By Dan Darrow

November 16, 2022

Today's Trade Ideas

Symbol: CVNA

Style: Swing

Strategy: Strangle


Long Dec30 $11 call

Short Dec30 $15 call

Long Dec30 $7.50 put

Short Dec30 $3.50 put

Action Area: $1.80 - $2.15

Comments: CVNA is a speculative volatility strategy play. The year-to-date drop on CVNA has been staggering, and as the used auto market continues to deteriorate, the bottom may still not be in for the stock. A lousy earnings report earlier in November sent the stock spiraling into the mid-single digits, but the CPI reading helped it recover some of the losses as it traded briefly above 11. CVNA is hanging under the 8day ema and 20day sma and is setting up for another sizable move in either direction. While momentum is still on the downside, the elevated short interest (currently 43.5% short float) has provided fuel for sharp rallies in the recent past, and above ~12 and the 20day sma, there is open room into the mid-to-high teens. The Dec30 is a speculative strangle targeting a move of $2.50 - $3.00+ in either direction over the next several weeks. The trade will use a 30-40% net debit loss to start, with a technical stop instituted after one side of the position is managed.

Symbol: AFRM

Style: Swing

Strategy: Put Spread


Long Dec16 $15 put

Short Dec16 $10 put

Action Area: $1.40 - $1.75

Comments: AFRM is a fast-developing bearish trade idea. Disappointing earnings led to a sharp drop to the low-teens on AFRM last week, but buyers stepped in post-CPI as the overall market ripped higher. AFRM closed the earnings gap by Friday, and it continued to push higher this week into the high-teens before stalling yesterday near the 50day sma. The stock turned lower today, losing the 20day sma and 8day ema, and the reversal back under key moving average support is setting up a near-term retest of the earnings day low (11.93). The Dec16 put spread will be targeting an initial move to <13 to begin locking in money, and the swing trade will use a 30-40% net debit loss as a stop.

On The Radar

GM’s recent bull flag above 40 was disrupted today as the stock slid back under 39 and into the 200day sma. Auto companies were under pressure broadly, but the move lower on GM and weak finish means we need to pay close attention to the stock tomorrow. The tight technical stop is at 38.50, and it closed right at that level today. If GM doesn’t rebound off the open tomorrow, the Jan20 call spread will likely need to be closed, so keep an eye out for an update early. 

We can tighten the stop on the DE swing trade. The move higher on Friday to 412+ gave an opportunity to roll up the initial Dec16 call spread, but momentum stalled soon after. DE has been spinning around in a range under 410 this week, with steady support underneath at the 8day ema. The stock is still in a well-defined uptrend as it rides the 8day ema higher, but a break of the moving average could start a quicker slide lower, and if it loses 395 and the 20day sma, momentum will kick in quickly. We will use 394.75 as a new technical stop for the Dec16 call spread roll up moving forward to make sure the position is closed before a bigger breakdown can develop.

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 16, 2022