Categories: Alpha Algorithm HotlinesStock Market News

Pulling in Your Horns — and Three Speculative Bearish Option Bets

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.

Recommendations

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.

Sincerely,

Nicholas A. Vardy

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world. He was the Editor of The Global Guru, a free weekly e-newsletter, and also edited the trading services Momentum Trader Alert, which focused on making short-term profits in the hottest markets in the world, and The Alpha Algorithm, which was designed specifically to deliver big, fast triple-digit winners, month after month. He was also the editor of Smart Money Masters, a monthly service focused on longer term investments recommended by the brightest minds in the business. Mr. Vardy has been a regular commentator on CNN International and the Fox Business Network. He has also published articles in The New Republic, The World and I, and The Baker & McKenzie Legal Review. The Global Guru/Nicholas Vardy has been cited in The Wall Street Journal, Newsweek, Fox Business News, CBS MarketWatch, Yahoo! Finance, and MSN Money Central. Mr. Vardy graduated from Stanford with a B.A. — with honors and distinction — in both Economics and History, and he also earned an M.A in Modern European Intellectual History. After winning a Fulbright Scholarship, he earned a J.D. degree at Harvard Law School where he was an editor of the Harvard International Law Journal. When not uncovering investment opportunities for his subscribers and investors, Mr. Vardy is a keep-fit enthusiast and an avid student of classical music.