DailyPlay – Closing Trade (ABBV) Partial Closing Trade (XLF) Opening Trade (GE) – February 9, 2023

Closing Trade

• ABBV – 4.35% Gain: Buy to Close 7 Contracts (or 100% of your Contracts) Feb 10th $145/$141 Put Vertical Spreads @ $1.54 Debit.DailyPlay Portfolio: By Closing all 7 Contracts, we will be paying $1,078. 

Partial Closing Trade

• XLF – 68.62% Loss: Sell to Close 3 Contracts (or 20% of your remaining Contracts) Mar 3rd $35.5/$32.5 Put Vertical Spreads @ $0.21 Credit.DailyPlay Portfolio: By Closing 3 of the remaining 17 Contracts, we will be receiving $63. 

GE Bearish Opening Trades

View GE Trade

Strategy Details

Strategy: Long Put Vertical Spread

Direction: Bearish

Details: Buy to Open 12 Contracts Mar 24th $83/$77 Put Vertical Spreads @ $1.60 Debt per contract.

Total Risk: This trade has a max risk of $1,900 (12 Contracts x $160).

Counter Trend Signal: This is a stock that is currently bullish and overbought, and a retracement lower is highly likely.

1M/6M Trends: Bullish/Bullish

Technical Score: 10/10

OptionsPlay Score: 136

Entering the Trade

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

Please note that these prices are based on Wednesday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

Investment Rationale

Investors took a little bit more realistic view of the economy and Chair Powell’s comments from Tuesday, and turned yesterday into a profit-taking day – mostly offsetting most of Tuesday’s 1.3% rally by falling 1.1% on Wednesday. GOOGL’s 7.6% decline made Communication Services the worst-performing sector, while Health Care was the best performer, with all 11 sectors down on the day.

This morning we’re going to see earnings from one of our open positions: ABBV. When we first sold the put spread, I had said we would carry it to right before today. We have until tomorrow for the Feb 10th $145/$141 put spread options to expire, but this morning’s earnings report will make this all but a binary “winner or loser” event. Just make sure you’re out of it by today’s close unless today shows a large gain.

ABBV – Daily

We are also long 17 March 3rd XLF $35.5/$32.5 put spreads. We previously took off about 1/3 of the position, and today we’ll take it down 3 more spreads to bring it to 14 remaining.

There’s a lot of up and down going on in the market, but that has not made me change my view that the SPX could get a 5% pullback from the mid-4100 level. As such, I am looking for new bearish ideas, and one that pops up is revisiting a successful bearish play we had on a couple of months ago: GE. Notice on its daily chart below that there is a real rhythm to this name, peaking on Aggressive Sequential +13 signals, and then bottoming into a Setup -9 count.

GE – Daily

A recent +13 showed up last week, and I’ll again look for this to head lower in the coming weeks. Thus, we’ll look to buy a March 24th $82/$77 put spread, which went out yesterday at $1.60 mid, or 32% of the strike differential (Notice that MACD sell signals just happen to come about one week after the prior two +13 signals showed up.) As is frequently the case, I’d rather be an option seller than buyer, but selling the call spread yielded something near 20% — a level I would never sell a spread for.