Book Double-Digit Percentage Gains in S&P 500 Put Options

Nicholas Vardy

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

Heading into the U.S. presidential elections, it was a negative week for U.S. markets. The Dow Jones fell 1.50%, the S&P 500 tumbled 1.94% and the NASDAQ dropped 2.77%. In addition, the MSCI Emerging Markets Index pulled back 2.71%.

Big gainers in your Bull Market Alert portfolio included Take-Two Interactive Software (TTWO), which jumped 8.03%; Littelfuse (LFUS), which rose 1.84%; and Masimo Corporation (MASI), which added 1.56%. Take-Two Interactive Software (TTWO) also hit a new 52-week high.

You were stopped out of both ProAssurance Corporation (PRA) and U.S. Silica Holdings Inc. (SLCA) at a loss.

Last week, I recommended that because of the uncertainty surrounding the election outcome, you should bet on a market pullback by buying the SPDR S&P 500 ETF (SPY) Nov. 9 $212 puts (SPY161109P00212000).

Sure enough, the S&P 500 continued to decline every single day last week, recording nine consecutive losing days going back to the previous week.

That was the market’s worst losing streak going all the way back to 1980.

That makes the sell-off sound worse than it was, with the overall market only pulling back about 2.6%. The drop was the second smallest among the 12 of the nine-day losing streaks in S&P history dating back to 1928.

Here’s how I see the market acting in the next 48 hours pre- and post-election.

With the FBI announcing that it wasn’t pressing charges against Hillary Clinton last night, U.S. stock markets are rallying strongly this morning.

Speculative put positions like the put option I recommended last week are a game of odds.

Trump’s path to victory, based on the electoral college, is still very narrow. Odds are that Clinton will eke out a win in tomorrow’s election despite a whole range of historical and analytical studies suggesting Trump should win, which I discussed in last week’s edition of The Global Guru.

If Clinton does win, you can expect a relief rally — as you are getting in this morning on improved prospects for a Clinton presidency. Remember, from the market’s standpoint, Clinton represents a third term of the Obama administration and “more of the same.” As such, all of your current Bull Market Alert positions should recover strongly on Wednesday, celebrating a Clinton triumph.

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If Trump pulls out a victory, you can expect a sharp sell-off in the markets across the board. Markets hate uncertainty, and uncertainty is what Trump represents. That said, after that initial shock, I’d expect the market to rally sharply, as it did after the Brexit vote in the United Kingdom to leave the European Union.

So today, based purely on these odds, I am recommending that you sell your SPDR S&P 500 ETF (SPY) Nov. 9 $212 puts (SPY161109P00212000) at market to lock in a substantial double-digit percentage gain in just five days.

As always, keep an eye on your stops.

I plan to have a new Bull Market Alert recommendation next week.

Portfolio Update

Avista Corporation (AVA) dipped 0.82%. AVA reported Q3 2016 earnings per share (EPS) of $0.19 on revenue of $303.3 million. The consensus EPS estimate was $0.21. Revenue fell 3.3%, compared to the same quarter one year ago. Guggenheim also initiated coverage on Avista, setting a “Neutral” rating. AVA is a HOLD.

Masimo Corporation (MASI) added 1.56% over the previous trading week. Masimo reported Q3 2016 EPS of $0.47 on revenue of $167.6 million. The consensus estimate was $0.42 on revenue of $165.8 million. Revenue was up 9.9% year over year. MASI announced it expects 2016 end-of-year earnings to close at $2.13 EPS on revenue of $692.0 million. MASI is a HOLD.

Take-Two Interactive Software (TTWO) jumped 8.03% as investors cheered new video games scheduled to arrive for this holiday season. TTWO also hit a new 52-week high and reported stellar earnings. TTWO reported fiscal Q2 2016 EPS of $0.45, beating the $0.30 analysts’ estimate. Revenue was up 21%, coming in at $420.2 million vs. the estimated $402.5 million. TTWO is a BUY.

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Littelfuse (LFUS) rose 1.84%. LFUS last week reported third-quarter EPS of $1.87 on revenue of $280.3 million. The consensus earnings estimate was $1.87 on revenue of $268.3 million. Revenue gained 30.1% on a year-over-year basis. LFUS is a BUY.

 

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