February S&P Capital IQ published a note in which they increased their 2017 EPS estimate to 62 cents from 31 cents and initiated an earnings per share estimate for 2018 of $1.04. Their 12-month price target is $40 per share.
Technically, RRC stock is in a downtrend since topping at over $40 last June. However, both fundamental and technical analyses appear to confirm that a reversal is in progress. A cluster of CBR buy signals from our internal indicator and a recent buy signal from the longer-term MACD indicator could be preparation for a penetration of the 50-day moving average. However, note that this is a “bottom-fisher’s” speculation with higher-than-average risk. The proposed target of $36 would, if achieved, provide a 22%-plus return and thus warrants consideration by speculators.

Trade #7 - Caterpillar Inc. (CAT)

Shares of industrial stock Caterpillar Inc. (CAT) are higher by just about 2% for the year-to-date, and it's hardly in a straight line. While CAT stock rallied about 18% between the election and its February highs, the company has largely struggled since federal authorities raided its offices in early March.
Through a multimonth lens, Caterpillar shares are largely consolidating — and awaiting another catalyst for its next directional move. Of course, Caterpillar's April 25 earnings report could well be the next trigger that investors are waiting for.
Looking at a CAT chart, the initial up-gap and rally following last November's U.S. election results quickly moved CAT stock to the upper end of its uptrending channel. While there were a few more percentage points to be had on the upside in the second half of January, the early December highs were just barely overcome before CAT slipped back lower and back and forth in the blue trading range on the chart.

Since March, Caterpillar is once again trading near the lower end of this year-to-date trading range. This end also coincides with the uptrend support line from January 2016.
The way We see it, there are two moves following the earnings report that would be meaningful enough to merit a reaction from traders and investors (both on a daily closing basis):
  • A break-and-hold below $90
  • A break-and-hold above $99.50
If it's the former, this could lead to an initial move lower into the mid-$80s. If it's the latter, this could lead to a move into the $108-$110 area.

Trade #8 - Netflix, Inc. (NFLX)

Shares of Netflix, Inc. (NFLX) fell 2.64% immediately following the company's latest earnings report. The bad news is: Netflix remains rangebound through a multimonth lens. The good news is: A drop in implied volatility has given investors and traders better odds of making in NFLX stock than they've had in months.
Netflix earnings for the first quarter came to 40 cents per share, which was 3 cents better than analyst expectations. On the top line, sales of $2.64 billion were right on par with estimates. However, user growth is a more important metric for a growth company like Netflix. In that vein, some analysts expressed concern over a somewhat softer international user growth number, which has been the focus of many analysts for roughly two years. Additionally, NFLX said it might be cash flow-negative for years to come as it continues to foray into new movies and shows.
That's not exactly screamingly positive news. But then again, Serge doesn't think it's a reason to jump ship, either. Especially considering Netflix provided better-than-expected guidance for Q2 subscriber adds.
Note that the intraday selloff was mitigated by day's end as buyers stepped in and defended the stock. Either that, or sellers simply became exhausted.
Netflix stock clearly remains rangebound, and on the long side, pure stock traders will likely want to wait for a breakout above $147 before committing better capital on the long side.
However, the options market may allow a different opportunity.
At the bottom of the daily chart, note that Netflix's implied volatility dropped after Tuesday's earnings report, making directional options bets the cheapest they've been since February. So while NFLX stock remains rangebound, options traders could take advantage of the low-priced environment to position for an eventual break higher and out of the range.
June or even August at-the-money call spreads would make sense here.I think a trade like this would be best done in small sizes until a breakout occurs.
And for downside protection, any break below the trading range would be a last-resort stop-loss.

Trade #9 - ProShares Ultra Oil & Gas (DIG)

Oil prices continue to be critical to the market overall, and as we wrapped up the first quarter, we saw a chance for a quick trade in a leveraged ETF as prices got back above $50 a barrel.
The ETF is ProShares Ultra Oil & Gas (DIG), which moves at twice the rate of the Dow Jones U.S. Oil & Gas Index. As oil got back above $50, it took DIG within sight of regaining long-term support. The ETF had broken below its 200-day moving average three weeks prior, and drifting as much as 9% below before beginning its reversal over the next few days. The volume reported in late March was huge, matching the surge that preceded December's OPEC meeting and confirmation of global supply cuts, and the next morning's action followed through.
DIG is currently sitting just below both the 200- and 50-day moving averages, and a break above could open up some nice profit potential. There are several things working in our favor. Oil prices have held above $50 and could extend the breakout rally OPEC started back in December, and DIG's 2X leverage can make quick money on any momentum.
Then there's OPEC again. DIG soared ahead of the December meeting, and with a lot of people expecting the organization to vote to extend its production limits at its next meeting in about a month, it's worth noting that oil prices are shaping up a lot like they did back then. West Texas crude jumped from $45 to $54 in a matter of weeks in late November, and DIG rallied right along with it. We see a good amount of upside potential, and on the downside, We would keep a close eye on the $34 area.

Trade #10 - Masonite International (DOOR)

Let's start with what the chart tells us. Masonite International (DOOR), one of the leading door makers in the country, has pulled back 7% from its all-time high over the last month and came down to key support at the 50-day moving average. At the same time, the Relative Strength Index (RSI), while not quite in oversold territory, is at the lowest level of the year. More importantly, it has started moving higher — a bullish signal.
Also important, the volume on the month-long pullback has been lower than the average volume during the rally that took the stock to a new all-time high.
A 2% move up on April 17 has the stock further above its 50-day average, but We still likes the reward-to-risk set-up here and would be a buyer, especially on pullbacks closer to the 50-day, currently around $76.30. If you like to use stop-losses in your trading, I would look to the $73.25 area, which is the prior all-time high from 2015 and is now considered support.

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