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Markets closed on Thursday, November 24, 2022 for Thanksgiving.

Markets close at 1:00 in shortened on Friday after Thanksgiving.

TERRY’S TIPS STOCK OPTIONS TRADING BLOG

September 20, 2022

Pumped Up

Much is made of gas prices declining for so many weeks in a row (I think we’re at 13 and counting). And that’s great for drivers. But what about the oil companies. Don’t they suffer when pump prices decline? Apparently not.

Gas prices peaked in mid-June and have dropped about 25% since then. But Chevron (CVX) has gained more than 5% during that period. For the year, CVX is up 33%. Its only major blip this year was the June swoon that pulled all stocks lower. But the decline was supported by the 200-day moving average, which allowed just a handful of daily closes below it in mid-July.

This trade is based on the strength of oil companies continuing for the next couple of months. More specifically, it is relying on the continued support of the 200-day. Note that the short put of our spread is right on the 200-day (blue line) and will be below it given the trendline’s current slope. Thus, CVX will have to penetrate that support to move the spread into the money.

If you agree that CVX will respect the 200-day, consider the following trade that relies on the stock staying above $148 (red line) through expiration in six weeks:

Buy to Open the CVX 28Oct 145 put (CVX221028P145)
Sell to Open the CVX 28Oct 148 put (CVX221028P148) for a credit of $0.75 (selling a vertical)

This credit is $0.05 less than the mid-point price of the spread at Friday’s $156.45 close. Unless CVX pops quickly, you should be able to get close to that price.

The commission on this trade should be no more than $1.30 per spread. Each spread would then yield $73.70. This trade reduces your buying power by $300, making your net investment $226.30 per spread ($300 – $73.70). If CVX closes above $148 on October 28, both options will expire worthless and your return on the spread would be 33% ($73.70/$226.30). 

September 12, 2022

September 12, 2022

Warp Speed for This Lithium Producer

Sociedad Quimica y Minera de Chile (SQM) producers highly sought after commodities, most notably lithium and potassium fertilizers. Though it missed on earnings in its August earnings report, it easily beat on sales. A couple of analysts raised their price target after the news, though the overall mood toward the stock is between a buy and a hold.

But what do analysts know? SQM is up 120% this year (not a typo) … and it pays a dividend of more than 11%. The stock has recovered what it lost following earnings and came within four cents of hitting an all-time high in Friday’s trading. Though it has traded mostly sideways for the past three months, the overall uptrend remains intact, as the stock continues to put in higher lows. Plus, its 20-day and 50-day moving averages are pointed higher.

This trade is a play on SQM’s continued strength as it sits in one of the most favorable sectors within the global economy – supplying EV battery makers. We are thus going with a put credit spread with the short put sitting below the 20-day moving average (blue line). 

If you agree that SQM will continue its uptrend, consider the following trade that relies on the stock staying above $100 (red line) through expiration in six weeks:

Buy to Open the SQM 21Oct 95 put (SQM221021P95)
Sell to Open the SQM 21Oct 100 put (SQM221021P100) for a credit of $1.10 (selling a vertical)

This credit is $0.02 less than the mid-point price of the spread at Friday’s $111.12 close. Unless SQM pops quickly, you should be able to get close to that price.

The commission on this trade should be no more than $1.30 per spread. Each spread would then yield $108.70. This trade reduces your buying power by $500, making your net investment $391.30 per spread ($500 – $108.70). If SQM closes above $100 on October 21, both options will expire worthless and your return on the spread would be 28% ($108.70/$391.30). 

September 6, 2022

September 6, 2022

Burlington Stores (BURL) reported earnings on August 25 that beat on profits but missed on revenue. Same-store sales fell 17%, more than analysts expected. The reasons should sound familiar by now – consumers coming under increasing price pressures and too much inventory. More significantly, BURL slashed its quarterly and full-year earnings forecast.

Analysts, as usual, are right on with their assessment of the stock. Despite the price being cut in half this year, BURL has an average “buy” rating. I’m not sure what chart they’re looking at. In fact, there are more “buy” and “strong buy” ratings now than in June. Go figure. To their credit, most analysts lowered their price targets for the off-price retailer. But the average target of $176 is still 23% above Friday’s close.

The stock was hammered after the report, dropping 10% to fall below both the 50-day (blue line) and 20-day (red line) moving averages. And it hasn’t recovered since then. We are thus playing a bearish credit spread with the short call (green line) sitting on the 20-day moving average, which is rolling over. Thus, the stock will have to break above two points of resistance to move the spread into the money.

If you agree that BURL will struggle to break through resistance, consider the following trade that relies on the stock staying below $155 through expiration in seven weeks:

Buy to Open the BURL 21Oct 160 call (BURL221021C160)
Sell to Open the BURL 21Oct 155 call (BURL221021C155) for a credit of $1.55 (selling a vertical)

This credit is $0.05 less than the mid-point price of the spread at Friday’s $143.46 close. Unless BURL falls quickly, you should be able to get close to that price.

The commission on this trade should be no more than $1.30 per spread. Each spread would then yield $153.70. This trade reduces your buying power by $500, making your net investment $346.30 per spread ($500 – $153.70). If BURL closes below $155 on October 21, both options will expire worthless and your return on the spread would be 44% ($153.70/$346.30). 

Upcoming Market Dates:

Monday September 5th. Market closed for Labor Day
Monday October 10th. Market closed for Columbus Day

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