By Dan Darrow

October 05, 2022

Today's Trade Ideas

Symbol: XLF

Style: Event

Strategy: Straddle


Long Oct21 $32 call

Short Oct21 $34.50 call

Long Oct21 $32 put

Short Oct21 $29.50 put

Action Area: $1.20 - $1.50

Comments: XLF is an interesting candidate for a straddle. Typically, we prefer to open straddles/strangles closer to the event to make sure the risk to reward is balanced between the bull and bear sides, but the recent bounce on XLF has put it at a big level a handful of days ahead of the fireworks. Not only will the CPI release next Thursday (10/13) be a sizable event for the Financials (and the overall market), but earnings season also kicks off for the sector next Friday (10/14) when major names JPM, C, WFC, and MS all report results. XLF had been in a tight lower range between 30-31 up until Tuesday, with the rally yesterday sending it back into the 32 level to set up a test of the 20day sma. The ETF is now trading between big levels (33-33.50 on the upside, 30 on the downside), and it is in an interesting spot for a straddle. XLF had an extended move over the two weeks following the Bank reports each of the last three quarters, and the Oct21 straddle will be playing for a similar move. The initial target will be a $1.50+ move in either direction (pre or post-earnings), and the trade will not have a stop until after the first Bank reports roll out on 10/14.

Symbol: CCL

Style: Swing

Strategy: Long Put

Contracts: Nov11 $8 put

Action Area: $1.05 - $1.30

Comments: CCL is a bearish trade idea. A disappointing report sent CCL sailing below 7.50 last week, putting the stock below key recent support around 8.50 and below its 2020 pandemic low. CCL has struggled to rebound since Friday’s drop, and the lower range forming under 7.50 is setting the stock up for another leg down as the fast-moving 8day ema comes close to joining overhead. The Nov11 put will be targeting an initial move to <6.70 (a retest of Monday’s low), and the swing trade will use a tighter 30-40% net debit loss as a stop.

On The Radar

Something has to give on BITO soon. The current consolidation on BITO between 11.50 and 12.50 is one of the longest sideways stretches on the ETF in the past two years, and a resolution should be coming soon. BITO has had volatile swings around the CPI report the last four months, and with the upcoming CPI reading a week away, the clock is ticking. A breakout/breakdown should lead to a fast move for the Nov18 strangle, so we will continue to be patient with this trade while it develops.

PINS has rebounded quickly after sliding into the 50day sma two weeks ago, and it got an unexpected boost in the arm this week in addition to the overall market firming up. The news that Elon is planning on moving forward with the TWTR acquisition gave a bid to SNAP and PINS (Social Media peers), and it helped the latter rally back above its 200day sma yesterday. While volatile today, PINS managed to hold that moving average on the morning backtest, and the afternoon reversal has placed the stock in a great position to retest the key 25 level. The Nov18 call spread still has plenty of time until expiration and the setup is still intact, so the plan will be to wait for either a breakout or earnings before managing the position.

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 October 05, 2022