By Dan Darrow

August 18, 2022

Today's Trade Ideas

Symbol: BIIB

Style: Event

Strategy: Strangle


Long Oct21 $285 call

Short Oct21 $300 call

Long Oct21 $175 put

Short Oct21 $165 put               

Action Area: $3.50 - $4.80

Comments: BIIB is a candidate for a volatility strategy into a huge upcoming data readout. BIIB and its partner ESALY are due to report Phase 3 Alzheimer’s data in September, and this next-generation drug has been closely watched following the recent Aduhelm debacle. To say the readout is important to BIIB is an understatement. With management in flux and the pipeline thin, the outcome of this trial will have a large impact on the stock, with some analysts predicting a 50%+ move if positive and a 30%+ drop if negative. Because the companies have guided to September as a timeframe, there are a couple of weeks to work into an option position for the event, and we may need the time as the contracts are thinly traded at the moment. With wide bid/ask spreads and low volume, we will need to be patient opening the Oct21 strangle. The plan will be to look for an entrance opportunity within the action area sometime over the next two weeks (before September 1st), and if the contracts do not line up by then, then we can adjust the strategy. This is a higher-risk setup (a lack of a large move will hurt the out-of-the-money options), and there will be no stop until after the data is released, so be sure to plan your size accordingly. 

 Symbol: PLTR

Style: Swing

Strategy: Long Put

Contracts: Oct21 $10 put

Action Area: $1.25 - $1.50

Comments: PLTR is a bearish trade idea. Unlike many names this quarter, PLTR did not recover from a weak report quickly, and now it is susceptible to another leg lower. PLTR sank into the 50day sma after reporting downbeat results early last week. It held the moving average well initially and attempted to make a push back above 10 but failed to clear that level and the 100day sma. Selling has been steady on the name the past couple of sessions now, and today’s drop put it solidly below the 50day sma for the first time since mid-June. Having lost near-term support, PLTR should begin to build momentum on the downside, and under the August low (9.01), there is an open path to 8.24 to fill the 6/17 gap. The Oct21 put will be targeting an initial move to <8.70 to begin locking in money, and the swing trade will have a tight stop above 10.15 (above the 100day sma) or a 40-50% net debit loss, whichever happens first.

On The Radar

Tomorrow is main monthly Aug19 expiration, and there are no positions set to expire. After a choppy couple of sessions of digestion, we may be due for a busy Friday, so be sure to be on the lookout for early updates tomorrow morning!

After a strong breakout last week, XME is digesting the recent run well. When XME cleared the 200day sma and 50 level last week, it rallied quickly up into the 100day sma, where it has since paused. A week-long consolidation under that moving average has allowed the fast-moving 8day ema to catch up underneath, and today’s strong session put the ETF slightly above the 100day sma to potentially start another leg higher. Above ~52, there is room to 55+, so we will be watching for another opportunity to scale back risk on the Dec16 call spread soon. 

Let’s see what XLE has in the tank for tomorrow. A choppy week looks set to end on a high note if XLE can hold and build higher tomorrow. The ETF broke through key 100day sma resistance today and finished nicely above it, with a close near the high of the day signaling strong buying interest late. If XLE can start to push through 80 now, it should build momentum quickly as it leaves the lower range, and the Oct21 call spread should be in great shape. 81+ is the initial target for the position, and we will be patient with the trade until it nears that 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 18, 2022