July 21, 2022

Today's Trade Ideas

Symbol: TWLO

Style: Event

Strategy: Call Spread


Long Aug19 $105 call

Short Aug19 $110 call

Action Area: $1.15 - $1.50

Comments: TWLO is a slightly more speculative ramp into the report trade idea. Software stocks have seen broad weakness in 2022, but within the sector names that benefited from covid tailwinds have been hit even harder. TWLO’s slide started well before the calendar shifted to 2022, but the selling has been consistent since the start of the year, with the 8day ema, 20day sma, and 50day sma marking the top of its downtrend. The stock most recently tested the latter at the end of March/beginning of April, but it failed before establishing higher support above it. The solid few-day rally on TWLO this week is now setting up the third test of the 50day sma this year, and after a tight couple of months of action, the stock is due for a near-term breakout and resolution of the recent range. Software stocks are recovering, and TWLO’s last two quarters have been solid, so momentum should build as it moves through the 50day sma and early August earnings come into view (8/04). The Aug19 call spread will be targeting a rally on the stock over the next week to lock in money or reduce risk, and the swing trade will use a 30-40% net debit loss as a stop.

Symbol: CHPT

Style: Swing

Strategy: Strangle


Long Sep16 $17 call

Short Sep16 $21 call

Long Sep16 $13 put

Short Sep16 $9 put

Action Area: $1.30 - $1.65

Comments: CHPT is set up well for a volatility strategy. It’s hard to draw up a downtrend any more textbook-perfect than CHPT’s. Beginning at the start of 2021, CHPT has had increasingly lower highs and lower lows for over a year and a half while the stock fell from the mid-40s to the (current) low teens. Several rally attempts year-to-date have failed at trend resistance, and subsequent selloffs have typically been quick and sharp. CHPT is once again nearing the top of the multi-year downtrend after a strong run over the past week, and it is setting up well for a strangle. If the stock decisively clears 16.50-17 (200day sma), it should begin to accelerate higher as it moves out of the trend, while another failure should leave to a sharp correction similar to the previous couple of failures at this level. The Sep16 strangle will be targeting an initial move of 2.5+ points in either direction to begin locking in money, and the swing trade will use a 40-50% net debit loss as a stop (we can institute a technical stop once one side of the strangle is managed).

On The Radar

Tomorrow is weekly Jul22 expiration, and there are no positions set to expire. It has been a busy few sessions of managing trades, though, and with a busy lineup of earnings after the close and before the open tomorrow, there could be some fireworks to wrap up the week, so keep an eye out for updates early.

QQQ and SPY keep climbing after breaking through key moving averages recently, and the Aug19 hedges are moving further out-of-the-money as the ETFs climb. Momentum is strong at the moment, so there is no need to rush into adjusting the hedges, but if the rally continues or if QQQ and SPY begin to tighten up around current levels, we will plan on updating the hedges before the FOMC rate decision on Wednesday. It will be important to have closer-to-the-money positions in place ahead of that event. 

ATVI is closing in on 80. After a strong run over the past week, ATVI finished the session near 79.50 and at its best level since early April. There is a path to the April high (81.13) if momentum remains strong, though the story on ATVI revolves around updates on the MSFT takeover. With the latter scheduled to report next week, we may see some commentary concerning the deal, so we will be on watch for any material updates and/or movement on the stock. The Jan20 call spread has plenty of time until expiration, so it is worth being patient with the position while the trade develops.

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 July 21, 2022