View MRK Trade

MRK Bullish Trade Idea:
Our bullish trade idea for today is Merck & Co Inc (MRK). In recent months, MRK has formed a double bottom near the $72.50 area and has rebounded with strong momentum. Price has now broken above the $78.50 resistance level and both 1M and 6M trends are now bullish. With an earnings announcement scheduled for Feb 3rd, MRK’s strong relative strength against the market and sector heading into this announcement is an encouraging sign for a continuation of its rally.  

Please note that this is an earnings play and high volatility is expected after the earnings announcement. 

Closing Trades

• CSCO – 79% Loss: Long Mar 18, 2022 $60/$67.5 Call Vertical @ $0.61 Debit

DailyPlay Positions Outlook

Another red day for the major indices saw SPY and QQQ lose out on their pre-market gains as equities struggle to find momentum after Mondays bounce higher. SPY is managing to hold the $428 support level which is encouraging, but high volatility and hawkish comments made by the Fed are adding pressure. QQQ remains on the backfoot as price retested and failed at the $353 key level. Rotation out of growth is the key theme in equities. We take this opportunity to close out the CSCO trade as price failed to bounce higher from the $55 level yesterday. 

Prakash Vijayanath

Analyst at OptionsPlay

View CLF Trade

The bullish DailyPlay for Wednesday, January 26th is Cleveland-Cliffs Inc (CLF). While CLF is currently on a bearish trend, our thesis for our bullish DailyPlay is that CLF will likely rebound higher from current levels. 

Technical View

• Price has pulled back to the 38% Fibonacci level (based on 2016 secular low to highest high). 
• Reversal in short-term momentum indicates price is reacting positively to the $16 support level.

Fundamental View

• CLF is well-positioned in Iron Ore Pellets and Steel segments in North America with acquisitions of AM USA and AKS likely to provide strong EPS and FCF growth. 
• In 2021, CLF was successful in improving their balance sheet by playing down debt
• Earnings: Feb 11, 2022 (16 days)

As this is a credit spread, look to take profits at 50% and cut losses at 100%:

• Take Profit: $0.35 Debit
• Stop Loss: $1.42 Debit

View C Trade

The bullish DailyPlay for Tuesday, January 25th is Citigroup Inc (C). C is part of the Financial sector that has experienced a strong pullback in recent days providing a good entry point. 

Please note this trade is a call diagonal trade which represents a longer-term bullish outlook. The aim for the short leg of the trade is to let it expire worthless or roll it closer to expiration for a minimal cost. This allows us to consistently receive income that offsets the premium paid for the long leg which eventually leads to a reduced cost basis and breakeven price.

Technical View

• Deep pullback after a strong rally in recent weeks provides a much better risk/reward bullish entry for long-term exposure. 
• Neutral Technical Score that is expected to improve
• Short-term momentum has approached oversold levels. This provides evidence that a rebound is likely. 

Fundamental View

• Positive outlook on the banking industry that will likely benefit from growing yields and increasingly hawkish Fed.
• Citigroup’s restructuring in exiting the consumer banking space in Mexico as well as the ongoing disposition in retail banking in the Asia Pacific region allows for a more streamlined model and releases equity capital to be deployed in other areas. 
• Earnings: Apr 14, 2022 (79 days)

MSFT Bullish Trade Idea:
Our bullish trade idea for today is Microsoft Corp (MSFT). Microsoft is part of the Technology sector that has underperformed the broader market in recent weeks, however, the thesis behind this bullish idea is reflected by MSFT’s strong balance sheet, high medium to long term growth expectations, as well as the upcoming earnings announcement providing a catalyst for a rebound after the recent decline in price. 

Please note that this is an earnings play and high volatility is expected after the earnings announcement. 

View MSFT Trade

Taking Profits

• COUP – 49% Gain: Feb 18, 2022 $145/$155 Call Verticals​ @ $1.90 Debit

DailyPlay Positions Outlook

The flight to safety continues as equities continue to sell off and sink past major support levels. The VIX is showing signs of another spike to the 30 level as systemic risk continues to pick up. While disappointing banking earnings was the catalyst for the recent decline in equities, concerns over inflation and consumer spending still remain. This has impacted the cyclical sectors more than most which continue to add pressure to the major indices. We take this opportunity to close the bearish COUP trade ahead of the weekend for a 49% gain. 

Prakash Vijayanath

Analyst at OptionsPlay

Closing Trades

• LYFT – 91% Loss: Short Feb 18, 2022 $40/$45 Put Vertical @ $4.10 Debit

DailyPlay Positions Outlook

The SPY has now broken below the key $453 level which is concerning as the next support level is near the $435 level – a significant decline should the sell-off continue. The main theme in markets remains to be the rotation out of risk and into safer value stocks with the Growth/Value ratio chart showing growing strength in value relative to growth. For this reason, we cut losses on our bullish LYFT position that has declined below the $37 support level. 

Prakash Vijayanath

Analyst at OptionsPlay

• LOW – 59% Gain: Short Feb 18, 2022 $250/$260 Call Vertical @ $1.69 Debit

DailyPlay Positions Outlook

After a poor start to the week, equities continue to decline after a disappointing Goldman Sachs earnings report yesterday. SPY looks set to continue its decline back to the $453 major support level while QQQ broke below its long term ascending trendline as price falls further with support only sitting at $360. Our outlook for equities remains neutral with a short-term bearish bias as rising yields and earnings uncertainty continue to pressure the major indices. We take this opportunity to close our bearish LOW trade earlier than expected after price broke below the 55 D EMA yesterday. 

Prakash Vijayanath

Analyst at OptionsPlay

View KMI Trade

Market Outlook:

As head into another week of earnings season, equities continue to showcase a neutral tone with key levels in the SPY being respected and price continuing to move sideways. This earnings season will likely prove to be a catalyst for a continuation of the equity rally or a further pullback. The other main theme in markets currently is inflation and how aggressive the Fed will be with regards to their hiking policy. Raising rates has caused a sell-off in growth stocks as well as the Tech sector which has experienced significant outward rotation as investors seek safety. 

KMI Bearish Trade Idea:

Our bearish DailyPlay today is Kinder Morgan Inc (KMI). Kinder Morgan is part of the Energy sector. While Energy is the strongest sector currently, KMI is underperforming the overall sector heading into earnings. Price action has been bullish but has also reached an overbought condition is a short space of time. This provides a good risk/reward bearish entry heading into earnings as KMI is overbought despite the overall trend being bearish. Please note, this is an earnings play with KMI announcing earnings tomorrow. The trade structure used for this bearish play is a Put Debit Spread. 

View KMI Trade

The bearish DailyPlay for Friday, January 14th is Coupa Software Inc (COUP). COUP is part of the Technology sector that is currently lagging against the overall market.

Technical View

• Recent retracement higher provides a good risk/reward bearish entry point
• Bearish 1M and 6M trends. 
• Very weak Technical Score (2 out of 10)

Fundamental View

• Negative EPS and high valuation (30x P/E) in a hiking interest rate environment makes COUP vulnerable for further declines. 
• The application software sub-industry continues to underperform the overall market on a relative basis. 
• Earnings: Mar 15, 2022 (60 days)

As this is a Credit Spread, look to take profits at 50% gain and cut losses at 100%:

Take Profits: $1.85 Debit

Stop Loss: $7.40 Debit

View COUP Trade