By Dan Darrow
November 27th, 2022
Today's Trade Ideas
Strategy: Call Spread
Contracts: Long Dec30 $100 call
Short Dec30 $107 call
Action Area: $2.20 - $2.75
Comments: DIS is a fast-developing bullish trade idea. Bob Iger’s stunning return as the CEO of DIS was a welcomed positive for the stock last week, but traders looking for even more upside on Monday were disappointed with the finish below 98. DIS dipped again on Tuesday as momentum waned and media discussed what the move meant for the company, but Wednesday brought the buyers out again, and Friday’s muted but positive session began to signal more near-term upside. DIS failed at the 50day sma into the initial pop on Monday, but it retested it on Wednesday and began to tick above it on Friday. Once decisively through the moving average, the stock has an open path to the 100day sma above (103.90), and the Dec30 call spread will be targeting an initial move to 102.50+ to begin locking in money. The swing trade will have a tight stop below 96.50 (under the 8day ema) or a 30-40% net debit loss, whichever happens first.
Contracts: Long Dec16 $5 call
Long Dec16 $3 put
Action Area: $.30 - $.60
Comments: VKTX is a sympathy play on the upcoming MDLG Phase 3 readout. We recently were targeting a MDGL strangle for this Phase 3 readout, but November options never lined up for us, keeping us out of a position last month. As it turns out, that was a good thing because the November expiration came and went, and the data has still not been shared. Now we are nearing December, and expectations are for data to come shortly, and while MDGL should still see a huge swing on the readout (the Dec16 straddle is pricing in ~$41-42), closely related peer VKTX should also see a sizable move. VKTX is a smaller market cap Bio with a pipeline candidate that has a similar mechanism of action as MDGL, though the timeline for the pivotal data is still a little ways off. Success or failure for MDGL will act as a read-through for VKTX, though, and the Dec16 options seem to offer an interesting near-term play. The Dec16 strangle will be targeting a move of $1.25+ in either direction over the next month, and because the position will have no stop until data is released, it should be viewed as more speculative.
On The Radar
On The Radar:
Our next Option Session will be tomorrow (11/28), and we have lots to catch up on. With a packed lineup of earnings this week and big economic events on the horizon, it is a great time to go over recent developments and how to prepare/plan for the next few weeks of action. It should be a busy afternoon, and I hope you all can make it!
Friday wrapped up the holiday-shortened week with a quiet/mixed session, but QQQ and SPY still had a solid four-day stretch of action. QQQ is off its best level of the month but still above the 8day ema and 20day sma and within striking distance of the 100day sma. SPY managed to eke out a new high for November, and it is inching increasingly closer to the critical 200day sma. With momentum still on the upside, it is important to continue to have a great mix of bullish trade ideas right now, though as we near key upcoming economic events (the CPI reading and FOMC meeting), we will need to scale back risk and balance out the mix of positions.
A double bottom may be forming on CVNA. A lousy start this past week sent CVNA spiraling below 7 again, but buyers showed up underneath that level for the second time this month, and the stock began to rebound into the end of the week. The next few sessions/weeks will be important for the stock now. If CVNA can get above ~8.25 and the 8day ema, the 10 level should come quickly. If it fails to reset the 8day ema, another drop below 7 seems likely, and this time it could crack and head lower. The Dec30 strangle has plenty of time until expiration, so the plan will be to remain patient with the trade while it develops.
We can tighten the stop on AFRM. A breakdown on Monday below 13 led to a week-long range underneath the level, and a lack of a material bounce has allowed the fast-moving 8day ema to catch up overhead again. With the stock flagging above the earnings day low (11.93), a near-term test and break of the level is possible, and the tight recent action should see a resolution early this coming week. Following the move under 13, the plan will be to place a technical stop at 14.15 on the Dec16 put spread roll down. That would be a rally back above the 8day ema, and the chart would start to resemble a double bottom, so that would be a good cue to exit the remainder of the trade.
Trader Author Portfolio Holdings
**As of 1 PM ET November 25th, 2022