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.

Taking Profits

• CLF: 80% Gain: Buy to close Mar 18, 2022 $14/$16 Put Vertical @ $0.14 Debit. 

CLF has reached a daily Setup +9 count and is now by its 100- and 200-DMAs. We have collected the bulk of the premium, and now that earnings are out of the way, the only real downside risk we now have is basic market risk. However, even though chances are good that we would reap the full credit amount we took in, we will officially exit the trade now and close the remainder of the position. 

Please note, that half of this position was closed on Feb 4 at $0.35 Debit. Therefore, the average price of closing the entire position is ($0.35 + $0.14)/2 = $0.25. 

Rick Bensignor

Chief Market Strategist

Adjusting Trade

• FDX: 36% Loss: Roll short leg (Feb 25, 2022 $270 Call) as follows:
  • Buy to close Feb 25, 2022 $270 Call for $0.18 Debit. 
  • Sell to open Mar 4, 2022 $260 Call for $0.87 Credit.

This reduces the cost basis of the overall FDX position from $14.46 to  $13.77. By selling OTM calls against the long FDX 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 FDX Call Diagonal Trade, this signal should only be used if you are already in the FDX trade that was opened on December 28th, 2021.

SHW Bullish Opening Trade Signal

Strategy Details:

Strategy: Put Credit Spread

Strategy Direction: Bullish

Details: Sell March 18, 2022 $290/$270 Put Vertical @ $7.00 Credit Limit Order

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

1M/6M Trends: Bearish/Bearish

Technical Score: 4/10

OptionsPlay Score: 83

View SHW Trade

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that as this is a multi-leg option strategy, it should be entered as a single trade.

Investment Rationale

SHW has sold down sharply this year but is starting to find support just above the medium-term support zone shown on its accompanying chart. It marked an Aggressive Sequential -13 “downside exhaustion” signal earlier this week, and is already on a -11 towards a -13 on the Standard Sequential count. Selling this put spread, time passing as this bases is to our advantage, and with the stock already having reported earnings this quarter, there should be no major downside catalyst. We think it bases and moves higher from this general area.

Strategy Details

Strategy: Call Debit Spread

Strategy Direction: Bullish

Details: Buy Feb 28, 2022 $370/$380 Call Vertical @ $2.09 Debit Limit Order

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

1M/6M Trends: Bearish/Bearish

Technical Score: 6/10

OptionsPlay Score: 99

View QQQ 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

With the QQQ having made 4 consecutive daily lows against its cloud model’s Conversion Line (in pink), we’re going to play for a move up to test last week’s high near the Base Line (in orange), where there should be some short-term resistance. The cloud’s Lagging Line (in bold blue) is nothing more than the current price displayed 26 days in the past, so that blue line tracks wherever the QQQ is trading in real-time. That Lagging Line should face resistance when/if it rallies up to its cloud bottom at $380 anytime in the next three weeks. Therefore, we will buy a Feb. 28 $370/$380 call spread. When price hits its Base Line (currently $359.12), we will unwind half the debit spread. Our sell-stop will be any day (or two days; your choice) that now closes beneath last Friday’s low of $351.97.

Closing Trades

• KMI – 4.41% Gain: Long Mar 18, 2022 $16/$18 Put Verticals​ @ $0.71 Credit
• MRK – 50% Loss: Short Mar 18, 2022 $75/$80 Put Verticals​ @ $2.58 Debit

DailyPlay Positions Outlook

Equities continue to consolidate at current levels with SPY and QQQ ending the day in the red. However, key levels continue to be maintained. Despite the short-term outperformance of growth relative to value, yesterday saw value gain some momentum to continue its recent uptrend relative to growth. We take this opportunity to close out the KMI and MRK positions. KMI was a bearish earnings trade that did not move much post-earnings while MRK’s bullish thesis becomes invalidated with price unable to break above the $82 resistance level.

View FB Trade

FB Bullish Trade Idea:
Our bullish trade idea for today is Meta Platforms Inc (FB). Meta declined significantly after its recent earnings announcement indicated very slow user growth and a sluggish start to its Metaverse segment. However, from a valuations perspective, FB is attractive as it is now trading at July 2018 levels despite profitability currently twice as high as it was back then. 

The trade structure used is a Call Diagonal. By selling a shorter dated call option, we are reducing the cost basis of the more expensive, longer dated call. As we approach expiration for the shorter dated call option, we will be looking to roll the short call to collect more premium and reduce the overall cost basis further. 

View FB Trade