The Options Action guys were back after a week off for the Thanksgiving holiday. The first topic of discussion was social media stocks – Facebook (FB – 47.94), Twitter (TWTR – 44.95), and Pandora (P – 28.52) specifically – which were all under pressure despite the rally on Friday. The first excuse was that these stocks have huge gains so they were victims of profit taking. Also the thought was money managers are looking to more established companies that have low valuations to outperform in the near future. It was also pointed out that LinkedIn (LNKD – 232.99) which is profitable, was higher on the day so maybe with the strong jobs report investors are favoring companies that profit from people that can actually spend money.
The first recommendation was on TWTR to take advantage of the recent weakness. With a bullish outlook a call calendar was recommended. There is no real potential (known) catalyst to get TWTR moving until January with they report earnings. Based on this timing a TWTR Dec 48 Call was sold at 0.60 and then a TWTR Jan 48 Call was purchased for a cost of 1.60. The net cost here is 1.00 with the hope that TWTR is under 48.00 (but close to it) at December expiration and then is much higher than 48.00 by the third Friday of January. It was mentioned in passing that TWTR is one of those stocks that have serial short dated options available. This means you have expirations available for five Fridays in a row so if you like this general idea you can be a bit more dynamic around it and choose other expiration dates than just the standard third Friday ones suggested in this trade.
The second recommendation related to gambling stocks which have performed pretty well when the S&P 500 was down five days in a row leading up to Friday. Las Vegas Sands (LVS – 75.77) appears to have strong fundamentals and the stock is in a very strong uptrend. On the fundamental side it was noted that Macau is a stronger and more important market for many casino operators than Las Vegas and that there are no new casinos scheduled to open until 2015 in Macau. Applying basic Economics this means that there is no new supply, but should be a continued expansion of demand. Looking out to March the trade idea is a very straightforward long call buying a LVS Mar 80 Call at 2.70.