View PAAS Trade

PAAS Bullish Opening Trade Signal

Strategy Details

Strategy: Call Debit Spread

Strategy Direction: Bullish

Details: Buy to open April 14, 2022 $26/$30 Call Vertical @ $1.11 Debit

Bullish Trend Signal: This is a bullish strategy on a stock or ETF that is experiencing a bullish 1M trend. 

1M/6M Trends: Bullish/Neutral

Technical Score: 7/10

OptionsPlay Score: 124

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

With the Ukraine crisis continuing, many markets have recently turned around, including bond yields peaking; the dollar getting a bid; stocks still pulling back, and precious metals seeing new life after a long sleep time.  It is the latter that will be our focus for today’s Options Play, for we see the beginnings of a new upside breakout in Pan American Silver Corp. (PAAS).

Yesterday we saw a bullish closing breach of the horizontal, green-dashed line that represents the highs of the two-month trading range ($25.55) and a stall right against the downtrend line ($25.73 today and falling 5 cts./day) from the Feb. 2021 high (in light blue).  We think in short order that this will get a more substantial upside breakout that will exceed the November highs to target the unfilled gap between $29.94 and $30.26.

Therefore, we are going to look to buy the April 14^th $26/$30 call vertical spread at last night’s closing mid-price ($1.11) or better.  We are laying out only 27.75% of the strike differential.  The maximum gain on this is $2.89.  (Should we wake up to find that metals are down sharply Tues. morn, you could also consider the April $25/$30 vertical.)

• NOC:175% Loss: Buy to close Apr 1, 2022 390/405 Call Verticals @ $14.00 Debit. 

Equities continue to be pressured with the Ukraine crisis being the key focus in dictating short-term direction. While price action late last week was encouraging, SPX now needs to break above yesterday’s high to provide evidence of a trading low at the $4130 level. We take this opportunity to close out the NOC credit spread after price broke above the $400 resistance level and invalidated our bearish thesis. 

View TJX Trade

Strategy Details

Strategy: Call Debit Spread

Strategy Direction: Bullish

Details: Buy to open April 14, 2022 $65/$72.5 Call Vertical @ $3.15 Debit

Counter Trend Signal: This is a bullish strategy on a stock or ETF that is experiencing a bearish trend. 

1M/6M Trends: Bearish/Bearish

Technical Score: 4/10

OptionsPlay Score: 94

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

TJX managed to break above the $68 level in November 2020 and has remained rangebound since. However, relative to the XRT retail sector ETF, TJX has shown outperformance in recent weeks. From a fundamental perspective, TJX is trading at roughly 15x next year’s earnings, a significant discount to the 5 year average of 22x. 

Thus, we will look to buy the April 14 $65/$72.5 call spread for a $3.15 Debit. As this is a debit spread, we will be looking to take profits anywhere between 75%-100% and cut losses around 50%. 

Taking Profits

• MS: 77% Gain: Buy to close Apr 1, 2022 $102/$109 Call Vertical @ $0.58 Debit. Close half of this position. For example, if 10 contracts were opened for this trade, we recommend closing 5 contracts.

With the S&P futures having traded in a 4.5% high-to-low range yesterday, we saw an average month’s price movement in a single day, and a VIX trading from a high near 38 to a close just above 30.  This is not an environment for us to be issuing 4-6 week option expiration trades, and I am suggesting we lay low for a bit and see what happens over the weekend.

However, we will soon be making trade ideas available that have updates distributed intra-day (e.g., when we see a target hit in the underlying security, and we want to trim or even exit an option trade we have on).  In fact, we will likely soon be entering/exiting options ideas more regularly based on what the underlying is doing in real-time.  That is, after all, what most successful traders are doing.

Tuning to the market, the S&P not only posted a possible near-term low on Thursday with a new daily Setup -9 count, but the other key levels l wrote about in yesterday’s Flash Note were all exceeded by the close. That means that the SPX is still holding above the key 4118 and 4164 support levels that were shown on the weekly chart. (We need to see if that stays true by today’s close, as week-ending closes are what matter on weekly charts).

Like the SPX, I see that Morgan Stanley (MS) also made a daily Setup -9 yesterday, so we will close out half of the MS position we put on last Thursday, when we sold the April 1 $102/$109 call vertical for about $2.50.  It closed last night at a $0.58 mid-price.

Let’s see what news pans out over the weekend, both in the Ukraine as well as if China tries to flex their muscles in Taiwan.  The China thing could be a whole new issue for investors to deal with. 

Rick Bensignor

Chief Market Strategist

Closing Trade

• SHW:136% Loss: Buy to close Mar 18, 2022 $270/$290 Put Vertical @ $16.50 Debit.

Please note, that half of this position was closed on Feb 17 at $13.30 Debit. Therefore, the average price of the entire position is $14.90, between the $13.30 and $16.50 closing prices. 

Adjusting Trade

• C: 21% Gain: Roll short leg (Feb 25, 2022 $68 Call) as follows:
  • Buy to close Feb 25, 2022 $68 Call for $0.04 Debit. 
  • Sell to open Mar 18, 2022 $68 Call for $0.58 Credit.

This reduces the cost basis of the overall C position from $3.69 to  $3.15. By selling OTM calls against the long C call, we are consistently reducing the cost basis to provide a better breakeven price. Please note that this is not an open signal for the C Call Diagonal Trade, this signal should only be used if you are already in the C trade that was opened on January 25th, 2022.

View NOC Trade

Strategy Details

Strategy: Call Credit Spread

Strategy Direction: Bearish

Details: Sell to open April 1, 2022 $390/$405 Call Vertical @ $5.10 Credit

Counter Trend Signal: This is a bearish strategy on a stock or ETF that is experiencing a bullish trend. 

1M/6M Trends: Bullish/Bullish

Technical Score: 9/10

OptionsPlay Score: 87

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

Aerospace and Defense sector member Northrop Grumman Corp. (NOC) is on the upper end of its four-month trading zone, and recently filled a prior unfilled gap left from late-January.  With it not having its next earnings report till late-April, there’s no main catalyst for a strong upmove now, and we think it could get dragged lower by continued overall market weakness. We’ve highlighted an unfilled gap in the upper-$350s as a likely target in coming weeks. Moreover, it has only 7% upside to the average analyst’s upside target. From a fundamental perspective, NOC’s sales are taking a turn for the worse with Q4 sales dropping 10% Y/Y

Thus, we will look to sell an April 1 $390/$405 call spread for a $5.10 credit – its closing mid-price spread from Friday. (This has you collecting 34% of the $15 strike differential.)  

Adjusting Trade

• SHW – 90% Loss: March 18, 2022 $290/$270 Put Vertical​​​​​​​​ @ $13.30 Debit. Close half of this position. For example, if 10 contracts were opened for this trade, we recommend closing 5 contracts.

View MS Trade

MS Bearish Opening Trade Signal

Strategy Details

Strategy: Call Credit Spread

Strategy Direction: Bearish

Details: Sell to open April 1, 2022 $102/$109 Call Vertical @ $2.53 Credit Limit Order

Counter Trend Signal: This is a bearish strategy on a stock or ETF that is experiencing a bullish trend. 

1M/6M Trends: Bullish/Bullish

Technical Score: 9/10

OptionsPlay Score: 95

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

MS is part of the Investment Banking and Brokerage sub-industry outlook which experienced strong momentum in global capital markets in 2021. However, this momentum is expected to decelerate in 2022. Risks for MS include an equity bear market which would likely put a dent in investor participation.

Though Morgan Stanley (MS) made new all-time highs just a week ago, it has since come off almost 7% and is really right back into its sideways range that it has been in since last August (see the horizontal purple-colored lines). It finds itself now beneath its middle daily Bollinger Band and it again just made a negative MACD cross. We are not outright bearish, but more thinking that there is little catalyst for this to now make new all-time highs in coming weeks. Therefore, we will look to sell the April 1 $102/$109 call vertical spread for a $2.53 credit (last night’s closing spread differential). This price represents 36% of the $7 strike spread – a small above-average income figure we’d expect on selling a credit spread.

Rick Bensignor

Chief Market Strategist

Strategy Details

Strategy: Call Debit Spread

Strategy Direction: Bullish

Details: Buy to open Mar 18, 2022 $145/$155 Call Vertical @ $3.95 Debit Limit Order

Counter Trend Signal: This is a bullish strategy on a stock or ETF that is experiencing a bearish trend. 

1M/6M Trends: Bearish/Bearish

Technical Score: 3/10

OptionsPlay Score: 101

View AWK Trade

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

Today’s Daily Play is what I call a pure “trader’s trade”:  It’s to put on a bullish call spread in a name that reports quarterly earnings after today’s closing bell, wherein the stock has sharply sold off in 2022, but now finds itself on both a daily Aggressive Sequential -13 and Setup -9 counts that is also resting right into its prior swing area.

The idea is to buy the American Water Works (AWK) March 18 $145/$155 call vertical spread for just about $3.95 debit (its Tuesday closing mid-price strike differentials).  Our strategy is to play the likelihood that earnings and/or revenues beat Street estimates, and that the oversold, washed-out stock then rallies.

Our intent is to hold this trade for no more than a week or so, as we’re likely to quickly make or lose money – with the odds better that we make a profit (given the already very beaten down stock).

Rick Bensignor

Chief Market Strategist

Adjusting Trade

• FB: 35% Loss: Roll short leg (Mar 18 2022 $265 Call) as follows:
  • Buy to close Mar 18, 2022 $265 Call for $0.97 Debit. 
  • Sell to open Mar 18, 2022 $245 Call for $2.73 Credit.

This reduces the cost basis of the overall FB position from $25.44 to  $23.68 By selling OTM calls against the long FB call, we are consistently reducing the cost basis to provide a better breakeven price. Please note that this is not an open signal for the FB Call Diagonal Trade, this signal should only be used if you are already in the FB trade that was opened on February 7th, 2022.

Closing Trade

• TGT: 54% Loss: Sell to close Mar 4, 2022 $220/$235 Call Vertical @ $2.34 Credit.