By Dan Darrow
September 12, 2022
Today's Trade Ideas
Strategy: Call Spread
Long Oct21 $28 call
Short Oct21 $32 call
Action Area: $.95 - $1.30
Comments: BE is a bullish trade idea. The Hydrogen Fuel Cell names exploded higher in August along with many other Green Energy-related names, and BE nearly doubled over a fantastic three-week stretch. Contributing to BE’s run was a solid report on 8/9, which helped the stock leg up sharply from ~25 to 30+ and decisively clear previous 2022 resistance. A secondary announcement soon after knocked the stock back into the 25 level again, but it has stabilized around previous resistance and looks set to turn the corner higher as it resets above the 8day ema and 20day sma. On a clean break of 27, BE should begin to build momentum for a move to 30+ to fill the 8/15 gap, and the Oct21 call spread will be targeting an initial move to 28.50+ to begin locking in money. The swing trade will have a tight stop below 23 (under last week’s low) or a 40-50% net debit loss, whichever happens first.
Strategy: Put Spread
Long Oct14 $63 put
Short Oct14 $58 put
Action Area: $1.60 - $2.00
Comments: OKTA is a fast-developing bearish trade idea (with a tight stop). Whether it was poor timing or a disappointing report (or a combination of both), OKTA’s earnings release on 8/31 led to a massive drop to begin September, and after a week of digestion, the stock is prepping for another leg lower. OKTA’s drop on the day of its print sent it through the bottom of monthly support in the high-70s, and it continued to fall sharply into the high-50s on huge volume. The stock closed that session near 60 and it has managed to stabilize over the past week, but a marginal bounce has put it in a susceptible position. The 8day ema has nearly caught up overhead as the stock consolidates in the low-60s, and declining resistance from that moving average should set a near-term ceiling on the stock and begin pressuring it lower. The Oct14 put spread will be targeting an initial move to <62 to begin locking in money (with an eventual retest of the earnings low), and the swing trade will have a very tight stop above 68.50 (above the 8day ema) or a 30-40% net debit loss, whichever happens first.
Note: Because the overall market and BE and OKTA are likely to be volatile following the CPI release tomorrow morning, we will give the stocks 30-45 minutes after the open to make sure the patterns are still valid before initiating the trades.
On The Radar
ULTA has had a solid run since clearing 425-430 resistance, including a push last week to a new all-time high above 440. The stock continued to work its way higher today, with a fast spike above 450 briefly sending the Oct21 call spread roll up into the money. The move above 450 only lasted one minute, though, so it was too quick to manage the position intraday. The plan will be to watch for another push past 450 to reduce risk further, and at the same time, we tighten the stop on the downside to 430 moving forward.
XLE has shown quite a bit of relative strength compared to Oil. When USO broke its multi-month support level around 70-71 last week, XLE came nowhere close to testing its low from August or July. It has found buyers around the key 100day sma multiple times since breaking out, and over the past two sessions, has put together an impressive rebound back into the low-80s. The original Oct21 call spread has already been rolled up twice, but the current position still has a chance to work if Oil can continue to rebound. We will be patient with the call spread for now because a chunk of money has already been locked in, and we can tighten the stop to 77.50 moving forward.
The CPI release before the open tomorrow will have a large impact on the action during the session, and it could set momentum in motion into the FOMC rate decision next Wednesday. QQQ and SPY are likely to be volatile tomorrow, so I put together a Youtube video breaking down what is priced in option-wise and what levels to watch depending on whether we continue to run or reverse lower. You can find the video on the T3 Youtube page under the Options In Play playlist tab.
Trader Author Portfolio Holdings
**As of 4pm ET September 12, 2022