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Lawrence G. McMillan

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June 12, 2021, 2:51 p.m. EDT

Momentum in the stock market is building toward a breakout

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By Lawrence G. McMillan

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New recommendation: SmileDirectClub

The action around SmileDirectClub Inc. /zigman2/quotes/214109287/composite SDC -0.31% is based on a takeover rumor, and option volume has ballooned, with more than 172,000 contracts trading yesterday (164,000 of them call options). That is about five times normal. Stock volume patterns are positive and improving.

Buy 4 SDC July (16) 9 calls at a price of 1.50 or less.

SDC: 9.73                   July (16) 9 call: offered at 1.55

Follow-up action

All stops are mental closing stops unless otherwise noted.

Long 2 expiring SPY June (11) 410 puts and short 2 SPY June (11) 385 puts:  this trade was originally taken because of the MVB sell signal that occurred on May 12. It would be stopped out by SPX once again closing above the +4σ Band, which is at 4320 and moving sideways. The signal would reach its profit target if SPX trades at the -4σ Band. Right now, the lower Band is at about 4050 and rising slowly. We want to maintain a position here, because the sell signal is still in effect, so sell the current spread, and replace it by buying 2 SPY July (2) 410 puts. We are no longer using a spread here – just long puts.

Long 1 SPY June (18) 420 put and Short 1 SPY Jun (18) 400 put: this recommendation was based on the equity-only put-call ratio sell signal that was in place. Since that sell signal is no longer in place, exit this spread.

Long 3 DUK June (18) 100 calls: hold without a stop while we wait for the activist investor to produce a positive result.

Long 2 SPY June (18) 415 calls and Short 2 SPY June (18) 428 calls: this spread was bought when the most recent VIX “spike peak” buy signal was confirmed on Friday, May 21. It would be stopped out if VIX were to return to spiking mode – that is, if it rose at least 3.00 points over any 3-day or shorter period (using closing prices).

Long 1 KSU Jun (18) 300 call:  KSU has formally accepted the higher takeover bid from Canadian National (CNI). The deal is for $200 cash + 1.129 shares of CNI. So, with CNI at 110, the deal is worth $324.Of course, there will be regulatory delays. We are going to hold, so see if this spread can tighten somewhat. It is unclear whether or not Canadian Pacific – the other bidder – will come back with a superior offer or not. Finally, stop out the calls if CNI closes at 108 or lower.

Long 1 SPY July (16) 420 call and Long 1 SPY July (16) 420 put: this long straddle is in anticipation of SPX making a volatile move away from the 420 level. If SPX trades at 437, roll the calls up from the 420 strike to the 437 strike (or the closest strike to that). Conversely, if SPX trades at 403, roll the puts down to the 403 strike.

Long 4 CERN June (18) 80 calls: hold without a stop while takeover rumors persist.

Long 4 CSOD July (16) 47.5 calls: our recommendation was to buy these calls if CSOD closed above 47, which it did on June 4. A 13-D filing was made by an activist investor, and the stock moved higher. Set a trailing, closing stop at 47.70.

Long 4 DBX July (16) 28 calls: our recommendation was to buy these calls if DBX closed above 28.50, which it did on June 7. This is also an “activist investor” situation. Set a trailing, closing stop at 27.

Send questions to: lmcmillan@optionstrategist.com . Lawrence G. McMillan is president of McMillan Analysis, a registered investment and commodity trading advisor. McMillan may hold positions in securities recommended in this report, both personally and in client accounts. He is an experienced trader and money manager and is the author of the best-selling book, Options as a Strategic Investment. www.optionstrategist.com .

US : U.S.: Nasdaq
$ 6.47
-0.02 -0.31%
Volume: 33.79M
Sept. 21, 2021 4:00p
P/E Ratio
Dividend Yield
Market Cap
$2.52 billion
Rev. per Employee

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