By Dan Darrow
September 01, 2022
Today's Trade Ideas
Long Oct21 $25 call
Short Oct21 $30 call
Long Oct21 $15 put
Short Oct21 $12.50 put
Action Area: $1.35 - $1.75
Comments: ICPT is a candidate for a volatility strategy into a pivotal data readout. A fallen Biotech star, ICPT will have one more chance to turn around its prospects in the NASH space in September when the company releases results from the Phase 3 REVERSE trial. This will be a significant event for the company, and the stock will be volatile accordingly. The Oct21 straddle is pricing in a ~$5.75 move over the next month and a half, but the stock’s potential upside if the data is surprisingly positive greatly outweighs the potential downside if the trial disappoints (some analysts argue the stock could rally 100%+ if positive). Further adding to the equation, ICPT is one of the most heavily-shorted stocks in the entire market (~44% short interest), which could exacerbate moves in either direction. The Oct21 strangle will be skewed slightly to the bull side to compensate for the risk/reward of the setup. The trade will have no stop until after data is released, so be sure to plan your size accordingly.
Long Sep30 $34 call
Short Sep30 $39 call
Long Sep30 $28 put
Short Sep30 $24 put
Action Area: $1.65 - $2.15
Comments: SHOP is an interesting candidate for a volatility strategy (though there is no event like ICPT). META may have moved too quickly off its key recent support level to get involved, but it is not the only Tech name to have dropped into an important area this week. SHOP has steadily retraced the entire bullish reversal it saw from ~30 post-earnings, with today’s early slide briefly putting it under 30 for the first time since July. The key level ended up holding again, however, and it is creating a near-term make-or-break setup on the stock. The last few times SHOP held 30-31, it saw a minimum $6+ rally in one to two weeks (with several of the rallies $10+). If the stock breaks four-month support, there should be a sizable extension to the downside, with a move into the mid-20s possible. The Sep30 strangle will be targeting a move of $5+ in either direction over the next couple of weeks to lock in money, and the swing trade will use a 40-50% net debit loss to begin with.
On The Radar
Note: I will be out of office tomorrow, September 02. I am still planning to send an update around the open if trades need to be adjusted but there will be no more intraday updates throughout the session.
Tomorrow is weekly Sep02 expiration, and there are no open positions set to expire. The monthly jobs report is due out before the open and may lead to a larger swing early.
XME is on close watch. Many Commodities have rolled over sharply this week, and the broad weakness has weighed on XME. While it attempted to stabilize around the 200day sma on Tuesday and Wednesday, today’s gap open put it well below that moving average, and it led to a test of the 50ay sma for the first time since early August. If XME doesn’t bounce quickly off the 50day sma (or loses 46.50 now), we will need to close the remainder of the longer-term Dec16 call spread. The next support level below the 50day sma is ~45, and that would be a serious blow to the bull thesis.
GM snuck in a gain on the session today after a late rally, and it came within a few cents of resetting the 20day sma on the push. GM has acted great since the start of August, and even though it has started to slip below the 8day ema and 20day sma, the overall pullback is only modest. If GM can continue to hold around 37.50-38, it may make sense to roll out the remainder of the Sep16 swing trade to October (or later) to stick with the name as it grinds higher. We will give the trade a few more days to make sure it has stabilized, then make a decision on the position.
Trader Author Portfolio Holdings
**As of 4pm ET September 01, 2022