Shares of Yum Brands (YUM, $61.88, down $2.06) have recovered, somewhat, following the open at $59.74 this morning. We mentioned the stock was under pressure following the 8% drop in China same-store sales for its flagship restaurant, KFC. The negative publicity surrounding its chicken safety issues were underestimated by the market and although shares have recovered $60, it may take a couple of quarters to gain back the trust overseas.
The Yum February 60 puts (YUM130216P00060000, $0.40, down $0.35) opened at $1.14 and traded up to $1.25 but it would have been important to close this earnings trade into the open as the February options expire next Friday. Some investors will, or are trying to hold out for a bigger profit as they believe a drop to $57 is coming. This is where some options traders get greedy and instead of taking a 100% profit at the open, they are now down if they bought at yesterday’s prices.
We do have a bullish option trade for Wednesday and the stock we are following usually gets a nice pop after the earnings release. Of course, the company could say something negative in their earnings release that could cause shares to fall tomorrow but they are near 52-week highs and we are looking for shares to push double-nickels.
The bulls have rebounded from yesterday’s triple-digit losses as the blue-chips have tripped 14K again. The Dow has traded up to 14,006 and is currently at 13,986, up 106 points.
The S&P 500 is back over 1,500 with its 13-point pop to 1,508 while the Nasdaq is back over 3,150 as Tech is up 29 points to 3,160. We said if the bulls could recover at least half of yesterday’s losses they should be good to go for another push higher.
The S&P 500 Volatility Index ($VIX, 13.96, down 0.71) is back below 14 after opening at 14.21 and for those of you who flinched, here’s two punches as we have been saying to wait for 15 to trip before getting nervous.
While we are close to releasing a new trade AND opening another batch of NEW TRADES, we still have open positions from our last batch that we are still want to close, first. While we do believe the Dow and S&P 500 will challenge their 52-week highs, we don’t want to go push the action just yet because February is always a tricky month to trade.
We are trying to be patient this month to ensure support will hold and if it does we will be getting into some March, April and June options to play a possible breakout. We have penciled-in another 2% for the bulls over the near-term but the S&P 500 is forming a short-term head-and-shoulders pattern and we want to make sure we get the direction right.
We have said after a 2% pop the indexes could fall 5% but most of the pros and talking heads want the 5% drop now following yesterday’s 1% pullback. As you can see, volatility is picking up which can be both good and bad. Let’s give the current action another day or two before we open new trades but we are getting close.
In the meantime, let’s go check on our current trades as we have action to take on one of them. Subscribers, hit the Members Area for the updates.