August 01, 2022
Today's Trade Ideas
Symbol: OKTA
Style: Event
Strategy: Strangle
Contracts:
Long Aug12 $103 call
Short Aug12 $108 call
Long Aug12 $94 put
Short Aug12 $89 put
Action Area: $2.15 - $2.55
Comments: OKTA is a speculative, short-term strangle idea. Cybersecurity stocks have had a mixed few months as they struggle to find direction after rolling lower in April and May. With many top names in the sector trading in increasingly tight patterns, upcoming earnings reports should provide significant catalysts to begin to resolve the recent ranges, and this week will be a busy one for the group. OKTA has been treading water between the mid-90s and mid-100s since the end of June, and it looks set up well for a volatility strategy for a sympathy play on the Cybersecurity reports this week. Since the start of January, OKTA has a .88 correlation to NET (earnings 8/04) and a nearly .96 correlation to DDOG (earnings 8/04), so there is a good chance that numbers from both should impact the stock. The Aug12 strangle will be a shorter-term strategy targeting a move of 7+ points in either direction over the next two weeks, and because the window for the trade to work is narrow, we will use a 30-40% net debit loss as a stop. This is a more speculative idea, so be sure to plan your size accordingly.
Symbol: SNAP
Style: Swing
Strategy: Strangle
Contracts:
Long Sep16 $10 call
Short Sep16 $13 call
Long Sep16 $9 put
Action Area: $1.10 - $1.40
Comments: SNAP is set up well for a volatility strategy. SNAP’s preliminary May guide was not good, and their guide on July earnings was equally as bad. The stock saw a huge haircut on the May announcement, and it saw another huge drop two weeks ago following its report, with the slide below 10 putting the stock at its worst level since March 2020. SNAP struggled to rebound over the past week, and it has formed a tight lower range under 10 while the 8day ema catches up overhead. Typically, this would be a focus for us as bearish continuation strategy post-earnings, but seeing the sizable bounces on many stocks that were hit on their results, it appears to set up better for a volatility strategy. The Sep16 strangle will be targeting a $1+ move in either direction over the next month, with a relatively balanced risk between the bull and bear side. The trade will use a 40-50% net debit loss initially, and we can institute a technical stop once one side of the position is managed.
On The Radar
EXPE will be on close watch tomorrow. The stock had a great session Friday to close the week with momentum, but an analyst price target decrease this morning pumped the brakes on the rally. EXPE opened red and struggled to make back the early losses during the day, and tomorrow will be an important session to establish direction. With ABNB scheduled to report after the close tomorrow (and likely to impact EXPE), we will tighten the stop on the Aug12 call spread to 100. This was a short-term strategy, so it does not make sense to continue to hold if the stock begins to slide back below key resistance levels.
META dropped to 155 early off the open this morning, leading to the third test of the June low in three sessions. Yet again, the stock found buyers at that level, and today’s bounce carried it into the mid-160s before it finally cooled off. With 155 beginning to turn into a significant area of support, we need to manage the remainder of the strangle more closely. Time is running low, and the stock is struggling to sustain a drop (or rally), so we will give the trade until Wednesday to make an extended move, or we will need to close/roll out the Aug12 options.
Open Positions
Trader Author Portfolio Holdings
**As of 4pm ET August 01, 2022
