By Dan Darrow

October 27, 2022

Today's Trade Ideas

Symbol: UUP

Style: Swing

Strategy: Long Call

Contracts: Dec16 $28 call

Action Area: $1.85 - $2.05

Comments: UUP is a bullish trade idea. Lightning doesn’t strike twice, but patterns have a history of repeating. UUP has dropped sharply over the past week, knocking it below the 8day ema, 20day sma, and recently, the 50day sma. The latter of those is a critical year-to-date support level, and after closing below it yesterday, UUP bounced today to reset the moving average. A similar pattern played out in August, when UUP sank below the 50day sma briefly for two sessions, then snapped back shortly after to start a run to a new high. A busy upcoming lineup of economic events should create movement for the Dollar, so we will be looking for a near-term rally similar to what occurred in August. The Dec16 call will be targeting an initial move to 30.10+ ( a test of the 20day sma), and the swing trade will have a tight stop below 29.40 (under yesterday’s low) or a 30-40% net debit loss, whichever happens first.

Symbol: TSLA

Style: Swing

Strategy: Strangle


Long Nov25 $250 call

Short Nov25 $255 call

Long Nov25 $200 put

Short Nov25 $195 put           

Action Area: $1.80 - $2.20

Comments: TSLA is an interesting setup for a volatility strategy. Earnings have come and gone, and by most accounts, Elon’s purchase of TWTR looks likely to close this week, and after the extremely busy stretch of news, TSLA is sitting at a critical technical level. The bounce this week has put TSLA back in the mid-220s, retesting the pivot high from two weeks ago and the 20day sma. Previously in May through July, when the stock would slide under 210 and hold, the bounces would carry it up into the 250s over a short stretch, and it is at a make-or-break level now, which should confirm more upside or start another slide lower. The chart has an open path higher above the 20day sma, and 200-205 should be in play if recent resistance holds and the stock rolls over, so the Nov25 strangle will be targeting a move of $22+ over the next couple of weeks once the stock establishes direction. The trade will use a 40-50% net debit loss as a stop (a technical stop will be instituted after one side of the strangle is managed).

On The Radar

Tomorrow is weekly Oct28 expiration, and there is one position set to expire : SNAP $12 - $14 call spread (not the recently initiated Nov25 $10 put). This was the bull portion of the earnings strangle, and the position has not recovered premium to close the contracts. We are in the middle of earnings season, and the PCE indicator is due out before the open tomorrow, so expect a volatile session, with potential updates early off the open. 

Speaking of volatility, the next two weeks should be a busy stretch for the overall market, with the FOMC rate decision on Wednesday, the Jobs report on Friday, the midterm election the following Tuesday (11/08), and the CPI report two days later (11/10). The QQQ and SPY hedges are within the ~1 month window where we typically roll the positions out to buy more time, but it makes sense to wait until Tuesday (or even Wednesday morning) to adjust the contracts to make sure the positions are close enough to the money heading into the FOMC meeting to be in play. 

Slow and steady is the name of the game for GSK. Since resetting above 30 and the key 20day sma earlier in October, GSK has been making steady progress on the upside, with a move through the 50day sma on Monday starting a multi-day run this week. The stock closed a few cents under the 32.75 second target, so we will be watching for some continuation higher tomorrow to lock in more money on the Nov18 call spread. We will also tighten the stop on the downside now to 31 (a break back below the 20day sma).

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 27, 2022