Taking Profits

• AMD – 17% Gain: Short Jan 21, 2022 $130/$145 Put Vertical @ $5.03 Debit
• TWLO – 66% Gain: Short Jan 21, 2022 $270/$290 Call Vertical @ $2.35 Debit

DailyPlay Positions Outlook

The increase in volatility was subdued later in the day with the major indices recovering some of their initial losses. However, Technology stocks were on the backfoot causing the Nasdaq-100 to underperform the S&P 500 and declining 1.3%. While key levels still remain intact for the S&P 500, weakness in the Nasdaq-100 has caused price to once again break below the $400 level. We take this opportunity to close out AMD and TWLO that only have 16 days to expiration. We are closing AMD for a partial profit while TWLO exceeded our initial profit target.  

Prakash Vijayanath

Analyst at OptionsPlay

Taking Profits

• FCX – 84% Gain: Short Jan 21, 2022 $34/$38 Put Vertical @ $0.27 Debit

View LYFT Trade

The bullish DailyPlay for Tuesday, January 4th is Lyft Inc (LYFT).LYFT is part of the Industrials sector that has experienced strong momentum in recent weeks. 

Technical View

• Price has broken above the $44.50 resistance level after a week-long pullback/consolidation. 
• Bullish 1M trend
• Break above 21 D EMA and strong short-term momentum. Encouraging bullish price action and further rally expected. 

Fundamental View

• Improving driver supply network aided by sunsetting of federal unemployment benefits.
• Strong rebound in sales expected – 41% sales growth forecast for 2022
• Earnings: Feb 1, 2022 (28 days)

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

Take Profits: $1.07 Debit

Stop Loss: $4.30 Debit

View LYFT Trade

View XLE Trade

Market Outlook:

We end 2021 on a generally positive note with equities closing the year near all-time highs despite the slight pullback on Friday. SPY rallied an impressive 26.9% in 2021 and outperformed the Nasdaq-100 over the course of the year. As we move onto 2022, we note that the Defensive leadership in equities has started to fade in recent days with growth stocks starting to rebound relative to value. Rotation out of Staples and Utilities and into Discretionary and Energy has been strong and points to the rally experienced by the major indices in recent weeks. 

XLE Bullish Trade Idea:
Our bullish trade today is the Energy Sector ETF (XLE). XLE has huge exposure to oil prices that are still experiencing a steady recovery since pandemic lows and maintain their bullish trend with price continuing to form higher highs and higher lows. XLE’s 1M trend turned bullish on Friday and with a Technical Score of 8 (out of 10), XLE is a strong ETF that will likely continue higher. 

As this is a call diagonal, the idea of this strategy is to purchase the $55 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. 

To learn more about this strategy, please watch the video below:

View XLE Trade

Taking Profits

• TLT – 52% Gain: Short Jan 28, 2022 $150/$155 Call Vertical @ $0.80 Debit

DailyPlay Positions Outlook

We end 2021 on a positive note by closing our bearish TLT position for a 52% profit after price gapped significantly lower yesterday. Momentum in equities this week has been strong with the major indices breaking above key resistance levels. While we do not that short-term momentum is overbought, a pullback in the major indices will provide better bullish opportunities heading into 2022. There has also been some rotation out of the defensive sectors that have been providing leadership in recent weeks which indicates more fuel for a further rally as growth has found some performance relative to value. 

Prakash Vijayanath

Analyst at OptionsPlay

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.