By Dan Darrow
August 21, 2022
Today's Trade Ideas
Symbol: CHPT
Style: Swing
Strategy: Strangle
Contracts:
Long Sep30 $16 call
Short Sep30 $19 call
Long Sep30 $14 put
Short Sep30 $ 11.50 put
Action Area: $1.30 - $1.65
Comments: We are going to revisit a strangle strategy on CHPT. Having ridden the recent run higher and exited very near the high, we have been watching for a potential revisit on CHPT, and the correction the last few sessions is presenting an opportunity. The recent trade revolved around either a break or failure of the multi-year downtrend. The move through the 200day sma and the run to 19+ put CHPT solidly above the downtrend, but the pullback has now put it right back at the key resistance level. If CHPT holds ~15, it should be able to start a sustained bounce, but if it continues to slide, it will reset the downtrend and should set up lower prices (there is a clear unfilled gap from 7/27 at 13.14). The Sep30 strangle will be targeting a move of 2+ points in either direction over the next several weeks to lock in money, and the trade will use a 40-50% net debit loss as a stop.
Style: Swing
Strategy: Put Spread
Contracts:
Long Sep30 $44 put
Short Sep30 $39 put
Action Area: $1.70 - $2.05
Comments: NEM is a bearish trade idea with a tight stop. As the largest Gold Miner, it has been interesting to watch NEM’s performance separate from the underlying commodity. NEM sank along with GLD from April through July, but whereas the latter has put together a nice bounce since bottoming several weeks ago, NEM has not. A big part of the problem for NEM was the disappointing July earnings report (7/25), which led to a major multi-year breakdown below 50. The stock has failed to recover since that drop, and it has formed an increasingly tight consolidation between 46.50 and 44 as the 8day ema and 20day sma join overhead. Following Friday’s weak finish, NEM is now slightly below the bottom of the recent range while the two moving averages gradually walk lower, and the stock is setting up for a major breakdown heading into the new week. If NEM holds below 44, it should see an extension down into the 40-41 area, and the Sep30 put spread will be targeting an initial move to <41.75 to begin locking in money. The swing trade will have a tight stop above 45 or a 40-50% net debit loss, whichever happens first.
On The Radar
After a four-week stretch of gains, indices finished in the red this past week as momentum finally cooled. QQQ and SPY tumbled on Friday to close the week on a down note, and the selling may continue into the coming week as both lost the key 8day ema on the session. That moving average has marked the low of the month-long uptrend, so losing trend support is a near-term negative for the market (unless it can quickly reset it on Monday). It will be a busy week of Tech earnings, though, and Friday will feature a statement from Powell at the Jackson Hole conference, so action may change quickly over the five-day stretch. We have lightened up on bullish positions (closing and rolling up) into the recent strength while opening more volatility strategies and bearish strategies as well, giving a good mix of trades heading into the upcoming week. A break of the 20day sma on QQQ and SPY will be the point where the mix needs to start turning more neutral or bearish.
NVAX will be on close watch tomorrow. Back-to-back weak sessions have put NVAX within striking distance of its June low (34.88), and the Sep16 put spread portion of the strangle is close to the money. With the stock nearing a level where it bounced in June, though, we need to make sure it doesn’t start to rebound off ~35 again before we scale back some risk on the position. We will be looking for a quick dip near 35 early Monday, or if the stock is sitting around 36 and struggling to extend lower, we may cut back risk earlier.
The next couple of sessions will be important for UAA. After ticking up to 10.46 on Tuesday, UAA retreated lower the next three days to end Friday under the 8day ema and 20day sma, and it came close to losing the 50day sma before firming up. The technical stop for the Oct21 call is at 9, so with UAA slightly above that following Friday’s close, the stock will need to rebound quickly. DKS earnings on Tuesday morning could move UAA, so we will be watching the action closely this coming week.
Open Positions
Trader Author Portfolio Holdings
**As of 4pm ET August 19, 2022
