By Dan Darrow

September 27, 2022

Today's Trade Ideas

Symbol: BITO

Style: Swing

Strategy: Strangle


Long Nov18 $13 call

Short Nov18 $17 call

Long Nov18 $10 put

Short Nov18 $7 put

Action Area: $1.00 - $1.25

Comments: BITO is an interesting candidate for a strangle strategy. Something has to give on BITO (and Bitcoin). While risk assets around the market are getting crushed, Bitcoin somehow continues to hold 19k. Numerous dips to the level throughout September have held (including this past weekend), and several drops to the area in June and July also found buying interest at the level. BITO has followed a similar trajectory over that stretch, with 11.50 the key support on the ETF. Bounces on BITO have been more shallow recently, though, and after forming an increasingly tight lower consolidation above 11.50, the ETF is setting up for either a sustained rally or a long-awaited breakdown. The Nov18 strangle will be targeting a move of $1.75+ in either direction over the next several weeks to begin locking in money. The strategy will use a 40-50% net debit loss to start, with a technical stop instituted after one side of the position is rolled.

Symbol: ILMN

Style: Swing

Strategy: Put Spread


Long Nov18 $180 put

Short Nov18 $170 put

Action Area: $3.70 - $4.30

Comments: ILMN is a bearish trade idea. ILMN’s recent weak quarter and weak guide came at an opportune time for the stock. Many names were getting bought on bad news, and the overall market was in the middle of an aggressive rally higher. Shortly after the 8/11 earnings report, though, momentum stalled and began to turn lower, and ILMN’s quick rebound to 230+ started to fizzle. ILMN found buyers around the 50day sma and 195 level throughout the end of August and the first half of September, but it began to lose that support area last week, and now it is beginning to build momentum to the downside. With the 8day ema providing steady overhead resistance, the stock is set up well for a test of the July low (173.45), and the Nov18 put spread will be targeting an initial move to <177 to begin locking in money. The swing trade will use a 40-50% net debit loss as a stop. 

On The Radar

We are going to tighten the stop on GME. The stock broke down nicely last week to give a shot to roll down the original Oct21 put spread, but it stalled before testing the September low (23.42). GME was unusually strong today and rallied back into the 8day ema during the session, setting up an important stretch of trading. GME needs to hold below 27.50 on this bounce, otherwise, it will reset above the 8day ema and 20day sma, opening the stock up for a possible run to 30+. We need to tighten the stop on the remainder of the swing trade to 27.50 to make sure the position is closed before a major rally can develop.

SHOP has had quick pops off the open both sessions this week, and both days it has rolled over to finish red. In addition to the continued heavy recent action, the rally on Monday set up a backtest and failure at the huge 30 support level, further solidifying the downward momentum on the stock. With the 8day ema now below 30, SHOP should continue to grind lower into the mid-20s, so it is worth being patient with the Oct21 put spread. We can tighten the stop on the upside now to 30.50, which would be a reset of the monthly support level.

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 August 12, 2022