By Dan Darrow

October 12, 2022

Today's Trade Ideas

Symbol: NFLX

Style: Event

Strategy: Call Spread


Long Oct28 $227.50 call

Short Oct28 $232.50 call

Action Area: $1.80 - $2.35

Comments: NFLX is a ramp into the report candidate. Enthusiasm around the new ad-supported tier from NFLX has led to the stock outperforming other streaming names recently (most Tech names for that matter too), and the recent dip into the 100day sma is offering an interesting opportunity to step in for a short-term bullish trade ahead of earnings. NFLX had a solid print in July to break up the stretch of rough earnings releases, and the stock has held onto the gains from that report remarkably well over the past few months. The sharp drop on Tuesday knocked it under recent support around the 50day sma, and it set up the first test of the 100day sma since late August. With earnings less than a week away (10/18) and interest on the stock higher, NFLX looks set up well for a near-term bounce, and the Oct28 call spread will be targeting a move higher on the stock over the next several sessions to lock in money or reduce risk. The trade will use a 30-40% net debit loss as a stop.

Symbol: XHB

Style: Swing

Strategy: Put Spread


Long Nov18 $57 put

Short Nov18 $52 put

Action Area: $1.60 - $2.05

Comments: XHB is a bearish trade idea. After a strong bounce to begin October, the rate-sensitive XHB looks set for another leg lower. XHB rebounded quickly early last week to break the two-month downtrend, snapping above the 8day ema and 20day sma and coming within ~$1 of testing the 100day sma on Thursday. The Friday market-wide selloff dragged it back below the 8day ema, and a several-day consolidation at the 20day sma should resolve lower as rates keep rising and sentiment deteriorates around the housing market. The Nov18 put spread will be targeting an initial move to <54.75 to close the gap from 9/30, and the swing trade will have a tight stop above 59.75 (above the 100day sma) or a 40-50% net debit loss, whichever happens first.

Note: Because the CPI reading tomorrow morning will be a major market-moving event, we will need to give the NFLX and XHB trades 30-45 minutes off the open to make sure the setups are still valid.

On The Radar

I put together a Youtube video (on the T3 Youtube page under the Options In Play tab) breaking down the CPI setup on the QQQ and SPY, including what’s priced in option-wise and what levels to look out for, so be sure to check out the video before the number is released tomorrow morning at 8:30 am ET!

With a large expected gap tomorrow morning, many stocks are likely going to be in play early, but we will need to pay closer attention to UNG if it opens weak. The Natural Gas ETF closed red today and slightly below the key 200day sma, and if it drops below 21.50 (the tight technical stop) off the open tomorrow, we will need to hit the exit quickly. The setup is still intact, though, so a sharp gap higher may start an extended run on the upside too.

The wait goes on for BITO. The long consolidation between 11.50 and 12.50 has not resolved yet, but volatility post-CPI tomorrow may help the ETF find direction. The September CPI release was not a massive catalyst for Bitcoin, but the June CPI release was, and that came after it had been in a month-long consolidation. The Nov18 strangle on BITO has plenty of time until expiration, and even though premium is eroding on both sides right now, a resolution of the range should lead to a fast enough move to reward the strategy.

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 12, 2022