July 26, 2022

Today's Trade Ideas

Symbol: META

Style: Event

Strategy: Strangle


Long Aug12 $175 call

Short Aug12 $180 call

Long Aug12 $145 put

Short Aug12 $140 put

 Action Area: $2.00 - $2.45

Comments: META is an interesting candidate for a volatility strategy on earnings this week. Of the Tech titans reporting this week (and including TSLA last week), options are indicating the largest percentage swing on META, and for good reason. The stock has seen significant volatility on both of its reports in 2022, and there are more question marks around what to expect on its print this week following SNAP’s lackluster guide. Even factoring in GOOGL’s numbers, which just came out after the bell (and have not been a good predictor of action on META this year), META still appears set up well for a large swing on its report. The stock had been in a tight range for the past month until it briefly broke out higher last week. The rally fizzled quickly after SNAP’s results, however, and with it back near 160, there are 20+ points of room higher to retest last week’s high and within striking distance of the June low and key support in the mid-150s. The Jul29 straddle is pricing in an ~$18 move for the week, though, so the Aug12 straddle will use spreads on both sides to get risk down to a level where we can target a 15+ move in either direction. There will be no stop until after the numbers come out, and a lack of a large move will take a toll on the short-term position, so be sure to plan your size accordingly.

Symbol: XLV

Style: Swing

Strategy: Call Spread


Long Sep16 $133 call

Short Sep16 $140 call

Action Area: $2.25 - $2.85

Comments: XLV is a bullish trade idea. Health Care reports have been a bright spot quarter-to-date, and it is starting to lift XLV, which has been treading water in a lower range for a few months. After rolling below the 100day sma and 200day sma in April, XLV has struggled to gain any traction above either since, but solid prints from top names in the sector have carried it up into those moving averages to set up a near-term breakout. On a clean break of 132, XLV should start to build momentum for a run into the high-130s, and traders are likely to take note as Health Care was a leading sector earlier in the year. The Sep16 call spread will be targeting an initial move to 133.50+ to begin locking in money, and because this is a breakout pattern, we will use a tight technical stop at 128.50 (a confirmed failure and drop under the 50day sma) or a 40-50% net debit loss, whichever happens first. 

On The Radar

Another pop to 119 on TLT today and another failure to hold above it. After jumping Friday to 119+ to close the late-May gap (5/27), TLT rolled over on Monday into the 8day ema and 116.50 level. Bonds caught a bid again this morning, but TLT struggled to hold 119 early, starting a steady slide lower into the afternoon. Tomorrow is the FOMC rate decision, and Bonds/Rates should be active, but if TLT struggles to hold above 119 on the next test, we will need to scale back risk on the bull portion of the Aug19 strangle. 

WMT’s warning took down most of the Retail sector today, including BJ, which had been working on a break of the key 70 resistance level. The sharp drop off the open was bought back quickly on BJ, though, and while the stock did finish red, it managed to rally to reclaim the 20day sma by the close. The Sep16 call spread did not have a technical stop to begin with, but we will institute one now as the volatility is picking up across Retail again. The new technical stop will be at 64.75. That would be a lower low (versus today) and lead to a similar-looking reversal pattern as May.

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 26, 2022