February OpEx Arrives Amid a Stall in the Market (ARLP MRK ROST AJRD CXM)

The major indices appear to have hit a snag, though it may be just temporary.  Technically, the NASDAQ looks best, but first we have to get over today’s $1.8 TRILLION in options expiring.

Among the largest ever.

Market direction for the coming week will hinge, in large part, on what transpires today.

We have just a handful of trades that require your attention, so let’s have attem.

We start with our ARLP initiative that landed in your inbox on December 28^th.

The missive was called Coals to Neuchatel, and it urged you set the ARLP February 17^th 20 synthetic short for a credit of $1.05 and buy the ARLP February 17^th 22.50 protective CALL for $0.95 to avoid a runaway loss.  Total credit on the trade was $0.10.

Though anything could happen and S&P futures are pointed down as we write, we have one short 20 CALL that will likely expire in-the-money at the close (current price $21.57).

ACTION: buy it back for $1.63 and reset the ARLP June 16^th 20 synthetic short* for a credit of $1.15 (2.60/1.45).

That flips our credit to a debit of $0.38 and gives us four months to participate in the coming downside.

[*Sell the CALL and buy the PUT.]

NEXT!

All the Good News is In reached you on December 1^st, recommending you sell the MRK February 17^th 120/125 CALL spread for $0.57 and buy the MRK February 17^th 100/97.50 PUT spread for $0.50.  Total credit was $0.07.

Failing a very strong move lower, the trade will expire on all fronts, and we’ll pocket our original seven cents.

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Our bet on ROST from November 28^th was entitled Retail Concussion.  It encouraged you to sell the ROST February 17^th 125/130 CALL spread for $1.05 and buy the ROST February 17^th 105/100 PUT spread for $1.25.  Total debit on the affair was $0.20.

Failing a massive move in either direction today, the entire trade will expire worthless, and we’ll be out our original $0.20.

So be it.

Minor loss.

Part of the game.

And we may yet return to ROST, because the downside looks awful inviting.

Details of our AJRD trade can be found HERE.

In brief, we’re holding the 50 strike synthetic short that expires tonight and a debit of $1.15.

AJRD reported earnings yesterday, and they were disastrous.

All the same, the company is being purchased by L3Harris (NYSE:LHX), and that has put something of a floor under the stock’s price.

We’ll see if the deal goes through.

In the meantime, buy back the short AJRD 50 CALL for $6.10 and set the LHX May 19^th 200 synthetic short for a credit of $12.20 (18.10/5.90).

AJRD’s fortunes are now tied to LHX.

That will flip our debit to a credit of $3.95 and give us three months of life.

[*Sell the CALL and buy the PUT.]

And Finally…

And lastly, our CXM trade particulars can be summoned HERE.

To sum, we’re in possession of a $0.41 credit and the 7.50 strike synthetic short that dies this eve.

The stock is hugely overbought and due for a slide, so we’re going to extend the trade as follows—

Buy back the short 7.50 CALL for $3.70 and reset the CXM August 18^th 7.50 synthetic short* for a credit of $3.50 (4.00/0.50).

That will reduce the current credit to $0.21 and give us another six months to participate in any downside.

[*Sell the CALL and buy the PUT.]

May the G-d of Israel be with you!

Eschatologically yours,

Alan B. Harvard

Follow @HughLOHaynew