DailyPlay – Opening Trade (CSX) Partial Closing Trade (MDT) – April 26, 2023

CSX Bearish Opening Trade Signal

View CSX Trade

Strategy Details

Strategy: Long Put Vertical Spread

Direction: Bearish

Details: Buy to Open 34 Contracts May 26th $31/$29 Put Vertical Spreads @ $0.58 Debit per contract.

Total Risk: This trade has a max risk of $1,972 (34 Contracts x $58) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $58 to select the # contracts for your portfolio.

Counter Trend Signal: This stock is bullish and is expected to pull back as it has reached a point of exhaustion.

1M/6M Trends: Bullish/Bullish

Technical Score: 8/10

OptionsPlay Score: 141

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

Investors didn’t take kindly to First Republic’s news on Tuesday, and along with some earnings disappointments before the open, the SPX sold off 65 points (1.58%) to close at 4072, the lowest close since March 30th. With the general theme I’ve espoused of “Do what worked in the past (until it doesn’t)”, we’ve substantially lightened overall long exposure over the past two weeks, as the significant SPX resistance at 4148/4155 continues to cap the rallies.

However, after the close we got some big tech earnings beats, so as I write this Tuesday evening, I see S&P futures up ~ 18 points from where they closed at 5pm.

There is still much to move the market over the balance of the week, with both economic releases and lots more earnings reports. As I mentioned earlier this week, yesterday through tomorrow has 35% of all SPX companies reporting, so even if we think we know which way the market is going to move based upon where it is now, the reality is that we still could see a rally that hurdles 4155 by Friday. At this point, it’s all data dependent because there really isn’t an overall trend to lean on.

A few portfolio notes/changes:

1. Yesterday I wrote that if any day this week we see MDT trade above $90.50, we’d take another long call off the table. It did that yesterday with an intraday high of $91.00, so if you sold it around when the stock hit $90.50 you exited that contract at about $8.30. (We’re long from $1.92.) That now cuts us down to still holding 4 contracts, with those remaining ones up 322%.
2. On Monday, we went long a GILD call spread. We have plenty of time on these, but IF it is trading today beneath $85.47 (the channel line it broke out from) going into the close, I then want to get out of 4 of 8 long spreads on the close to minimize a loss on what could turn out to be a bearish evening star pattern.
3. We have on 1 last short BROS $30/$28 put spread that expires on Friday. IF today is trading lower on the day going into the closing bell, we will exit that last spread we have on. Otherwise, we will get out of it tomorrow morning.

GILD – Daily

Finally, here’s a new bearish play in one of the big Dow Transport names:  CSX. For the 4th time since last August, it has stalled right at either the bottom or top of its weekly cloud. It did it again a week ago, so let’s look to buy the May 26th $31/$29 put spread. Yesterday it went out at 57.5 cents, or about 29% of its strike differential. Any Friday close above $32.5 will stop us out of this trade.

CSX – Weekly