• This Week's Trade Ideas:
Bullish: CSX Corp. > CSX > $53.95 Last.

Bullish Mentions: BKLN > $23.23 last, EAT > $32.71 last, CXW > $26.45 last.

Bearish: None at this time.

Bearish Mentions: CBS, GLPI, ETFC, DLPH

• Market Overview:
Earnings reports will ratchet up in number this week and economic news is due out as usual. Downside volatility has been left for dead. There's not much more to add. The Wall St. Gang will make of it whatever they want to make of it. The panic to buy into stocks at record highs remains in place…

• Below the Radar:
The DOW officially topped the nice and round 23,000 level the media has been hyping so let's see what happens now... It's only a matter of time. Sure, it is possible to plumb even lower depths in the VIX but likely not much lower. There will be a time in the future when the VIX spikes. Is the VIX "buy and hold" material?

• Options Academy:
This week we're going to delve into something simple that we often take for granted but do it in a different way…

No doubt they’ve “bought on rumor”… Will they keep “buying on news”?

The Trade(s):

We strongly suggest attending tomorrow morning's Advantage Point Morning Call for full details with respect to these idea(s), last week’s and options education.

Once again, “last week is this week”:

“The euphoric feelings have only intensified since last week…

It's very late (by normal standards) to enter on the long side but once again there's very little in the way of corrective action to look to the bear-side.  With most stock prices in orbit, that leaves very little low-hanging ideas for us to safely latch onto...”

Those remarks helped get last week’s Advantage Point newsletter started and they’re appropriate again this week, possibly even more so.  Now however, a breather is long overdue.  This current stage is even more challenging than others much like it that we’ve witnessed over the course of this year.  Nevertheless, we’ll keep trying to do what we do, which is, to stick and move with the markets as best we can the charts guiding our course.

Bullish Ideas:

CSX Corp. > CSX > $53.95 Last.  Buy the Nov. 3rd 53 Calls for $2.20 or less with a close or anticipated close above $54.30 in an up or neutral market with expectations for continued strength major indices and a bullish turnaround in the transportation stocks XTN.  Less than ideal conditions and the stock has potential but this market should tire soon (probabilistically speaking) and transports have been heavy for several trading days.  Would greatly prefer for them to halt the skid and snap back up.

Bullish Mentions:

BKLN > $23.23 last. BKLN has some interesting technical qualities.

EAT > $32.71 last. EAT has some interesting technical qualities.

CXW > $26.45 last. CXW has some interesting technical qualities.

We will cover these in our webinar.

Bearish Ideas:

Last Week is this Week!:

"None yet as the indices, while EVEN MORE short-term overbought" we have seen more new highs including today.  We're still not there quite yet! BUT WE MAY BE GETTING EVEN CLOSER!  And may be VERY CLOSE.  We've provided several bearish mentions as a result.  We can't officially "go bear" until the bulls are ready to take a breather!

Bearish Mentions:

We'll cover these, to a degree, in our webinar.  Can't hurt to have a few to look at it we actually witness selling again in our lifetimes.

CBS

GLPI

ETFC

DLPH

Outlook:

We're "really out there" now.  Will a retracement or pause finally arrive?  Earnings are due to hit in a big way this week.  Hard to be a bear at this moment but the indices should be weary after this long run.  See our DIA chart below.

Technicals:

Will be discussed in-depth in the Advantage Point Morning Call webinar.

Fundamentals:

These trade idea(s) and mentions are technically-driven.

(Editor's note: This trade idea may be updated periodically, in keeping with market conditions. It is intended solely for educational purposes.)

Recap of Last Week:

We were forced to move on to a couple other mentions later in the week after the markets made it difficult for our initial stock ideas to become actionable.  We’ll get to those in a moment.  We’ll start by working through our reluctant bearish mentions.

CRM and FB weren’t ready to go down as the markets never backed off.  Long time AP readers and attendees know that we’re reluctant to trade counter-trend and that’s even more strongly the case when the indices are strong.  So, rather unsurprisingly, both CRM and FB stayed in step with the markets which refuse to back off at all.  Much like the indices, these two names are even more stretched but there are no signs of a cyclical turn yet.  BBY did stay weak but probably wasn’t actionable as was the case with CRM and FB.  If the markets won’t even pause, it’s foolhardy to short uptrending stocks.  Essentially, that left us with just ideas that weren’t a fit in a market that continues to do nothing but move higher.

COH, our only official bullish idea, had its legs cut out from under it by news of a corporate name change before it had a chance to trigger.

Our bullish mention, CL, was also practically untradeable at the “get-go” but for the opposite reason.  It took off to the upside like a bat out of hell, before we could even hold our webinar, and just kept going.

We noted that we’d tried to find some other ideas as we were instantly victimized by news and big movement on Wednesday morning.  It was for that reason that we put out bullish mentions in AAPL and HUN on Thursday.  Both stocks have responded well since then and we’re keeping a close eye on them

Last week was last week again and it's this week too! We didn’t get “beared up” too early and we tried to play safely believing that not much room was left before the indices would arrive at a slightly higher but even more absurdly stretched level.  The major indices, yet again, did move towards the next upside levels outlined in the Advantage Point Morning Call webinar.  There wasn’t much to gain but they gained it!

Earnings reports will ratchet up in number this week and economic news is due out as usual.  Downside volatility has been left for dead.  There's not much more to add.  The Wall St. Gang will make of it whatever they want to make of it.  The panic to buy into stocks at record highs remains in place as we write but we can't but help believe that a "knuckle curve" will be thrown sooner rather than later and the indices will at least be under some selling pressure, performance-chasing maniacs coming out of the woodwork like gangbusters notwithstanding.  (Yes, that was an intentional string of clichés!  Please chuckle!)

Since the DOW is grabbing all the headlines after hitting a round number, we're making it our main focus but by using its proxy the DIA as the basis to chart.  We've highlighted the DIA action at a former high after a long run and have connected it to today's high.  We can't say that this is a high quite yet but the run into this high is very similar to the prior one.  The 2-hour chart here was used simply for a clearer view of how we arrived here.  We're out of the channel and beyond the Bollinger bands.  Hmmm...

The only real criticism that we can level is that virtually everything is overbought as earnings are on their way.  Do they finally "sell on news"?  There's nothing wrong at the moment except possible exhaustion setting in would be another way to put it.

The transports in the form of the XTN already taking a breather is the only real issue we could uncover:

The DOW officially topped the nice and round 23,000 level the media has been hyping so let's see what happens now...

It's only a matter of time.  Sure, it is possible to plumb even lower depths in the VIX but likely not much lower.  There will be a time in the future when the VIX spikes.  Is the VIX "buy and hold" material?

That's our backdrop this week against which we'll cover what follows here in BTR...

Let's go back to how we got here in this original piece from ZeroHedge: http://www.zerohedge.com/news/2017-10-16/vix-shorts-hit-new-record-high-sp-surpasses-2017s-most-bullish-forecast

ZH notes the following high-end upside targets for the SPX at the start of this year:

Some were very optimistic but alas, not quite enough!:

Now of course, everyone's convinced it will last longer and there's no reason to be concerned.  We can tell that from this:

Pavlov has rewarded the sellers of "vol" and they're more emboldened than ever!  "We don't need no stinking downside!"  So... the smarties are super short "vol" but that's not enough for them, they need this too:

As can be seen above, "Long Nasdaq" is officially the most crowded traded again that's not "short VIX".  That one side of the boat is overloaded like we haven't seen it since the late 90's!  This has mattered historically and in a big way.  When will it again?  Is it really that easy?  Just buy when the rest of the herd does and sell "vol" as if downside risk has been outlawed?  Stay vigilant friends!

Interestingly, this isn't being covered much and we'll leave it at that:

Here's another graphic that helps explain "how we got here":

As we can see, the media keeps doing their part and Pavlov keeps rewarding the BTDers!

AND... despite the madness of 2017, no one seems to care about risk of any kind!  Even "tweet risk"!  We're the most docile we've been in about half a century!:

As we've noted, concerns, if not treated as non-existent, are erased in a few moments of time relative to times gone by and the erasure is quickening:

Small-time investors and speculators aren't concerned about a correction but they are concerned about missing a melt-up!  Google searches for "melt-up" have spiked:

There may be just one problem:

"Morgan Stanley: "Client Cash Is At Its Lowest Level" As Institutions Dump Stocks To Retail"

The "little guy" is loving it too much!:

Historically, the "little guy" is the worst performer of all and taking the contrarian side of his take on things has paid off very well.

We'll wind it down quickly with a peek into the other end of the spectrum that tends to be ahead of the "little guy" by lightyears:

And that’s a wrap!

This week we're going to delve into something simple that we often take for granted but do it in a different way.

On Thursday of last week, we put out a bullish mention on Apple and later on it closed out the day at $156.00.  We didn't provide any options details as it was merely a mention that resulted from our main bullish stock ideas being undermined earlier in the week.  Regular readers and attendees know that we prefer slightly ITM options around the 65-70 delta range for our swing trading purposes.  We normally go out a full 2 to 4 weeks in time and slide more towards the "4 week" end of the spectrum when it makes sense to do so.

Our preferences are our preferences but here's another way to look at the same thing.

We highlighted 4 different options 3 weeks out in time (splitting our 2 – 4 week preference).  Let's look at the 85, 65, 46 and 27 delta calls.  The represent the deep ITM, the slightly ITM, the ATM and the OTM respectively albeit imperfectly.  We'll use mid-market as fair value for each.  So...

Had you bought each strike the prices would have been approximately:

85 Delta 146 Call = $10.95ish

65 Delta 152.5 Call = $6.05ish

46 Delta 157.5 Call = $3.30ish

27 Delta 162.5 Call = $1.55ish

Now let's jump ahead to yesterday's closing prices:

Let's update now with values set again at mid-market:

85 Delta 146 Call = $14.50ish

65 Delta 152.5 Call = $8.85ish

46 Delta 157.5 Call = $5.25ish

27 Delta 162.5 Call = $2.72ish

Here's a profit breakdown on each call given the closing prices vs. the opening prices:

The 85 Delta Call produced a $3.55 profit and thus a 32.5% ROI.

The 65 Delta Call produced a $2.80 profit and thus a 46% ROI.

The 46 Delta Call produced a $2.25 profit and thus a 68% ROI.

The 27 Delta Call produced a $1.17 profit and thus a 75% ROI.

One thing that really jumps out is the 27 vs. The 46 delta call.  The ROI seekers may like the 7% extra return but the bottom line is that the 27 delta call barely made half of what the 46 delta call did when measured in dollar profits.

Another interesting item is the dollar profits of the 65 delta vs. those of the 85 delta call when compared to the outlay for each.  The cost of the 65 delta call was $6.05ish vs. $10.95ish of 85 delta call which means the 65 delta call cost 55% of the price of the 85 delta call.  However, it delivered 79% of the dollar profits of the 85 delta call.

There are other things we can look at such as the real risk (our stop) to the real reward (our target) and the ratios that flow from that and consider what happens if "we're wrong" on the idea or we're forced to wait before bailing.  Perhaps that will be worthy of picking up next week.

If you have any questions please bring those to our next Advantage Point Morning Call webinar.

Have a great week!

The Advantage Point Team