July 28, 2022

Today's Trade Ideas

Symbol: GM

Style: Swing

Strategy: Long Call

Contracts: Sep16 $35 call

Action Area: $2.35 - $2.85

Comments: GM is a bullish trade idea. Legacy Automakers have not been a great place to be in 2022, but sentiment is beginning to improve, and both F and GM are working on breaks of their year-to-date downtrends after earnings this week. GM’s quick dip to the 20day sma on the day of its results as bought back quickly, and back-to-back strong sessions have powered it through 35 and the 50day sma (today’s rally was thanks in part to F’s big quarter). Breaking above the latter is important, as that moving average has marked the top of the downtrend on several occasions over the past few months, including the recent test of it last week. With the stock beginning to clear a significant area of resistance, momentum should build for a run to the 100day sma (37.75), and the Sep16 call will be targeting an initial move to 37.50 to begin locking in money. The swing trade will have a tight stop below 33 (under the 20day sma) or a 40-50% net debit loss, whichever happens first.

Symbol: DFS

Style: Swing

Strategy: Put Spread


Long Sep16 $97.50 put

Short Sep16 $90 put

Action Area: $2.15 - $2.75

Comments: DFS is a fast-developing bearish trade idea. There were good reports in the Credit Card space this quarter, and then there was DFS. Earnings and revenues were not the issues on the 7/20 report, but a previously undisclosed investigation into its student-loan services sent the stock sharply lower. The drop erased the 10%+ rally DFS had seen ahead of its print, and it put the stock below all near-term moving averages. DFS has struggled to reset above 100 and the 20day sma this week, and now the 8day ema has caught up overhead to begin pressuring the stock to the downside. On a clean break of recent support (~98), DFS has an open path back to its July low (93.87), and the Sep16 put spread will be targeting an initial move to <96.50 to begin locking in money. The swing trade will have a tight stop above 102.25 (above the 50day sma) or a 40-50% net debit loss, whichever happens first.

On The Radar

Tomorrow is weekly Jul29 expiration, and there are no positions set to expire. It’s been a busy week, though, and we are knee-deep in earnings, so there is a good chance of a volatile morning tomorrow. Be on the lookout for updates early!

We left the bull portion of the MRK Aug05 strangle open into earnings because we had already removed money twice on the bear portion of the strangle (and closed it entirely recently). The stock had a mixed session today after a solid print. It opened red, dropped to the 100day sma quickly, rebounded to erase the losses, but then rolled over late to end red again. Once the bell rang, MRK was still stuck under the 50day sma and around 90, so the Aug05 call spread is now a long shot. With an announcement of a potential SGEN deal unlikely by Aug05 expiration, there are no major catalysts left for the stock in the short term, so the focus over the next few sessions will be to recover whatever premium is possible on the call spread. 

At this rate, WMT may rebound enough to scale back risk on the bull portion of the Aug26 strangle again. The surprise guide and huge drop are a thing of the past as WMT has staged a significant bounce the past two sessions to nearly erase the entire drop. What comes next is hard to say following the huge volatility this week, but the Aug26 strangle has now been managed on both sides, and there are four weeks until expiration, including an earnings report. We can sit tight on the trade to let it find direction, and if it begins to tighten up over the next one-to-two weeks, it might be smart to roll down/up the spreads to closer-to-the-money options ahead of the earnings report.

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 28, 2022