By Dan Darrow
October 02, 2022
Today's Trade Ideas
Long Nov18 $100
Short Nov18 $110
Long Nov18 $45
Short Nov18 $35
Action Area: $4.00 - $5.00
Comments: MDGL is a volatility strategy play on an upcoming data readout. Clinical stage Biotech MDGL is no stranger to volatility, though the past couple of years has been quieter for the stock. 2017 and 2018 saw a renaissance for the NASH-focused name, with the stock surging from the mid-teens to 300+ on encouraging earlier stage data. 2019 through 2022 has been a different story, though, as the company worked on recruiting and conducting a large Phase 3 trial, but now the end is in sight. MDGL is expected to announce data from its Phase 3 NASH trial in October/November, and the stock will be extremely volatile when the news comes out. Some analysts predict the stock could be up >100% if positive or down up to 80% if the trial fails, making for an interesting setup for an options strangle. The Nov18 strangle will be targeting a move to 100+ on positive data or <40 on disappointing data, and there will be no stop on the position until after news is released. Liquidity on the options is lower at the moment, so similar to the recent BIIB trade, the plan will be to be patient with the strangle initiation over the next two weeks, waiting for an opportunity to open the options when the volume increases and bid/ask spreads tighten.
Strategy: Call Spread
Long Nov18 $160 call
Short Nov18 $170 call
Action Area: $3.10 - $3.80
Comments: CYBR is a bullish trade idea. CYBR is showing impressive relative strength. The small-cap Cybersecurity stock has flown under the radar recently as larger peers attract more attention due to huge swings on their stocks. Turning in a solid quarter in early August helped CYBR pop back to its 200day sma in the 150s, but even more impressive is the fact that has been able to hold onto those gains over the past two months. The stock has been holding consistently above its 200day sma for several weeks and is in great shape to put together a sustained run higher once the overall market stabilizes. The Nov18 call spread will be targeting an initial move to 158+ to begin locking in money, and the swing trade will use a 40-50% net debit loss as a stop.
On The Radar
Our next Option Session is tomorrow (Monday 10/3), and we have lots to catch up on. In addition to breaking down recent weak action across the market, we will look ahead to the critical CPI release on 10/13, talking through the setup and possible scenarios based on the outcome. Also, earnings season is around the corner, and we will spend some time discussing what to watch for as the numbers ( and warnings) start to roll in. I hope you all can make it!
The third quarter wrapped up on a down note. Sentiment on QQQ and SPY is extremely negative as the indices probe their 52-week low, and traders are looking for any positive headlines to turn momentum around. QQQ and SPY have been in a steady downtrend since they topped out in August, and with both comfortably below the 8day ema as of Friday’s close, the path of least resistance continues to be lower. The jobs report this coming Friday will be closely watched, but the best chance to turn the corner higher will likely come the following week with the October CPI reading and the start of earnings season. With stocks extended on the downside and many names down sharply over the past couple of weeks, finding quality bear setups is tougher, but we need to continue to have a balanced mix of trade ideas and focus on hitting targets and stops quickly.
We can tighten the stop on CHWY now. The stock broke down into the 30 area to give a shot to lock in some money on the Oct21 put spread, but it did not follow through on Monday into the 20s. The bounce early this past week sent CHWY into the 8day ema, which turned into a sizable area of resistance through Friday’s close, and the stock is now forming a wedge between that moving average and 30. We will tighten the stop on the remainder of the Oct21 put spread to 33.75 now. That would put the stock above the 20day sma and change the near-term setup.
REGN had a choppy week but managed to hold well above recent support, and the bull flag remains intact. That is a positive for the overall setup, but the lack of sustained movement is going to start taking a toll on the out-of-the-money Oct21 call spread soon. Because the contracts do not go through the upcoming earnings report (tentatively scheduled for 11/02, we will need to manage the position more closely. If REGN fails to get momentum going by the end of this week, we will need to either close or roll out the contracts to November to buy more time for the trade.
Trader Author Portfolio Holdings
**As of 4pm ET September 30, 2022