DailyPlay – Conditional Bullish Opening Trade (LEN) – November 11, 2022

LEN Conditional Bullish Opening Trade

View LEN Trade

Strategy Details

Strategy: Short Put Vertical Spread

Direction: Bullish

Details: Sell to Open 5 Contracts Dec. 16th $82.50/$77.50 Put Vertical Spreads @ $1.10 Credit.

Total Risk: This trade has a max risk of $1,950 (5 Contracts x $390).

Trend Continuation Signal: This is a Bullish trade on a stock that is experiencing a neutral to bullish trend.

1M/6M Trends: Bullish/Bullish

Technical Score: 9/10

OptionsPlay Score: 89

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that if there is a multi-leg option strategy, it should be entered as a single trade. 

Please note that this is a CONDITIONAL trade. We will only enter the trade when the condition is met, which is If we see a decline to that $84.26 to $81.62 zone. Also note that the cost basis, premium received, as well as the number of contracts when we open this trade will therefore be different from what we post today.

Investment Rationale

Stocks ripped higher, yesterday, while bond rates and the dollar fell sharply, all on the heels of a less than expected inflation number. Ms chased all day long to buy – whether covering shorts or getting long – but was it too much too soon on a single piece of data?

We know that this time of year is a particularly favorable period for stocks (i.e., Nov. thru Apr.), and that the mid-term elections is usually a sweet spot for investing. Now this CPI figure gave bulls everything they wanted to see to believe that the market will rally into year’s end.

Before I jump to that conclusion, let’s see what transpires over the next week. The dollar (DXY), which I have recently been bearish to sell down to 108 to 105.50, is nearing that higher number. Here’s a PPI number out next week that would need to confirm lower levels, or that could put a real damper on the bull party, too. And, heck, inflation is still running at 7.7% — hardly a victory for Americans.

I suspect the Fed will raise rates 50 bps. in December, and with all 6 of Fed governors yesterday making public speeches that did not give bulls anything new to celebrate, let’s not get too enthusiastic about a Fed pivot occurring. (I still don’t think it likely, regardless of yesterday’s inflation number.)

Given the massive upmove yesterday, I can look to buy stocks on a pullback over the next week or so. One name to consider in the homebuilder space (a potential beneficiary of lower rates) is Lennar (LEN), which like practically every name yesterday gapped significantly higher. But I’d be inclined to be a buyer in it on a pullback to that overnight gap area anytime in the next week or so. If we see a decline to that $84.26 to $81.62 zone, we’ll then sell a Dec. 16th $82.5/$77.5 put spread at whatever the then current bid/offer mid-price is.

LEN – Daily

Lastly, yesterday we were able to get into the VALE trade idea I put out earlier this week, looking for bullish entry if we saw the stock get down to the $13.75 to $13.50 zone, which it did yesterday with a low of $13.64. Thus, we were able to get long the Dec. 2nd $13.50/$15.50 call spread for about 64 cents.