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Archive for June, 2021

Get a Charge Out of Plug Power (PLUG)

Tuesday, June 29th, 2021

PLUG is a hydrogen fuel cell provider based outside of Albany, NY. The company reported earnings on Tuesday (June 22) after a delay due to some accounting issues. While earnings missed the mark, PLUG’s strong current and projected revenue growth is considered more indicative of the company’s potential. The company also has a strong cash position on its balance sheet. Wall Street generally approved of the numbers, as several analysts raised their price targets.

After a 75% plunge from late January through early May, the stock has been on the rebound, gaining more than 70%. The recent strength has caused the 50-day moving average (blue line below) to turn higher for the first time in three months. Also in play is the rising 200-day moving average (red line below), which sits at $32.50. This trade relies on PLUG staying above the $30 level through the end of July, so support at the 200-day is critical.

Plug Chart

If you agree that PLUG will ride higher along its 200-day moving average, consider the following trade that relies on the stock remaining above $30 through expiration in five weeks.

Buy to Open PLUG 30Jul 27 put (PLUG210730P27)
Sell to Open PLUG 30Jul 30 put (PLUG210730P30) for a credit of $0.95 (selling a vertical)

This credit is $0.06 less than the mid-point of the option spread when PLUG was trading just below $32. Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will be only $1.30 per spread.  Each spread would then yield $93.70. This trade reduces your buying power by $300 and makes your net investment $206.30 ($300 – $93.70).  If PLUG closes above $30 on July 30, both options will expire worthless and your return on the spread would be 45% ($93.70 / $206.30).

Chewy on This Trade

Sunday, June 20th, 2021

Chewy (CHWY), the online pet food and supply retailer, reported impressive earnings last week that beat estimates on profits and revenue. Adding to the good news, CHWY raised its full-year 2021 revenue guidance, although it lowered Q2 guidance due to short-term supply chain issues. 

The stock started 2021 on a solid note, gaining more than 30% through mid-February to hit an all-time high. But then like many “pandemic stocks,” CHWY dropped sharply, falling more than 40% during the next three months. However, the shares have been on the upswing for the past month. In fact, the stock has moved above its 50-day moving average, a trendline that has flattened out after its first decline since late 2019. We expect CHWY to continue its uptrend, staying above the 50-day. The short put of our credit spread is just below the 50-day, so support at this trendline should keep the spread out of the money.

If you agree that CHWY will stay above its 50-day moving average, consider the following trade that relies on the stock remaining above 76 through expiration in six weeks.

Buy to Open CHWY 30Jul 72 put (CHWY210730P72)
Sell to Open CHWY 30Jul 76 put (CHWY210730P76) for a credit of $1.40 (selling a vertical)

This credit is $0.03 less than the mid-point of the option spread when CHWY was trading above $78. Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will be only $1.30 per spread.  Each spread would then yield $138.70. This trade reduces your buying power by $400 and makes your net investment $261.3 ($400 – $138.70).  If CHWY closes above $76 on July 30, both options will expire worthless and your return on the spread would be 53% ($138.70 / $261.30).

It’s Hip to Bet on Square (SQ)

Sunday, June 13th, 2021

Square (SQ) is considered one of the most innovative companies in the payment processing space. That said, the stock has done what most tech stocks have done so far in 2021 … gone nowhere. In fact, the shares are up less than a percent this year. Moreover, SQ has been in a trading range between 200 and 280 for most of the past seven months.

Despite the sluggish overall performance, we are keying on the support of the 200-day moving average, a trendline that currently sits just above 210. Other than a handful of daily closes below it in May, the stock has respected the support of the 200-day, most notably during the past week. Moreover, we’re using a bullish credit spread, which does not require the stock to go up. Rather, all we care about is that the short put remains out of the money. That’s why we’re banking on the support of the 200-day (blue line), as our short put is at the 210 strike (red line).

If you agree that SQ will stay above its 200-day moving average, consider the following trade that relies on the stock remaining above 210 through expiration in six weeks.

Buy to Open SQ 23Jul 205 put (SQ210723P205)
Sell to Open SQ 23Jul 210 put (SQ210723P210) for a credit of $1.80 (selling a vertical)

This credit is $0.02 less than the mid-point of the option spread when SQ was trading above $219. Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will be only $1.30 per spread.  Each spread would then yield $178.70. This trade reduces your buying power by $500 and makes your net investment $321.30 ($500 – $178.70).  If SQ closes above $210 on July 23, both options will expire worthless and your return on the spread would be 56% ($178.70 / $321.30).

Ride the Rails with IYT

Monday, June 7th, 2021


The iShares Transportation Average ETF (IYT) is a price-weighted ETF dominated by rail, trucking and freight companies. The top 10 holdings comprise 77% of the ETF, with nearly half of that coming from four railroad names – Kansas City Southern, Norfolk Southern, Union Pacific and CSX. Other familiar names in the top 10 include FedEx and UPS.

The transportation sector has been hot since the March 2020 bottom, as shown by IYT’s gain of more than 130%. The ETF hit a record high a month ago but has retreated 4% in the past month with rising fuel prices (crude oil hit a two-year high this week) taking a bite out of profits. The overall uptrend is intact, however, guided by IYT’s 50-day moving average. The trendline’s steady increase has hardly changed during IYT’s recent sideways price action. More importantly, IYT has not closed a single day below the 50-day since February 3. But now the trendline is being tested, as IYT sits just one percent above this support.

We’re banking on this support holding and for the long rally to continue. Our credit spread’s short strike is below the 50-day, so a hold at this trendline would keep our spread out of the money.

If you agree that IYT will stay above its 50-day moving average, consider the following trade that relies on the stock remaining above 265 through expiration in six weeks.

Buy to Open IYT 16Jul 260 put (IYT210716P260)
Sell to Open IYT 16Jul 265 put (IYT210716P265) for a credit of $1.45 (selling a vertical)

This credit is $0.03 less than the mid-point of the option spread when IYT was trading above $270. Unless the ETF rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will be only $1.30 per spread.  Each spread would then yield $143.70. This trade reduces your buying power by $500 and makes your net investment $356.3 ($500 – $143.70).  If IYT closes above $265 on July 16, both options will expire worthless and your return on the spread would be 40% ($143.70 / $356.30).

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