By Dan Darrow

December 11, 2022

Today's Trade Ideas

Symbol: DIA

Style: Event

Strategy: Strangle


Long Dec30 $343 call

Short Dec30 $349 call

Long Dec30 $327 put

Short Dec30 $321 put

Action Area: $2.10 - $2.60

Comments: DIA is an interesting candidate for a volatility strategy this upcoming week. It’s not up for debate whether or not this week will be critical for the overall market because nearly all traders agree it will. Whether or not the CPI reading and FOMC meeting lead to a year-end rally or the start of a deeper retracement is up for debate, though, and that means volatility is going to be high. From a technical perspective, DIA is the most interesting setup of the three major indices ( versus SPY and QQQ), having had a significant run off the October low. The rally has stalled around the August high and barring a major move on Monday, DIA looks set to go into the CPI reading on Tuesday morning right around the key 340 level. A move higher should have room to 350+ to retest levels from March/April, while a breakdown should start a sustained slide into the important 200day sma underneath. On the last three CPI readings, DIA has averaged an ~$11 move, and with the FOMC meeting the following session this coming week, there is reason to expect a similar-sized move again. The Dec30 strangle will go out two weeks beyond this week’s expiration and will be targeting an initial move to $10+ in either direction to begin locking in money. The trade will not have a stop until after the FOMC meeting on Wednesday, so be sure to plan your size accordingly.

Symbol: HON

Style: Swing

Strategy: Put Spread


Long Jan20 $210 put

Short Jan20 $200 put

Action Area: $2.80 - $3.40

Comments: HON is a fast-developing bearish trade idea. Industrials, Financials, and Energy stocks were outperformers in October and November, with many stringing together sharp rallies as they rode 8day ema momentum higher. The latter two sectors have started to roll over recently, though, leaving Industrials susceptible to a near-term pullback. HON held the 8day ema great during its October to November run, but it lost that moving average and the key 20day sma on Tuesday, and it struggled to reset above both during the remainder of the week. With the stock forming a lower range and the 8day ema crossing below the 20day sma, momentum should start to build on the downside, and there is a clear path to 200 and the 50day sma underneath. The Jan20 put spread will be targeting an initial move to <208 to begin locking in money, and the swing trade will have a tight stop above 216 (above the 8day ema and 20day sma) or a 30-40% net debit loss. Because the CPI reading will have a significant impact on the overall market and HON, you should plan on keeping your size lower for the trade.

On The Radar

Our next Option Session is tomorrow (Monday 12/12), and it is going to be a busy one. This upcoming week will be a critical stretch for the overall market, and we are going to spend time breaking down the technical setup and the options setup into the CPI release and the FOMC meeting. I’m looking forward to catching up, and I hope you all can make it!

We are on the clock for the CPI release and the FOMC meeting. With anticipation (nervousness) building into the key catalysts next week, this past week saw a lot of choppy, directionless action. QQQ and SPY finished lower over the five-day stretch, giving back gains from the previous week and Powell’s speech, but both indices held important moving averages to maintain recent higher bases (50day sma for QQQ and 100day sma for SPY). With a large move higher or lower likely over the next few sessions, we are going to continue to scale down risk where possible and keep a balanced mix of bullish/bearish trades to (hopefully) capitalize on either outcome. Monday is a good opportunity to size down or exit trades you are not committed to, as Tuesday morning will likely see a large opening gap. 

GME traded higher on Thursday following its report to give a shot to scale back risk, but it gave back a large portion of those gains on Friday. Normally, we give a stock 2-3 sessions post-earnings to find direction before managing/exiting a straddle or strangle, but because the trade has already been rolled and because of the looming CPI/FOMC meeting, it makes sense to stick with the short-term options a little longer. A large market-wide swing on Tuesday and/or Wednesday could lead to a sharp move on the volatile GME, so we will give the position until Wednesday afternoon before making a decision (unless it moves sharply on Tuesday). 

SI keeps ticking lower without a fast flush. The stock resolved the bear flag to the downside on Tuesday, but it failed to quickly slide under 20 later in the week. Steady downward pressure from the 8day ema is driving it lower, though, so a drop into the teens looks possible this coming week. The Jan20 strangle was skewed more to the bear side due to the drop on the initiation day, so our focus will be on scaling back risk quickly once the stock sinks under 20.

Open Positions

* The following Open Positions pertain to the Options In Play trade ideas from this and previous editions. Disclosure of the Trader Co-Author’s actual portfolio holdings, as of the date of each publication, is made below under "Trader Author Portfolio Holdings.".

Trader Author Portfolio Holdings

**As of 4pm ET December 09, 2022