By Dan Darrow

November 03, 2022

Today's Trade Ideas

Symbol: CAT

Style: Swing

Strategy: Call Spread


Long Dec16 $220 call

Short Dec16 $230 call

Action Area: $4.10 - $4.70

Comments: CAT is a bullish trade idea. A strong report sent CAT sailing higher last week, giving the stock its first decisive closed above the 200day sma since early June. Buying interest has remained strong since then, with today’s red-to-green reversal a particularly notable bullish signal. On the first dip since the print, buyers stepped into CAT right off the open this morning as the stock probed the 8day ema, and they drove it sharply higher to finish around recent resistance at 220. With momentum building, CAT now has two unfilled gaps from June in its sights (6/09: 223.67, 6/08: 229.80), and both could be in play quickly as Industrials continue to see money rotation flows. The Dec16 call spread will be targeting an initial move to 223.50+ to begin locking in money, and the swing trade will use a 40-50% net debit loss as a stop.

Symbol: TLT

Style: Swing

Strategy: Put Spread


Long Nov25 $95 put

Short Nov25 $91 put

Action Area: $.95 - $1.35

Comments: TLT is a bearish trade idea (with a tight stop). The selloff that started in August saw TLT methodically move lower for several months, with an acceleration lower in late October on heavier volume finally providing a recipe for an overdue bounce. It snapped back quickly to reset the 8day ema, then ticked higher to test the key 20day sma this week. The rally stalled at the 20day sma, though, and the turn lower post-Powell press conference yesterday is setting TLT up for another move to the downside. The Nov25 put spread will be targeting an initial move to <94.25 to begin locking in money, and the swing trade will have a tight stop above 97.25 (above the 20day sma) or a 30-40% net debit loss, whichever happens first.

On The Radar

Tomorrow is weekly Nov04 expiration, and there is one position set to expire: GOOGL $108 - $112 call spread. This is the bull portion of the earnings strangle, and after the bear portion was closed last week, we had been watching to see if the stock rebounded to give a bid to the short-term options (which it didn’t). The contracts likely won’t be in play tomorrow, but if they are, I will pass along an update to exit the position. 

W had a decent report this morning and quickly ripped higher after opening slightly red. The early run carried the stock to ~40, but it struggled to push past recent resistance and the 50day sma. A large reversal lower almost put it red later in the morning, but the stock snapped back again, eventually finding more sustained buyers around 38. Unfortunately, the failure at 40 this morning prevented the stock from getting the extension higher into open space, which was the goal for the Nov11 strangle. Our rule for straddles/strangles is if the stock doesn’t move enough on the first day to manage the trade, then we give it two to three sessions to see if it can establish direction (analysts weighing in, money moving in/leaving the stock). If it still hasn’t moved enough by the third day post-event, then we need to exit the trade. That will be the plan for the W Nov11 strangle tomorrow and Monday. 

Weekends can be volatile for Bitcoin, so we are going to give BITO until Monday before managing the position. BITO woke up last week and hit 13 quickly, but the ETF has been stuck in a sideways range around 12.50 since then, and premium is eroding on the Nov18 options. At this point, the focus is on the bull side because of how it has acted recently, so if it doesn’t catch a bid Friday or this weekend, the plan may be to roll the Nov18 options out to Dec16 but only play the upside.

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 03, 2022