Pulling in Your Horns — and Three Speculative Bearish Option Bets

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

With a possible Fed rate hike pending in September, market volatility near record lows and weak seasonality, many of your Alpha Algorithm positions have been locked in a trading range for the past month or so.

That’s why I am holding off on making a new Alpha Algorithm recommendation this week.

That doesn’t mean, however, that we don’t have work to do.

As you know, I closed all but one of your call option positions in recent weeks in anticipation of a flat to down market.

This week, I am also recommending that you close your final options position in your Visa (V) Sept. 16 $77.50 call options (V160916C00077500) at a relatively modest 9% gain. I see little upside in this stock in the next few weeks.

In addition, two of your current Alpha Algorithm positions have dropped below five Alpha Algorithm strategies: Lowe’s Companies, Inc. (LOW) and O’Reilly Automotive, Inc. (ORLY).

So, I am recommending that you sell both of these positions today. You should break even with Lowe’s and book a modest gain of around 3% with O’Reilly Automotive.

From a broad market perspective, I expect equities to pull back in the coming weeks.

As such, I am recommending three bearish option plays through the purchase of put options (see below).

Recall that put options increase in value as the share-price of the related stock goes down.

Broadly speaking, any “bad news ” in the market will be good for put options.

It also is a way of hedging a portion of your portfolio against any market downdrafts.

This is the first time I am recommending this type of a trade in the Alpha Algorithm.

These three put option recommendations are highly speculative bets, and are riskier than what I normally recommend. So, you may want to take a smaller position than normal.

Exclusive  This Country’s Economy and Stock Market is Trouncing China

Recommendations

  1. Sell your remaining Visa (V) Sept. 16 $77.50 call options (V160916C00077500) for a modest 9% gain.
  1. Sell your positions in Lowe’s Companies, Inc. (LOW) and O’Reilly Automotive, Inc. (ORLY).
  1. Buy Amazon (AMZN) October $755 puts (AMZN161021P00755000), which last traded at $22.58 and expire on Oct. 21.
  1. Buy Microsoft (MSFT) October $55 puts (MSFT161021P00055000), which last traded at $1.02 and expire on Oct. 21.
  1. Buy Visa (V) October $77.50 puts (V161021P00077500), which last traded at $1.15 and expire on Oct. 21.

Sincerely,

Nicholas Vardy

Nicholas A. Vardy

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It was a mixed week for stock markets across the United States, with the Dow Jones up 0.10%, the S&P 500 falling 0.16% and the NASDAQ ending the week essentially flat. MCSI Emerging Markets Index continued to outperform its domestic rivals, rising 1.54%. Big gainers in your Alpha Investor Letter portfolio included NVIDIA Corporation (NVDA), which added 6.30%, the KraneShares CSI China Internet ETF (KWEB), which gained 6.19%, and BYD Company

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