By Dan Darrow

December 18, 2022

Today's Trade Ideas

Symbol: MNDY

Style: Swing

Strategy: Call Spread


Long Jan20 $$125 call

Short Jan20 $$135 call

Action Area: $3.40 - $3.90

Comments: MNDY is a fast-developing bullish trade idea. Many small/mid-cap Software stocks had a strong start to the week before giving up some gains Thursday and Friday, but MNDY bucked the trend as it held steady ahead of the weekend. MNDY rallied to clear the key 200day sma on Tuesday, and it spend the remainder of the week building a new base above it. The quickly rising 8day ema is close to joining underneath, and the stock is setting up nicely for another near-term leg higher. On a clean break of 124, MNDY should build momentum for a move to the low-to-mid 130s, and the Jan20 call spread will be targeting an initial move to >127 to begin locking in money. The swing trade will use a 30-40% net debit loss as a stop.

Symbol: BITO

Style: Swing

Strategy: Long Put

Contracts: Jan20 $11 put

Action Area: $.95 - $1.20

Comments: BITO is a bearish trade idea. The FTX fallout in November cast a large net across the entire Crypto space, including knocking Bitcoin down sharply at the time. While the FTX drama is still unfolding, Bitcoin has quietly recovered a sizable portion of its losses from the November slide, but that may change soon. BITO (Bitcoin ETF) bumped into the 50day sma this past week and previous monthly support at 11.50, and it struggled to reset either key level. It began to turn lower on Thursday and continued to drop on Friday, starting a near-term turn lower. The Jan20 put will be targeting an initial move to <9.85 to begin locking in money, and the swing trade will use a 30-40% net debit loss as a stop.

On The Radar

The past week was, for all intents and purposes, the final major trading week of the year (as far as news catalysts are concerned), and bears came out ahead over the five-day stretch. A cooler CPI reading on Tuesday led to a brief breakout of the recent trading range on QQQ and SPY, but any developing momentum was squashed on Wednesday after traders were disappointed with the Fed and Powell. By Friday’s close, QQQ and SPY were both under all near-term moving averages, and momentum is building on the downside as each probe the large gap from the November CPI reading. As the year wraps up and we enter the holiday season, it will be important to continue to keep a tight leash on trades, as both lower volume and a possible lack of movement could begin to weigh on options premium. With QQQ and SPY below all moving averages, though, the trade mix needs to be skewed more in favor of bearish ideas. 

SPLK showed relative strength on Friday as it traded green in the afternoon, but the stock will still be on close watch this coming week. The breakout and run above the 100day sma carried the stock to the mid-90s early Tuesday morning, but the fast reversal lower that session gave no time to roll up the Jan20 call spread. Now SPLK is back into the 80s and hanging out under the 100day sma, and it needs to stabilize soon to keep the bull pattern intact. If SPLK trades below 85.50 (Friday’s low) this coming week, we will need to exit the trade as more downside may be likely. 

Rolling out the QQQ and SPY hedges was well-timed, but now we can be patient before rolling them down. The sharp slide during the week put QQQ and SPY into the middle of their respective Feb17 put spreads, and the plan moving forward will be to wait for each to get to ~$5.50+ net debit before starting to manage them. If that target doesn’t come before the January jobs report, then it may make sense to manage those hedges earlier (the jobs report should be the next major market catalyst).

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 16, 2022