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