By Dan Darrow
October 10, 2022
Today's Trade Ideas
Strategy: Long Call
Contracts: Nov18 $30 call
Action Area: $1.40 - $1.80
Comments: GSK is a speculative bullish trade idea. It’s not often you see a name like GSK drop 30%+ in a couple of months. Action on GSK was weak leading into and after the Haleon spin-off in July, but selling really began to accelerate in August following Zantac litigation headlines. GSK sank sharply below 35 on the latter, and it continued to grind steadily lower throughout the remainder of August and the beginning of September. Then the Pound began to drop more quickly, further weighing on GSK as it broke into the 20s. The stock has firmed up over the past two weeks, with the rally last week sending it above the key 8day ema and 20day sma. The week-long consolidation at the latter is setting up a near-term break of the recent downtrend, and there is an open path on the chart to the 50day sma (33.20) once it begins to build momentum higher. The Nov18 call is a speculative strategy (because of the headline risk) targeting an initial move to 32+ to begin locking in money, and the swing trade will have a tight stop below 28.50 or a 40-50% net debit loss, whichever happens first.
Strategy: Put Spread
Long Nov18 $85 put
Short Nov18 $80 put
Action Area: $1.45 - $1.85
Comments: NKE is a bearish trade idea. NKE looked like it was beginning to fall into the pattern of “buy bad news” that we saw following earnings last quarter, but the sharp selloff across the market on Friday changed the pattern. After getting hit hard on its late September print, NKE staged a strong bounce Monday through Thursday last week to 92+, and it nearly reset above the 8day ema during the run. The gap lower on Friday started a pullback off that moving average, though, and today’s slide cemented the turn lower on the stock. With a backtest of the 8day ema and momentum building to the downside again, NKE looks set up well for a retest of the recent low (82.22), and the Nov18 put spread will be targeting an initial move to <83.50 to begin locking in money. The swing trade will use a 40-50% net debit loss a stop.
On The Radar
Relative strength is hard to sustain in this market. After showing solid action for two months after its report in August, CYBR began to tick up into the 160s last week, seemingly starting a near-term breakout. A quick drop Friday put the stock back into the moving average congestion area around 147-151, but it was unable to stabilize today, sliding sharply again into the 130s. CYBR needs to stabilize soon, or we will need to exit the Nov18 call spread roll up. We can use a technical stop at 135 moving forward, which would be a break of the early September low.
The XLF Oct21 straddle was opened a little ahead of the major upcoming catalysts because it was trading around the interesting 32 technical level last week. The initial target was a move of $1.50+ in either direction, and it came awfully close to that target this afternoon before bouncing a bit. The straddle hasn’t gained materially (the put spread has made what the call spread has lost), but another $.25 - .$30 drop should start moving the strategy nicely into the green. It would be nice to be able to scale back risk on the trade prior to the Thursday CPI reading, so we will be watching for an opportunity to manage this trade tomorrow (or Wednesday).
Trader Author Portfolio Holdings
**As of 4pm ET October 10, 2022