DailyPlay – Opening Trade (FSLR) Closing Trade (TLT) Partial Closing Trade (ADM) – April 5, 2022

Closing Trade

• TLT – 10.16% Loss: Sell to Close 1 Contract (or 100% of your remaining Contracts) April 6th $104.50/$114 Call Vertical Spreads @ $2.74 Credit. DailyPlay Portfolio: By Closing the remaining Contract, we will receive $274. We partially closed this trade on March 28 @ $1.20 Credit when we closed 2 contracts, then on March 31 @ $0.89 Credit when we closed another 2 contracts, on April 4 @ $2.28 when we closed 1 contract. Our average cost basis for exiting this trade is therefore $1.53 Credit and our average loss on this trade is 49.7%.

Partial Closing Trade

• ADM – 57.89% Gain: Buy to Close 2 Contracts (or 25% of your remaining Contracts) April 21st $77.50/$75 Put Vertical Spreads @ $0.40 Debit. DailyPlay Portfolio: By Closing 2 of the 8 Contracts, we will be paying $80.

FSLR Bearish Opening Trade Signal

View FSLR Trade

Strategy Details

Strategy: Short Call Vertical Spread

Direction: Bearish

Details: Sell to Open 3 Contracts April 28th $210/$220 Call Vertical Spreads @ $3.93 Credit per contract.

Total Risk: This trade has a max risk of $1,824 (3 Contracts x $608) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $608 to select the # contracts for your portfolio.

Counter Trend Signal: This stock has rallied to a level of resistance and is expected to pull back lower.

1M/6M Trends: Neutral/Bullish

Technical Score: 10/10

OptionsPlay Score: 101

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 Tuesday’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

“Clear sailing ahead” can get muddied quickly, and yesterday was a perfect example of just that. The SPX peaked 30 minutes into the session, and it was straight down till just after 12pm ET, when they traded in a range for the balance of the day. The SPX lost 58 bps.; the NDX dropped 37 bps.; the Dow 59 bps; and the Russell a far more significant 175 bps. (Renewed fears of recession hit the little stocks the most.)

As the SPX had been nearing the important resistance zone from ~4150 to 4215, I had lightened up a bunch of exposure yesterday morning, just knowing that this key index was getting close to the top end of its 2023 trading range. And as I said in my free weekly In The Know Trader video I posted yesterday on YouTube (https://www.youtube.com/watch?v=TQH-DmZH54U), “Do What Works Until it Doesn’t”.  In this case, lighten exposure on rallies to the top end of the trading range; add exposure at the bottom end. This is precisely what we have done this year, and this is in complete contrast to what has been so many other strategists’ theme in ‘23 of the bulls buying strength and the bears selling weakness.

Before I get to adjusting our positions, let me remind you that I make it a standard personal rule to not let winning trades turn into losers. That doesn’t mean that if an option position is quickly up 5%-10% I might not let it still play out, even if it then goes against me. But if I’m up 25% to 50% on a position, and then the profit goes away, so do I (i.e., I close the position). That means, you need be on your toes for our long IWM trade (entry was $173.85 and the stock closed yesterday only $1.50 higher); and our AKAM trade is now up 15%, so keep an eye on that, too. We’ll be getting out of either/both if our profit erodes down to breakeven.

Next, let’s talk about our long TLT trade that goes off the board on Thursday. We paid $3.05 for a long $104.5/$114 call spread. The ETF is trading at $107.13 as of yesterday’s close, and we’re still down on the trade because too much time past before Mr. TLT got the wax out of his ear to listen to me egging him on to trade higher. He finally got the message, but too little, too late. We have only one spread left, so just make sure you are out of it by Thursday’s close.

Next up: ADM. We’re got on a nice short put trade to the tune of a 58% profit on the remaining 8 spreads. We’ll take two more off today, and on any day that our P&L drops to less than a 50% gain going into the close, we’ll exit another 2 more.

With today being the next to last trading day of the week before a 3-day weekend, you can bet that I won’t be putting on any new long option trades now – whether they be puts or calls. Too much can happen over a long holiday weekend, and why buy something now that loses three days of theta so soon? But here’s a spread I’m willing to sell: the First Solar (FSLR) April 28th $210/$220 call spread. Yesterday it went out at $3.925, or 39% of the spread differential.

FSLR – Weekly

Notice that the close of the massive rally week in February was at $210.11. Not only is price underneath that now, but it only once progressed past that Friday close since then (i.e., last week), and 3 of the 4 prior weekly highs are all between $215 and $220. The longer this doesn’t trade higher, the more it shows some real institutional selling, and the odds increase for a pullback down to the target area I’ve highlighted in the yellow rectangle. Earnings come out one day before the April 28th expiration, so we will be out of this before that report comes out late this month.