DailyPlay – Opening Trade (CLF) – June 16, 2022

View CLF Trade

Strategy Details

Strategy: Long Call Vertical Spread

Direction: Bullish

Details: Buy to Open 24 Contracts July 1, 2022 $18/$21 Call Verticals @ $0.85 Debit.

Total Risk: This trade has a max risk of $2,040 (24 Contracts x $0.85 per contract).

Counter Trend Signal: This is a Bullish trade on a stock that is experiencing a bearish trend. 

1M/6M Trends: Bearish/Bearish

Technical Score: 5/10

OptionsPlay Score: 100

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. 

Investment Rationale

The Fed gave us the 75 bps. rate hike that was recently turned into the consensus figure, and investors mildly celebrated with a post- press conference rally to send the SPX up 1.5% (though it was already up about 1.25% before the 2pm announcement), so it wasn’t as much of a victory as the media might want you to believe.

S&P futures are up about 0.6% as I write this Wednesday evening, and gosh, there is such a desire by folks to want this to be the start of a significant move higher. We’d all much be playing with a safe “buy the dip” environment than a scary “sell the rally” one, but can we yet do that and get away with it?  In other words, will the Fed’s rate hike be enough to lock in what was a new 2022 low just two trading days ago and start that rally move?

It’s a darn tough call to make, and I’ll show you why in the weekly QQQ chart:  this week’s new 2022 low “perfected” the Setup -9 count (meaning we like to see bar -8 or -9 be the low of a downmove. Bar -7 was the low.).  But now, the -9 from last week is a “validated” as a potential turning point. We add to this that the cloud’s Lagging Line just came out of the bottom of its cloud, and could become a one bar fake out, OR, it’s still the signal that the even more bearish structural damage from the Lagging Line penetration will lead to further losses. Truly, it’s a tough call.

QQQ – Weekly

So, let’s go look at a name that we previously made money with and is again presenting itself as an opportunity to play the long side: Cleveland Cliffs (CLF).  It’s on a weekly Setup -9 right on its most recent weekly TDST Line. This is as good a place as we’d likely find to play for a bounce. As such, let’s to buy the July 1 $18/$21 call (yesterday it closed at $0.80 mid). We’re paying about 27% of the strike differential, and make money if the stock gets above $18.80 at expiration (which is very doable with any type market rally).

CLF – Weekly