By Dan Darrow

November 01, 2022

Today's Trade Ideas

Symbol: W

Style: Event

Strategy: Strangle


Long Nov11 $42 call

Short Nov11 $46 call

Long Nov11 $34 put

Short Nov11 $ 30 put                

Action Area: $1.80 - $2.20

Comments: W is an interesting candidate for a volatility strategy into earnings. Last quarter proved to be a more muted event for W after the stock had huge swings on numbers the previous few quarters. Part of the problem for W in August was that it had been on a large run into the print, removing some of the potential. The stock had a very weak September and a relatively lackluster October up until the past couple of sessions, when it began to tick higher. The sideways action during October has made for a better setup into earnings this week, and with room to the high-40s above the high-20s below, the stock should see a large swing. The Nov11 strangle will be targeting a move of $6+ in either direction over the next week. The trade will not have a stop until after numbers are released, and a lack of movement will take a toll on the short-term contracts, so be sure to plan your size accordingly.

Symbol: ALGN

Style: Swing

Strategy: Put Spread


Long Dec16 $180 put

Short Dec16 $170 put

Action Area: $3.15 - $3.90

Comments: ALGN is a bearish trade idea (with a tight stop). ALGN disappointed last quarter, but the stock rallied sharply. This quarter, the stock was punished. A sizable top-and-bottom line miss sent ALGN tumbling to the 170s, knocking it below key recent support at 200. The stock has rebounded over the past couple of sessions, but it has found selling interest at 200 on back-to-back days. With early indications of previous support turning into resistance, ALGN is setting up nicely for a turn lower, and the stock should retest the earnings day low (176) quickly once it starts to slide. The Dec16 put spread will be targeting an initial move to <180 to begin locking in money, and the swing trade will have a tight stop above 203 or a 30-40% net debit loss, whichever happens first.

Note: Because we have had significant volatility on FOMC rate decision days over the past few months, we will wait until after 3:00 pm ET to initiate the W and ALGN trades to make sure the setups are still valid.

On The Radar

ALLY isn’t turning lower yet, but the stock is doing enough to keep the bear thesis intact. After bumping up into the 8day ema last week, ALLY has continued to tick slightly higher, with two tests of the 20day sma coming Friday and today. That moving average lines up nicely with previous support (~28), and the combination of it and the 8day ema should set a near-term ceiling on the rebound. The stop for the Dec16 put spread (28.50) is relatively close above, though, so we will need to keep a close eye on the stock if it begins to push through the 20day sma. 

I’m under the weather at the moment, so I wasn’t able to put together a Youtube video discussing the setup into the FOMC meeting tomorrow. These major market events have led to huge swings in the past, and there is no reason to think we cannot see another one tomorrow, especially with traders focused on the path of rate hikes moving forward. As of the close today, the QQQ Nov02 straddle is pricing in a ~$5.50 move for tomorrow, while the SPY Nov02 straddle is pricing in a ~$6.00 move. The levels to watch on QQQ are the 20day sma underneath (272.82) and the 50day sma above (284.72). The levels to watch on SPY are the 8day ema (381.77) and the 100day sma (388.99). Pops or drops through any of those levels should trigger a larger, sustained swing.

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 November 01, 2022