Juicing Your Portfolio with an Option Trade

It was another strong week for the U.S. stock markets last week, with the Dow Jones up 2.50%, the S&P 500 rising 2.07% and the NASDAQ jumping 2.97%. The MCSI Emerging Markets Index consolidated its recent gains, rising 0.11%. The Nasdaq and S&P 500 both retook their 200-day moving averages (MA), and the Nasdaq’s gap-up boosted it above the 5,000 level as well

Big gainers in your Bull Market Alert portfolio included Alaska Air (ALK), which jumped 4.30%, and China’s NetEase, Inc. (NTES), which rose 1.31% in its first week in the portfolio.

Alaska Air (ALK) moved back above its 50-day moving average to become a BUY.

Big Lots, Inc. (BIG) fell below its 50-day moving average to move to a HOLD.

With the markets now overbought and market sentiment hitting “greed” levels on the CNN Fear and Greed Index for the first time since late spring, I am going to hold off making a new stock recommendation this week.

I expect the market to settle and consolidate its recent gains in the coming week before it resumes its upward trend.

I am, however, adding an option recommendation to your existing holding in Big Lots, Inc. (BIG), where I am recommending that you buy the January $47.50 call options (BIG160115C00047500) which last traded at $2.60 and expire on Jan. 15. The stock is technically oversold, but I expect it to bounce strongly in the coming weeks.

Portfolio Update

ULTA Salon, Cosmetics & Fragrance, Inc. (ULTA) remained flat last week, dipping just 0.12%. Wells Fargo initiated coverage on ULTA with a “Market Perform” rating last Thursday, and Piper Jaffray reaffirmed its “Buy” rating earlier in the week. Positive support remains behind ULTA. ULTA is a BUY.

Alaska Air (ALK) jumped 4.30%. ALK reported earnings last Thursday, beating consensus estimates on improving figures. Earnings per share (EPS) came in at $2.16 vs. a $2.10 estimate, rising 47%. Revenue rose 3% year over year to $1.52 billion, inching just above the $1.51 billion estimate. These results were enough to push ALK back above its 50-day moving average last Friday and move it back to a BUY.

Ultra Nasdaq Biotechnology ProShares (BIB) added 0.69% and continued trading sideways last week. BIB remains in a strong basing pattern, creating excellent support at the $60 price level. BIB continues to look ripe to break out to the upside and remains a BUY.

NetEase, Inc. (NTES) rose 1.31% for its first week in your portfolio. This play on the China recovery has been in a strong uptrend for the past eight weeks and appears to have more gas in the tank for future gains. NTES will report earnings on Nov. 11 after markets close. NTES is well above its 50-day MA and is a BUY.

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