August 14, 2022
Today's Trade Ideas
Long Aug19 $20 call
Short Aug19 $22 call
Long Aug19 $20 put
Short Aug19 $18 put
Action Area: $.90 - $1.15
Comments: M is an interesting candidate for a short-term volatility strategy. This coming week will be all about Retail, with huge reports due out from WMT, TGT, HD, LOW, and more. Volatility has been elevated across the sector following a rough reporting period in May and recent warnings, so earnings this week should be high-impact catalysts for many stocks. M is not scheduled to report until the following week (8/23), but numbers from TGT (8/17) and KSS (8/18) should lead to a large swing on the stock over the next five sessions (M moved >$4 the week of WMT and TGT earnings in May). The short-term Aug19 strangle will be targeting a move of $1+ over the next several sessions to lock in money. There will be no stop until after KSS’s print on Thursday morning, and because the short-term options expire the following day, a lack of movement will take a toll on the position, so be sure to plan your size accordingly.
Strategy: Long Call
Contracts: Oct21 $28 call
Action Area: $.60 - $.80
Comments: UUP is a bullish trade idea. The strong Dollar has been one of the most talked-about stories of the year, with the impact being felt across global industry. UUP put in a new multi-decade high in July, and the hotter-than-expected CPI release on 7/13 led to a fast spike above 29. The 7/14 high marked the top of the rally, however, as UUP has been steadily retreating since that session, following an easing of expectations for further interest rates. The slide has put UUP at key uptrend support at the 50day sma, and it is setting up an interesting bullish bounce pattern similar to June. The last correction in May saw a retracement into the 50day sma, with a bounce and a new high a month later in June. The Oct21 call will be a two-month strategy targeting a retest of the recent high and a potential move above it, similar to the action in June. The initial target will be 28.75+, and the swing trade will have a tight stop below 27.65 or a 40-50% net debit loss, whichever happens first.
On The Radar
Our next Option Session will be tomorrow (Monday 8/15), and we have lots to catch up on. We are moving past the CPI reading and the heart of earnings season, and entering a quieter stretch of news as the calendar shifts to late August. The time frames for trades will likely start to shift from hours/day(s) to weeks, so we will talk about how to plan positions accordingly. Also, if there are any topics you’d like to discuss, send me a message so I can incorporate them into our session on Monday. I hope you all can make it!
Earnings season has come and gone (the heart of earnings, at least), and the CPI has now come gone, and the indices continue to climb. Bulls remained in full control this past week as the cooler-than-expected CPI reading on Wednesday fueled aggressive buying into the weekend. QQQ and SPY closed well above their fast-moving 8day ema, and the only moving average that remains above for both is the 200day sma, which would mark a major development if they can reset above it. Momentum will cool eventually, but until it does, we need to respect the strong action and continue to focus more heavily on bullish patterns.
Tomorrow will be decision day on WMT. After a tumultuous month of action, WMT will turn in its earnings report on Tuesday morning, and the stock is back near its best level of August. The original Aug26 strangle was rolled multiple times on both sides, so the risk has already been reduced substantially before the print. The biggest issue with WMT heading into earnings is that the company has warned on guidance, and that may remove some of the volatility on the event. With the Aug26 options relatively short-term, we may use another push higher on Monday as an opportunity to close out the remainder of the position if the prices make sense. Keep an eye out for a potential update on this trade tomorrow.
CRM had a choppy week. A strong start on Monday faded, leading to a sharp gap down on Tuesday. The stock found buyers around the key 100day sma that session, then snapped back on Wednesday post-CPI to erase the previous day’s losses. It spun around above the 8day ema on Thursday but closed nicely green on Friday, hopefully starting it on a path for a sustained run into the 190s now. The Sep16 call spread has already been rolled up, but we will tighten the stop on the remainder of the position to 180 moving forward (a break below the 100day sma).
Trader Author Portfolio Holdings
**As of 4pm ET August 12, 2022