DailyPlay – Partial Closing Trades (META, TLT, SPOT, XLF, JNJ) – January 31, 2023

Partial Closing Trades

• META – 87.90% Gain: Buy to Close 1 Contract (or 50% of your remaining Contracts) Feb 3rd $123/$113 Put Vertical Spread @ $0.45 Debit. DailyPlay Portfolio: By Closing 1 of the remaining 2 Contracts, we will be paying $45. 
• TLT – 91.35% Gain: Buy to Close 1 Contract (or 50% of your remaining Contracts) Feb 17th $100/$95 Put Vertical Spread @ $0.16 Debit. DailyPlay Portfolio: By Closing 1 of the remaining 2 Contracts, we will be paying $16. 
• SPOT – 53.80% Gain: Sell to Close 1 Contract (or 50% of your remaining Contracts) Feb 17th $90/$110 Call Vertical Spread @ $9.72 Credit. DailyPlay Portfolio: By Closing 1 of the remaining 2 Contracts, we will be receiving $972. 
• XLF – 38.74% Loss: Sell to Close 9 Contracts (or a third of your remaining Contracts) Mar 3rd $35.5/$32.5 Put Vertical Spreads @ $0.41 Credit. DailyPlay Portfolio: By Closing 9 of the 26 Contracts, we will be receiving $369. 
• JNJ – 78.79% Loss: Buy to Close 3 Contracts (or 50% of your remaining Contracts) Mar 17th $170/$165 Put Vertical Spreads @ $3.54 Debit. DailyPlay Portfolio: By Closing 3 of the 6 Contracts, we will be paying $1,062. 

Investment Rationale

Profit-taking was clearly at play yesterday, as traders were locking in profits from the recent run-up before Wednesday’s FOMC announcement. For one of the very few times this year (or maybe even the first; I’m not sure), Staples led daily sector performance. (They were actually higher yesterday – the only sector up on the day while the SPX lost 1.3%.)

As I mentioned in Monday’s weekly outlook webinar, I am not looking to put on new equity positions before we see what transpires on Wednesday after the Fed press conference. Doing so would not only suggest that I can guesstimate what the Fed will say, but then also how investors will react to his press conference words and tone. That’s more than I care to prognosticate with my own money – let alone yours.

But yesterday’s decline does show how easily the market can come off when it wants to. Bulls aren’t going to buy more until they feel that it’s the right zone to do so. I don’t think it’s likely as easy as it just seeing a pullback to the broken downtrend line, for it that’s all it is, then yesterday already achieved that objective.

SPX – Daily

Now, an up-close today above Friday’s close that gets follow-through on Wednesday is potentially another bullish signal that would next target over 4200. Or a down close today that sees a close above last Friday’s high on Wednesday and follow-through on Thursday, also targets that same move to north of 4200 (though a possible Setup +9 count on Thursday could call for a pause and refresh first.

Let’s update some positions: 

1. META: We are still short 2 Feb 3rd $123/$113 put spread. They report tomorrow after the close. Let’s take one spread off either today or tomorrow (pre-Fed) and we’ll let the last one go through earnings, as we have a large cushion before being exercised.
2. TLT: We’re still short 2 Feb. 17th $100/$95 put spreads, up 91%. Let’s get out of one of these today or tomorrow (pre-Fed) as 10-yr. rates continue to hold key support at the weekly Base Line (which this week has moved up to 3.50% (from 3.43%)
3. SPOT: We’re still long 2 Feb 17th $90/$110 call spreads, up 54%. Let’s get out of one of these today or tomorrow (pre-Fed).
4. XLF: We’re long 26 Mar. 3rd $35.5/$32.5 put spreads, down 29%. Let’s exit 9 of those today or tomorrow (pre-Fed).
5. JNJ: We’re short 6 Mar. 17th $170/$165 put spreads. Yesterday’s news with a court not letting JNJ send some 38K talc-related lawsuits into a special bankruptcy situation sent the stock into a tailspin, breaking major support. Our position plunged to a 78% loss in a flash. I have no choice but to sell out of half of these now. JNJ’s intention to appeal this will very not likely be back in court before this expiration date. Now it’s about managing the loss.