By Dan Darrow
September 18, 2022
Today's Trade Ideas
Strategy: Call Spread
Long Nov18 $27.50 call
Short Nov18 $32.50 call
Action Area: $1.20 - $1.60
Comments: PINS is a speculative bullish trade idea. Where there is smoke, there may be fire. Chatter has been ratcheting up that PINS may be in play, and strong recent action on the stock and busy activity in the options market lends some credence to the idea. While Social Media peers are breaking to weekly/monthly lows, PINS is trading above the top of multi-month resistance (24), and it wrapped up this past week above the key 200day sma. The solid action has set the stock up for a potential near-term run higher once the overall market stabilizes, and any confirmation of the M&A chatter could drive material upside. The Nov18 call spread will be a speculative position that does need a takeover to work. The strategy will be targeting a technical breakout and initial move to 28+ (a retest of the April high), and the trade will use a 40-50% net debit loss as a stop. The Nov18 options will go through the next earnings release, so they should hold onto premiums better than shorter-term contracts.
Strategy: Put Spread
Long Oct21 $27.50 put
Short Oct21 $20 put
Action Area: $2.30 - $2.85
Comments: GME is a bearish trade idea. Ryan Cohen selling his entire stake in BBBY marked the end of the meme rally, and GME’s turn lower in mid-August started a slide that lasted well through the beginning of September. After hitting 45+ on a momentum surge, GME steadily walked lower seemingly every day for several weeks, losing key moving average support in the mid-30s and previous June/July support around 29-30 shortly after. The drop eventually stopped near 25, and a mixed earnings report helped the stock recover some lost ground a couple of weeks ago, but now GME is setting up for a resumption of the downtrend. GME’s post-earnings rally stalled under previous support at 30, and the 8day ema has turned into near-term resistance while the 20day sma is close to joining overhead as well. With those moving averages putting pressure on the stock, GME should turn lower soon and there is an open path back to the September low (23.42). The Oct21 put spread will be targeting an initial move to <25.50, and the swing trade will have a tight stop above 30.50 or a 40-50% net debit loss, whichever happens first.
On The Radar
Our next Option Session is tomorrow (Monday 9/19), and it comes at the start of a big week for the market. With the FOMC meeting scheduled for Wednesday and volatility set to continue, we will spend time mapping out the scenarios for stocks/market into the key near-term catalyst. It will be a busy one, so I hope you all can make it!
There was the market pre-CPI this past week and post-CPI. The rally that started the previous week continued on Monday as many positioned for a potentially cooler CPI reading, but that put many leaning the wrong way for the unexpected hotter reading on Tuesday. The surprise number led to a massive one-day drop (the largest in two years), and it set the tone for the remainder of the week as QQQ and SPY continued to slide into Friday (FDX’s warning also didn’t help). QQQ and SPY are now back below all near-term moving averages and roughly the same distance from the 52-week low as their high from Monday, giving plenty of reasons to be cautious heading into the critical upcoming week. We saw with the CPI that action can change in an instant, and the FOMC meeting on Wednesday is another huge catalyst that can dramatically alter action, so we will need to be nimble with positions over the next several sessions. Keeping stops tight, taking risk down, and locking in money quicker will be important, as will having a balanced mix of bullish and bearish trade ideas to capitalize on movement in either direction.
QQQ and SPY closed Friday below/at the bottom end of the Oct21 put spread hedges, so they will be a focus early this coming week. With a weak open and lackluster intraday action on Friday, it made sense to stick with the positions to try and squeeze some more premium out of the deep in-the-money options, but they will need to be adjusted prior to the FOMC meeting. Keep an eye out for an update on these two Monday or Tuesday.
ABNB went from relatively strong on Thursday to relatively weak on Friday. The stock ticked up to 129+ on Thursday to give a shot to roll up the Oct21 call spread, but it gave back some gains later that session and dropped sharply Friday morning to the key 120 level. ABNB struggled to hold that level on Friday, and it will be on close watch early this coming week. If the stock doesn’t reset 120 by Tuesday (pre-FOMC meeting), it may make sense to close out the position as the bullish breakout thesis will have changed. Also, we will use 116.75 (a break below the 20day sma) as a hard technical stop Monday and Tuesday.
Trader Author Portfolio Holdings
**As of 4pm ET September 16, 2022