By Dan Darrow
August 25, 2022
Today's Trade Ideas
Strategy: Call Spread
Long Oct21 $65 call
Short Oct21 $75 call
Action Area: $3.10 - $3.70
Comments: GFS is a bullish trade idea. Semis had a very mixed reporting period, and as the dust begins to settle following a busy few weeks of news, we are getting a clearer picture of the winners and the losers. In addition to posting a strong beat-and-raise earlier in August, GFS stands to benefit from the recent passage of the CHIPS act, and multiple tailwinds have aligned to drive the new(ish) IPO back above a key level. GFS briefly popped above 60 on the day of its results (8/09), and after failing to hold the level that session, it strung together several more days of gains to solidly reset above it. The stock pulled back over the past two weeks similar to the market and the Semi sector, but it has started to find support above 60 as the 8day ema joins underneath. A quickly-rising 20day sma is close below, and the combination of a higher base and steady upward pressure from multiple moving averages helped start a rally today to set up a near-term breakout. The Oct21 call spread will be targeting an initial move to 67.50+, and the swing trade will use a 40-50% net debit loss as a stop.
Strategy: Long Call
Contracts: Oct21 $35 call
Action Area: $1.00 - $1.30
Comments: XLF is a bullish trade idea. We rode the breakout on XLF in July and August when the ETF began to build momentum past the 50day sma, and we exited the trade as the stock closed in on the 100day sma. The latter proved to be barely any resistance on the first, as XLF continued to power higher past it over the following week. Momentum cooled last week, though, and it has had a quick reversal lower to backtest the 100day sma, setting up an interesting near-term bullish strategy. With buyers defending 34 and the 100day sma and the 20day sma joining underneath, XLF is set up well for a turn higher, and today’s rally put it back above the 8day ema to start the move. The Oct21 call will be targeting an initial move to 35.50 to begin locking in money, and the swing trade will have a tight stop below 33.80 or a 40-50% net debit loss, whichever happens first. We will wait to initiate this trade until after 10:00 am EST tomorrow (post-Powell statement) to make sure the setup is still valid.
On The Radar
Tomorrow is weekly Aug26 expiration, and we have no positions set to expire. Powell’s statement at 10:00 am EST will likely have a significant impact on the overall market tomorrow, though, so be sure to be on the lookout for updates mid-morning. Also, check out the Options In Play Youtube video I put together discussing the levels on QQQ/SPY and the priced-in expectations.
GM continues to act great. The overall market may have rolled lower since last week, but GM barely had a dip, with the 8day ema providing solid support on multiple days recently. That moving average has marked the bottom of the month-long uptrend, and it helped put GM in a good position to leg up when the market bounced. GM’s rally today sent it through key recent resistance at 40, and now the stock has an open path to 43+. The Sep16 call spread roll up will be looking for a push past 41 to lock in more money, and we will tighten the stop on the trade now to 38.75 ( a break below the 8day ema).
TDOC got a surprise positive headline today. AMZN announced that they would be shutting down their telehealth service, and as a large player in the space, TDOC responded positively to the news. The early pop was met with sellers right at the 8day ema, though, and it struggled to decisively reset above the key moving average during the session. The initial Sep16 put spread was rolled down recently, so we have already taken some money out of the trade, but a reset of 35 would begin to change the bearish thesis. We will need to keep a close eye on the stock tomorrow, and we will institute a new tight stop at 35.50 moving forward.
Trader Author Portfolio Holdings
**As of 4pm ET August 12, 2022