August 04, 2022
Today's Trade Ideas
Strategy: Call Spread
Long Sep16 $35 call
Short Sep16 $40 call
Action Area: $1.15 - $1.60
Comments: RUN is a bullish trade idea. We missed the initial spike higher on Solar stocks following the surprise announcement of the green energy bill (now called Inflation Reduction Act), but after a week of choppy action and digestion, some interesting setups are forming. RUN ripped to the low-30s and the 200day sma on the day of the announcement, and it quickly hit the pause button at the key moving average. It has spent the entire week spinning around the 200day sma with buyers showing interest at the 30 level, and a solid earnings print on Wednesday failed to ignite another move. The 8day ema caught up to the stock on Wednesday, and rising support/pressure from the moving average helped RUN begin to push past the 200day sma today. The quick bull flag looks set to resolve higher now, and a test of 2022 resistance around 35 should come soon, with plenty of open space to run above that. The Sep16 call spread will be targeting an initial move to 35+ to begin locking in money, and the swing trade will have a tight stop below 28.75 or a 40-50% net debit loss, whichever happens first.
Strategy: Long Put
Contracts: Oct21 $79 put
Action Area: $2.30 - $2.75
Comments: HYG is a speculative, longer-term bearish trade idea. Treasuries and High-Yield Bonds have both seen large rebounds over the past month as the risk-on mentality flows across assets post-July CPI and post-FOMC meeting. HYG’s bounce has carried it into the 100day sma, setting up the first test of the moving average since the very beginning of January. Traders are betting on a cooler upcoming CPI and a potential Fed pivot, while the Fed says they are data dependent and are pushing back on the pivot narrative. Next week’s CPI reading should give clues as to potential expectations for the September rate decision, and after a significant recovery that has stalled around the 100day sma, there appears to be more downside risk moving forward for HYG. The Oct21 put will be a slightly more speculative strategy targeting an initial move to <76.50 (into the 20day sma) to lock in money, and the swing trade will have a tight stop above 80 (late May high) or a 40-50% net debit loss, whichever happens first.
On The Radar
Tomorrow is weekly Aug05 expiration, and there is one position set to expire: MRK $97 - $100 call spread. This was the bull portion of a strangle that was left open after we took money off the bear portion to cover the net debit of the trade. MRK has struggled to bounce after its report last week, and the call spread will most likely not be in play tomorrow, but if the stock does have a large move higher, I will pass along an update to close the trade.
Next week’s CPI reading on Wednesday will be a significant market event (as has been the case the last few months), and the strong run higher on QQQ and SPY over the past couple of weeks has sent the Sep16 hedges further out-of-the-money. Similar to last month, our plan over the next couple of sessions will be to roll up (potentially out too) the hedges to contracts closer to current trading levels. We want to make sure that the hedges can be in play on a $10-$15 point move lower from here.
TLT has had a volatile week, though it remains range bound strangely. Large swings Monday, Tuesday, and Wednesday made for rollercoaster action on TLT, but it failed to make a decisive push in either direction. It remains range-bound below the 100day sma and needs a strong push above 120 or below 116 to resolve the pattern. Time is beginning to run low on the Aug19 strangle, though, so we will need to see some signs soon that it is getting close to resolving the range, or we will need to manage the position.
Trader Author Portfolio Holdings
**As of 4pm ET August 04, 2022