By Dan Darrow
October 30, 2022
Today's Trade Ideas
Strategy: Call Spread
Contracts: Long Nov11 $85 call
Short Nov11 $90 call
Action Area: $1.65 - $2.00
Comments: DDOG is a speculative ramp into the report idea. We typically prefer strong names in strong sectors that are above key resistance levels for ramp into the report plays, but that would rule out a majority of Tech names this quarter due to recent action. DDOG has been sliding since topping out in August, and it is currently sitting right above a huge multi-year support level around 75. The stock has a consistent history of strong numbers, though, with a beat and raise on its most recent print in August, and is set up well for a bounce into the upcoming report (11/03), especially as it comes onto the radar of traders over the next few sessions. The Nov11 call spread will be targeting a rally on the stock before earnings to lock in money or reduce risk. The trade will use a tighter-than-normal 25-35% net debit loss as a stop because it is a very short-term position.
Strategy: Long Call
Contracts: Nov25 $37 call
Action Area: $1.35 - $1.60
Comments: VZ is a bullish trade idea. VZ’s July report started a tailspin lower on the stock, with several months of consistent selling driving it down below 35 two weeks ago. The October earnings dip on 10/21 led to a hammer reversal that session and buyers stepped in the following few sessions to drive the stock back up into key downtrend resistance. VZ had heavy resistance at the 8day ema and 20day sma throughout the past few months’ slide, but it broke above both on Friday to begin a near-term run. With peer T recently having erased all losses from September, VZ has room to play catch up now that it has cleared the downtrend, and there is an open path to the 50day sma (39.63) before it encounters the next area of resistance. The Nov25 call will be targeting an initial move to 39+ to begin locking in money, and the swing trade will have a tight stop below 35.75 ( back under the 8day ema and 20day sma) or a 40-50% net debit loss, whichever happens first.
On The Radar
For two weeks in a row now, the market has started strong on Monday and ended strong on Friday, with weakness and choppy action in between, but the catalysts have been different. Friday’s large rally across the market was driven by better-than-feared earnings from AAPL, and the outsized reaction to the numbers helped QQQ and SPY close above key levels (20day sma on QQQ, 50day sma on SPY). This coming week will be a volatile one, though, with more high-profile earnings due out, the FOMC rate decision on Wednesday, and the monthly jobs report Friday morning, so expect more near-term twists and turns. With sharp, fast swings seemingly every week, we need to continue to have a balanced mix of bullish and bearish trade ideas and work quickly to lock in gains and hit stops. Also, it’s nice to see stocks exceed their priced in moves for earnings more consistently, so expect more earnings/event ideas.
CRM had a back-and-forth week as it was pushed around by other Software reports, but it managed to hold above 160 throughout the volatile stretch to solidify the recent breakout. With CRM resetting key previous support, the stock should start to build momentum for a move to the 100day sma above (166.75), but the Nov18 call spread roll up will need a sustained push closer to 169-170 to lock in more money. We can also tighten the stop on the trade now to 156 moving forward (a break under the 50day sma).
ZM acts well. The stock broke through 80 and the 50day sma on Tuesday and it built a new abse above both the remainder of the week. With rising support from the 8day ema, ZM looks set up well for another leg higher, and the earnings gap high (87.59) is a near-term focus, with the potential to see an accelerated move through it. The Dec16 strangle has already been rolled up once, so we can be patient with the current position while the trade develops.
Trader Author Portfolio Holdings
**As of 4pm ET October 28, 2022