View SPY Trade

SPY Bearish Hedge Opening Trade Signal

Strategy Details

Strategy: Put Debit Spread

Strategy Direction: Bearish

Details: Buy to open April 14, 2022 $422/$387 Put Vertical @ $7.48 Debit

Hedge Signal: This is a bearish vertical spread trade on the SPY ETF to hedge against further market decline

1M/6M Trends: Bearish/Bearish

Technical Score: 6/10

OptionsPlay Score: 132

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

As the implied correlation of stocks rise with the high market volatility, it is time to play more defensive, and placing a hedge to protect against further decline is our DailyPlay trade today. SPY’s trends have turned bearish and price has broken below a 2-year trendline indicating further downside is on the cards. With the ongoing crisis in Ukraine, the geopolitical picture is also negative. Thus, we will look to buy the April 14 $422/$387 put spread for a $7.48 Debit (Friday’s close price). This trade will act as a hedge against further market declines.

In the event that SPY opens significantly below $429, the strike prices may need to be adjusted accordingly. 

Taking Profits

• MS: 95% Gain: Buy to close Apr 1, 2022 $102/$109 Call Verticals @ $0.12 Debit. 

Risk appetite took a hit this morning as news relating to a nuclear power station attack dragged European Indices lower this morning. Both SPY and QQQ are showing signs of weakening momentum despite the strong bounce at the end of last week and both indices are failing to break above their 21 D EMA. We take this opportunity to close the remainder of the MS position which is just shy of max profit with 28 days to expiration. 

Please note, that half of this position was closed on Feb 25 at $0.58 Debit. Therefore, the average price of the entire position is $0.35, between the $0.58 and $0.12 closing prices. 

• AWK:59% Gain: Sell to close Mar 18, 2022 $145/$155 Call Vertical @ $6.30 Credit. Close half of this position. For example, if 10 contracts were opened for this trade, we recommend closing 5 contracts.

While the ongoing Ukraine conflict continues to add pressure to markets, equities managed to move higher yesterday as investors reacted positively to the Fed’s rate hikes being less aggressive than originally estimated. However, Fed Chair, Jerome Powell, stated that a more aggressive approach would be warranted in the event that inflation does not cool as quickly as expected. Both SPY and QQQ managed to end the day in the green and remain above key support areas at $429 and $341 respectively. 

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.)