Investment Rationale

As markets melt down over the past few trading sessions, we must close out a few trades that are at its stop loss levels which are GOOGL and OIH. 

Closing Trades

• GOOGL – 143.40% loss: Buy to Close 3 Contracts (or 100% of your Contracts) August 30th $185/$175 Put Vertical Spreads @ $8.30 Debit. 
  DailyPlay Portfolio:  By Closing all 3 Contracts, we will be paying $2,490. We initially opened these 3 Contracts on July 16 @ $3.41 Credit. Our average loss, therefore is $489 per Contract.
• OIH – 91.13% loss: Buy to Close 2 Contracts (or 100% of your Contracts) September 16th $330/$312.50 Put Vertical Spreads @ $11.85 Debit. 
  DailyPlay Portfolio:  By Closing both Contracts, we will be paying $2,370. We initially opened these 2 Contracts on June 30 @ $6.20 Credit. Our average loss, therefore is $565 per Contract.

COST Bearish Opening Trade Signal

Investment Rationale

Consumers sentiment and trends have been deteriorating and retailers that trade at rich valuations are vulnerable to a bigger decline. Given the current market conditions and sector underperformance, Costco’s valuation appears unsustainable. The retail and consumer discretionary sectors have been lagging, and Costco’s high valuation makes it vulnerable to further declines if growth expectations are not met.

Technical Analysis

Recently, the stock broke below a crucial support level at $840, coupled by deteriorating relative strength compared to the S&P 500. And momentum has turned negative signaling the start of a bearish trend. The overall technical outlook suggests a risk of continued underperformance. 

COST – Daily

Fundamental Analysis

COST trades at 46 forward earnings, which is more than 100% higher than the industry average of 22. Despite this premium valuation, Costco’s growth metrics are not exceptionally superior to its industry peers. The expected EPS growth rate for the next 3-5 years is 11%, with expected revenue growth rate is 7%. These are only marginally better than the  industry averages of 9% EPS growth and 4% revenue growth. Furthermore, Costco’s net margin of 3% is comparable to the industry average of 2%. The high valuation coupled with relatively thin margins, indicates that investors are paying a premium for the “cult” that is Costco. 

Trade Details

Strategy Details

Strategy: Long Put Vertical Spread

Direction: Bearish Debit Spread

Details: Buy to Open 1 COST Sept 20th $800/$750 Put Vertical Spreads @ $11.35 Debit per Contract.

Total Risk: This trade has a max risk of $1,135 (1 Contract x $1,135) based on a hypothetical $100,000 portfolio risking 1%. We suggest using 1% of your portfolio value and divide it by $1,135 to select the # contracts for your portfolio.

Trend Continuation Signal: This is a bearish trade on a stock that recently turned bearish and is expected to continue lower.

1M/6M Trends: Bearish/Neutral

Relative Strength: 7/10

OptionsPlay Score: 137

Stop Loss: @ $5.68 Credit (50% loss of premium)

View COST Trade

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 Thursday’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. 

View COST Trade

Investment Rationale

With PYPL reporting better than expected earnings, we have now earned more than 98% of the total max gain of the trade. Let’s therefore close this trade today.

Closing Trades

• PYPL – 98.71% gain: Buy to Close 16 Contracts (or 100% of your Contracts) Aug 2nd $60/$56 Put Vertical Spreads @ $0.02 Debit. 
  DailyPlay Portfolio:  By Closing all 16 Contracts, we will be paying $32. We initially opened 8 Contracts on June 21 @ $1.57 Credit and then another 8 Contracts on July 12 @ $1.54 Credit. Our average gain, therefore is $153.50 per Contract with a total gain of $2,456 which is a 2.5% gain on our Portfolio.

Investment Rationale

After reporting better than expected earnings, we have now earned more than 95% of the total max gain of the trade. Let’s close out this trade for a win and continue to monitor our other positions for potential exit opportunities in AZN and MS. 

Closing Trades

• AZN – 8.38% gain: Buy to Close 26 Contracts (or 100% of your Contracts) Aug 16th $77.50/$75 Put Vertical Spreads @ $0.82 Debit. 
  DailyPlay Portfolio:  By Closing all 26 Contracts, we will be paying $2,132. We initially opened 13 Contracts on July 1 @ $0.83 Credit and then another 13 Contracts on July 11 @ $0.96 Credit. Our gain, therefore is $195.
• MS – 14.79% loss: Buy to Close 8 Contracts (or 100% of your Contracts) Aug 9th $104/$100 Put Vertical Spreads @ $1.63 Debit. 
  DailyPlay Portfolio:  By Closing all 8 Contracts, we will be paying $1,304. We initially opened these 8 Contracts on July 15 @ $1.43 Credit. Our average loss, therefore, is $20 per contract.

OIH Bullish Opening Trade Signal

Investment Rationale

As crude prices drop to a major support level around $75, reaches oversold conditions and geopolitical risks rise, a potential opportunity arises in energy stocks. One way to seek bullish exposure is using the Oil Services ETF (OIH). With SLB, BKR and HAL accounting for nearly 40% of the ETF. We currently see strength in these energy names, especially if oil bounces from these levels. OIH recently broke out above its $330 resistance level which now acts as support. I’m using options to seek a neutral to bullish exposure by selling the Sept 6 $330/$312.5 Put Vertical @ $7.00 Credit. 

OIH – Daily

Trade Details

Strategy Details

Strategy: Short Put Vertical Spread

Direction: Bullish Credit Spread

Details: Sell to Open 2 OIH Sept 6th $330/$312.50 Put Vertical Spreads @ $7.00 Credit per Contract.

Total Risk: This trade has a max risk of $2,100 (2 Contract x $1,050) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $1,050 to select the # contracts for your portfolio.

Trend Continuation Signal: This is a bullish trade on an ETF that is in a bullish trend, and expected to continue higher.

1M/6M Trends: Bullish/Bullish

Relative Strength: 7/10

OptionsPlay Score: 99

Stop Loss: @ $14.00 Debit. (100% loss to the value of premium)

View OIH Trade

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 Monday’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. 

View OIH Trade

DailyPlay Portfolio Review

Investment Rationale

As we head into the big week of earnings and a Fed announcement, investors are asking if the strength that we saw into the close of last week will continue, or if selling start to take over again. Our view is that markets will likely stabilize, however earnings would be the wildcard that could send stocks lower, just like GOOGL and TSLA did last week. We’re looking to close out MS, PYPL and potentially AZN this week to remove some long exposure going into earnings week and Fed decision. 

Our Trades

AZN – 18 DTE

Bullish Credit Spread – Support at $76 still holds with a break above $80 as the next upside target.

GOOGL – 32 DTE

Bullish Credit Spread – Following further downside last week, GOOGL found support at $167 which is expected to be confirmed by price action over the next few days.

MS – 11 DTE

Bullish Credit Spread – Trading above $104 our short strike, look to close this trade this week. 

MSFT – 39 DTE

Bullish Credit Spread – Support at $420 is holding, as expected, with the next upside target at $445.

PYPL – 4 DTE

Bullish Credit Spread – We will look to close out PYPL in the next couple of trading sessions as it just trades above our breakeven price. 

MSFT Bullish Opening Trade Signal

Investment Rationale

Heading into earnings next week, Microsoft is positioned to continue capitalizing on the growing demand for AI and cloud computing services, underscored by the cloud revenue growth reported by Alphabet this week. The company’s leading position in AI and cloud computing makes it a compelling trade for next week. The recent pullback to a major support level and recent outperformance provides an attractive risk/reward opportunity to add bullish exposure before it reports.

Technical Analysis

MSFT has recently pulled back to a significant support level at $415. This pullback provides a favorable entry point with reduced downside risk. Lastly with relative strength of MSFT compared to the S&P 500 remaining positive, and momentum is starting to turn positive again, this provides a bullish signal heading into earnings next week.

MSFT – Daily

Fundamental Analysis

From a valuation perspective, MSFT trades at 31x forward earnings, which represents a 50% premium to the average S&P 500 stock. However, this valuation is potentially justified given MSFT’s industry-leading margins and expected EPS and revenue growth rate of 16 and 15% respectively, driven by its strong presence in AI and cloud computing. Industry leading net margins of 36%, indicates both a highly efficient operation and high profitability on revenues.

Trade Details

Strategy Details

Strategy: Short Put Vertical Spread

Direction: Bullish Credit Spread

Details: Sell to Open 1 MSFT Sept 6th $420/$395 Put Vertical Spread @ $9.45 Credit per Contract.

Total Risk: This trade has a max risk of $1,555 (1 Contract x $1,555) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $1,555 to select the # contracts for your portfolio.

Counter Trend Signal: This is a bullish trade on a stock that is currently bearish but expected to bounce higher off support.

1M/6M Trends: Bearish/ Mildly Bearish

Relative Strength: 3/10

OptionsPlay Score: 91

Stop Loss: @ $18.90 Debit. (100% loss to the value of premium)

View MSFT Trade

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 Thursday’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. 

View MSFT Trade

Investment Rationale

With the S&P 500 breaking below the key support level of $5450 today, the tone of the market shifts to be far more fearful and bearish. The narrowness of the market over the past few months is starting to rear its ugly head as everyone heads for the exits across a few crowded trades. With Semis leading the move lower we much trim our long exposure further with TSM today. 

Closing Trade

• TSM – 116.36% loss: Buy to Close 2 Contracts (or 100% of your Contracts) Aug 23rd $185/$170 Put Vertical Spreads @ $11.90 Debit. 
  DailyPlay Portfolio:  By Closing both Contracts, we will be paying $2,380. We initially opened these 2 Contracts on July 10 @ $5.50 Credit. Our average loss, therefore, is $640 per contract.

Investment Rationale

Despite markets recovering from the lows of last week, our LULU trade has triggered our stop loss threshold and requires trimming. We are going to close out LULU today and continue to hold the rest of our short theta positions (where time works in our favor) and look for further exit opportunities across our other DailyPlay portfolio positions. 

Closing Trade

• LULU – 51.06% loss: Sell to Close 2 Contracts (or 100% of your Contracts) Aug 16th $290/$320 Call Vertical Spreads @ $5.32 Credit. 
  DailyPlay Portfolio:  By Closing both Contracts, we will receive $1,064. We initially opened these 2 Contracts on July 18 @ $10.88 Debit. Our average loss, therefore, is $556 per contract.

DailyPlay Portfolio Review

Investment Rationale

Bulls had a strong showing to start the week and stem last week’s losses. However, will there be further follow through this week? In my Monday Morning Macro Outlook session I laid out why I felt that we had a buy the dip opportunity to start off the week. So far we’ve seen the start of it but need to see it continue into the week for us to further confidence that downside risks have been mitigated. With GOOGL and TSLA earnings on deck tomorrow afternoon, all eyes are on earnings season to dictate the next leg of equities. Since our net positions are short theta I am comfortable holding them as we wait for further evidence and collect premium as we do so.

Our Trades

AZN – 24 DTE

Bullish Credit Spread – AZN gapped higher yesterday, pushing our gains to almost 25% on this trade. A break above $80 will likely lead to a continuation of this uptrend.

GOOGL – 38 DTE

Bullish Credit Spread – Google gapped higher yesterday to finish the trading day just short of breakeven. The next bullish target is at $190.

LULU – 24 DTE

Bullish Debit Spread – LULU also had a positive day, recovering some of the recent losses, as support at this level is holding.

MS – 17 DTE

Bullish Credit Spread – Support around the $100 mark held for MS yesterday and an upside recovery seems likely.

PYPL – 10 DTE

Bullish Credit Spread – PYPL recovered and is now trading in positive territory. A break above $62 will likely lead to upside gains, targeting $65 and then $68.

TSM – 31 DTE

Bullish Credit Spread – TSM bounced off $165 support yesterday. This warrants holding onto this position in anticipation of further upside.