By Dan Darrow

December 12, 2022

Today's Trade Ideas

Symbol: SPLK

Style: Swing

Strategy: Call Spread


Long Jan20 $92.50 call

Short Jan20 $100 call

Action Area: $2.80 - $3.30

Comments: SPLK is a fast-developing bullish trade idea. The M&A deal involving COUP this morning gave a solid bid to many beaten-up Software names, and it helped lift SPLK through a key resistance level. SPLK popped sharply two weeks ago following a strong quarterly report, but the rally failed around 90 and the 100day sma. The stock rolled over last week, found support in the low-80s and at the 8day ema, then began to turn higher into the weekend. Today’s 5%+ rally put it through the 100day sma and the 90 level, and it is setting up a near-term extension higher, with a clear path to the 100 and the 200day sma (100.77) above. The Jan20 call spread will be targeting an initial move to 94+ to begin locking in money, and the swing trade will use a 30-40% net debit loss as a stop.

Symbol: SMH

Style: Swing

Strategy: Strangle


Long Jan20 $240 call

Short Jan20 $250 call

Long Jan20 $210 put

Short Jan20 $200 put          

Action Area: $4.20 - $4.80

Comments: SMH is an interesting candidate for a volatility strategy. The November CPI delivered a several-session tailwind for SMH last month, helping the Semi ETF break through key downtrend resistance and test the 200day sma for the first time since March. Action has been mixed since momentum slowed in mid-November, and after multiple tests of the 200day sma and multiple failures, a tightening pennant pattern has formed. With steady buyers underneath at 214-115 and rising support from the 20day sma and 100day sma, SMH has formed a month-long range below the key 200day sma, and back-to-back catalysts this coming week with the CPI reading and FOMC rate decision should provide enough volume for a resolution of the pattern. On a clean break of 224, SMH has room up to the mid-to-high 230s, while a break of 214-215 should lead to a fast test of the 100day sma (211.02) and a possible slide closer to 200 if it loses the moving average. The Jan20 strangle will be targeting an initial move of $15+ in either direction over the next several weeks, and the trade will use a 30-40% net debit loss as a stop to begin with.

Note: With the CPI reading due out at 8:30 am ET tomorrow and a large gap higher/lower likely, we will give the SPLK and SMH trades 30-45 minutes off the open to make sure the setups are still valid.

On The Radar

PYPL is not breaking down, but it is also not bouncing. After testing the November low early last week, PYPL jumped on Wednesday following management commentary at a conference, helping the stock prevent a near-term breakdown. The rally that session stalled right at the 8day ema, though, and that moving average continued to put a ceiling on the stock Thursday and Friday. With PYPL below the 8day ema and just off its recent low, the overall bear thesis still stands for the Jan20 put spread, but we will have to keep an eye on the stock tomorrow if it is up sharply along with the overall market, as the setup may change on a move into the high-70s. 

CLF bounced when it needed to today. A weak finish Friday led to early weakness today on CLF, sending the stock down below the 20day sma during the morning. The stock stabilized above the 50day sma mid-morning, though, and turned higher in the afternoon to close green and back above the 20day sma. The solid hammer reversal should set up a move higher (assuming the CPI cooperates), and the short-term breakout setup should build momentum once the stock crossed back above 16 again. We will use a new technical stop at 14.75 moving forward, though, in the event the stock falls under pressure again.

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 12, 2022