View DFS Trade

The bearish DailyPlay for Wednesday, December 29th is Discover Financial Services (DFS). DFS is part of the Financials sector that has rallied to an area of resistance near $40 and is showing signs of slowing short-term momentum.  

Technical View

• After rallying in recent weeks, momentum is slowing as price once again rejects the 55 D EMA providing a good risk/reward bearish opportunity.  
• Neutral 6M trend
• Neutral Technical Score (6 out of 10) 

Fundamental View

• DFS is significantly overvalued relative to peers with a PE ratio of 32. 
• Sub-industry outlook remains negative for consumer finance as the phasing out of stimulus is expected to add pressure for this sub-industry. 
• Earnings: Jan 19, 2022 (21 days)

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

Take Profits: $2.05 Debit

Stop Loss: $8.20 Debit

View DFS Trade

View FDX Trade

The bullish DailyPlay for Tuesday, December 28th is FedEx Corp (FDX). FDX is part of the Industrials sector that has experienced a sharp rebound after declining to support at $100. Rotation into this sector has shown strong momentum.  

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. To learn more about Call Diagonals, please watch the recording below. 

Fundamental View

• FDX is significantly undervalued compared to the rest of the S&P 500 and is experiencing a strong improvement in free cash flow. 
• Still experiencing tailwinds from the pandemic which is expected to continue as e-commerce trends remain elevated  
• Earnings: Mar 17, 2022 (79 days)

Technical View

• Break above the $255 resistance level provides an excellent risk/reward bullish opportunity. 
• Bullish 1M trend.
• Strengthening Technical Score that is expected to improve further. 

View FDX Trade

Taking Profits

• ROK – 5% Gain: Long Jan 21, 2022 $330/$360 Call Vertical @ $12.30 Credit

DailyPlay Positions Outlook

As we approach the end of 2021, equities have experienced a strong bullish trend for most of the year that started to face in recent weeks. We have had to shift our outlook to a more neutral stance as elevated volatility has resulted in the major indices trading in a rangebound zone. This means that we are hesitant to open new positions until we can have a more clearer macro picture and see systemic risk fade. We take this opportunity to close out our ROK bullish debit spread for a minimal profit as rotation out of Industrials is concerning and may result in ROK declining further in the coming weeks. 

Prakash Vijayanath

Analyst at OptionsPlay

View TLT Trade

The bearish DailyPlay for Tuesday, December 21st is the 20+ Year Treasury Bond ETF (TLT). TLT has been relatively rangebound but has respected its resistance areas which provides a good opportunity for a credit spread. 

Technical View

• Price rallied back to the $151 resistance level but poor momentum indicates downside. 
• 1M trend has turned neutral from bullish yesterday.
• Bearish price action at resistance provides a good risk/reward bearish entry

Fundamental View

• Much more hawkish Fed looking to have an aggressive stance against inflation.  
• Several participants preferred raising interest rates faster than market anticipated timelines
• Inflation metrics continue to outpace initial forecasts. 

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

• Take Profit: $0.83 Debit
• Stop Loss: $3.34 Debit

View TLT Trade

View BAC Trade

Market Outlook:

Equities continue to respect their support and resistance zones with the major indices once again being contained to a more neutral close to the week. SPY continued lower after price rejected the $470 level on Thursday with the next support level at $453 being a vital area for price to remain above. QQQ managed to bounce near its $382 support level which is encouraging for the growth stocks as a break below that support level would have opened the door for a significant move lower. Price action in bonds and commodities remains choppy overall heading into this week. Our outlook for equities remain neutral with a bullish bias should the key support levels remain intact. 

BAC Bullish Trade Idea:
Our bullish trade today is Bank of America Corp (BAC). BAC is part of the Financial sector and has good exposure to the rising interest rate environment which will likely be a major theme heading into 2022. Out of the major banks, BAC is expected to outperform on a relative basis against its sector as rates move higher. From a technical perspective, BAC has pulled back significantly to an area of support at $43 which provides an excellent risk/reward long opportunity. The Technical Score remains very strong (9 out of 10).

As this is a call diagonal, the idea of this strategy is to purchase the $45 call which gives longer-term bullish exposure. The shorter-dated short leg is used to reduce the cost basis. Approaching expiration, we will likely buy to close the short leg for and sell another shorter-dated call to once again reduce the cost basis. This trade takes advantage of the fact that the shorter-dated options will experience accelerated time decay relative to the longer-dated call and by effectively “rinsing and repeating” the selling of the short leg, investors are able to reduce the cost basis of the long leg and reduce the breakeven price for the overall trade in the months to come. 

Taking Profits

• BA – 59% Gain: Short Jan 21, 2022 $200/$225 Call Vertical @ $4.21 Debit

DailyPlay Positions Outlook

Once again we see equities struggling to breakout of their recent range with the major indices moving sharply lower despite finding some momentum earlier in the week. This provides more evidence of continued consolidation as we head into the new year but with key support area remaining intact, our overall outlook for equities is still neutral with a bullish bias. Omicron concerns continue to weigh in on markets with cases rapidly growing causing the enacting of restrictions which will likely impact global demand. As mentioned in Tuesday’s Market Outlook, the overall theme in markets currently is the rotation out of growth and into value. We take this opportunity to close out our BA bearish trade which exceeded our take profit level yesterday. 

Prakash Vijayanath

Analyst at OptionsPlay

View FCX Trade

The bullish DailyPlay for Thursday, November 16th is Freeport-McMoRan (FCX). FCX is part of the materials sector and has high exposure to copper prices which have pulled back and found support in recent days and bouncing higher. 

Please note that we have moved the strikes $1 higher than what was shown in our platform popup due to FCX’s pre-market move. The new strikes are $38 (short) and $34 (long). Please watch the video below to learn more about the DailyPlays

Technical View

• Despite running into resistance at $39, price has consolidated just below that level and is currently retesting the lower bound of that consolidation range at $37 which provides a better risk/reward bullish entry. 
• Short term momentum indicates price is oversold.
• Strong Technical Score (8 out of 10)

Fundamental View

• Strong growth potential in Arizona and Indonesia sites as copper demand starts to rise. 
• Pullback in Copper prices that are now finding support provides a positive medium-term outlook for FCX.  
• Earnings: Jan 25, 2021 (40 days)

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

• Take Profits: $0.88 Debit
• Stop Loss: $3.30 Debit

View FCX Trade

Taking Profits

• SQ – 59% Gain: Short Jan 21, 2022 $190/$210 Call Vertical @ $2.90 Debit

DailyPlay Positions Outlook

Equities continued lower yesterday as investor concerns about the Omicron threat escalate and uncertainty remains with the ongoing Fed meeting. However, the major indices remain within their respective range and have not broken below any support levels which would be concerning. While our overall outlook is still positive for equities, recent price action does provide some evidence of a more neutral sentiment growing. We take this opportunity to close out our bearish SQ trade which exceeded our take profit level yesterday. 

Prakash Vijayanath

Analyst at OptionsPlay

Closing Trades

• TAN– 84% Loss: Long Jan 21, 2022 $95/$115 Call Vertical @ $0.95 Credit

Equities started the week on a negative note with both the SPY and QQQ rejecting their respective resistance areas and ending the day in the red. While our outlook still remains positive for equities, the threat of the new variant is causing concern, especially in Europe. We continue to see rotation into defensive sectors (Utilities, Staples, and Real Estate). We take this opportunity to cut losses on our TAN trade that broke below the $93 support level and is failing to show evidence of a reversal higher. 

Prakash Vijayanath
Analyst at OptionsPlay

View TWLO Trade

Market Outlook:

Equities were able to stage a strong recovery last week with both the SPY and QQQ rallying to their respective resistance areas at $470 and $400. Momentum remains strong and this could lead to a break above these levels should the macro picture remain positive. While the Omicron variant is still an unknown, markets have brushed that to the side and continue to focus on strong earnings that are still providing tailwinds for equities as we approach the new year. We saw significant sector rotation last week with more sectors such as Real Estate, Staples and Utilities rotating into the leading category and providing broadening leadership for equities. Small caps continue to remain on the back foot despite a strong rebound for IWM at $213. Price posted a 2nd consecutive day of declines as small caps continue to underperform against the large-cap names. Bonds have also sold off as the Fed shifts to a more hawkish undertone. Overall, the outlook for equities remains positive until the year-end. 

TWLO Bearish Trade Idea:
Our bearish trade idea today is Twilio (TWLO). From a technical perspective, TWLO broke below the major support area at $280 with strong bearish momentum and has recently retested this area. Price action is bearish which is in line with our view that $280 is acting as resistance. This provides a good risk/reward bearish opportunity for a move lower with the next area of support at $220. Both 1M and 6M trends are bearish and with a technical score of 3 (out of 10), TWLO is a weak stock that will likely move lower. 

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

• Take Profit: $3.50 Debit
• Stop Loss: $14.00 Debit

View TWLO Trade