Tag Archives: Bearish Options Strategies
Option Trade of the Week – Cold and Soggy
September 25, 2023
Cold and Soggy
There were a few interesting earnings announcements this week, even though we’re in the quiet period for earnings reports (things start to ramp up again in three weeks). In fact, I had three bearish plays to choose from. That’s a good thing since we currently have three bullish and three bearish trades open, and I feel like the bears need a little more weight after the past week’s Fed-infected price action.
The trade this week is on prepared-food giant General Mills (GIS), which owns several iconic cereal brands along with such names as Betty Crocker, Blue Buffalo, Pillsbury, Progresso, Green Giant and Yoplait. GIS reported earnings numbers on Wednesday before the open that were filled with a lot of “buts.” Sales increased 4% due to higher prices, but volume was lower. Net income beat the consensus expectation but fell 18% from a year ago. GIS executives are bullish on their pet food segment but sales for the quarter were flat. Moreover, some analysts feel that consumers are reaching their limit on rising food costs. And GIS’s CFO said that the company’s operating profit margin will not improve this year.
All in all, it was not a great report, which is perhaps why the stock was hit with a few price target cuts. At least there were no ratings downgrades. Analysts on the whole are neutral toward the stock, while the average target price is in the $70-75 range compared to Friday’s close near $65.
Perhaps analysts would be a bit more skeptical if they took a quick glance at GIS’s chart, which shows the stock plunging 30% in the past four months. This descent has been expertly guided by the 20-day moving average, a trendline the stock has closed above just four times since mid-May. This resistance was evident the two days after earnings this week, when the shares failed to pierce the 20-day with early rallies. Note that the short call strike of our spread sits above this trendline.
If you agree that the stock will continue its downtrend after an uninspiring earnings report and remain below its 20-day moving average (blue line), consider the following credit spread trade that relies on GIS staying below $67.50 (red line) through expiration in 8 weeks:
Buy to Open the GIS 17 Nov 70 call (GIS231117C70)
Sell to Open the GIS 17 Nov 67.5 call (GIS231117C67.5) for a credit of $0.45 (selling a vertical)
This credit is $0.05 less than the mid-point price of the spread at Friday’s $64.82 close. Unless GIS falls sharply at the open on Monday, 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 $43.70. This trade reduces your buying power by $200, making your net investment $156.30 per spread ($200 – $43.70). If GIS closes below $67.50 on Nov. 17, the options will expire worthless and your return on the spread would be 28% ($43.70/$156.30).
Option Trade of the Week – Smoking Not
July 26, 2023
We’re a bit heavy on the bullish side of the ledger with our open positions. In fact, we have four open put spreads and one neutral iron condor on the books. So, with earnings season in full swing, I was on the hunt for a post-earnings bearish play. It wasn’t easy, though, as most stocks did well after reporting even though they were obscured by the blinding bearish light of NFLX and TSLA.
The pick for this week is Philip Morris International (PM), the tobacco giant that, according to its website, is “building our future on replacing cigarettes with smoke-free products …” These include heated tobacco, e-vapor and oral smokeless products. PM reported earnings on Thursday before the bell that beat estimates for profit and revenue. Smokeless product revenue increased 34% from a year ago. But the full-year earnings outlook fell short of the analyst estimate. Currency exchange rates are also expected to take an 8% to 9.5% chunk out of earnings.
Analysts were oddly silent on PM’s report. In fact, I couldn’t find a single rating mention or price target adjustment for the $150 billion market-cap company (the last one was nearly a month ago). The current view toward PM is firmly bullish, however, while the average price target is around 15% above Friday’s closing price.
With no help from analysts, we turn to the charts. In the two days after earnings, the stock drifted lower by a little more than 1%. For the past year, the shares have done little, netting a gain of less than 2%. The key to this trade is the 100 level, which put a lid on a six-week rally that covered about 13%. This level marked tops in March and April as well. Before that, it served as support from December through mid-February. Based on this history, we’re going with a call spread with the short strike at the 100 level.
If you agree that PM will continue to struggle with this resistance, consider the following credit spread trade that relies on the stock staying below $100 (blue line) through expiration in 6 weeks:
Buy to Open the PM 1 Sep 103 call (PM230901C103)
Sell to Open the PM 1 Sep 100 call (PM230901C100) for a credit of $0.65 (selling a vertical)
This credit is $0.05 less than the mid-point price of the spread at Friday’s $97.52 close. Unless PM falls sharply at the open on Monday, 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 $63.70. This trade reduces your buying power by $300, making your net investment $236.30 per spread ($300 – $63.70). If PM closes below $100 on Sep. 1, the options will expire worthless and your return on the spread would be 27% ($63.70/$236.30).
**The second half started out well for Insider members, as our four portfolios have combined to return subscribers more than 20% for 2023. And our QQQ portfolio is leading the way, up over 70%. Don’t miss out on the profits … now you can save more than 50% on a monthly subscription to Terry’s Tips. Just Click Here, select Sign Up Now and use Coupon Code D21M to start a monthly subscription to Terry’s Tips for half off.**
Option Trade of the Week – Watch Out Below
Watch Out Below
Five Below (FIVE) is a “specialty value retailer,” which means (I think, since I’ve never been in one) that it sells a lot of stuff on the cheap. The company reported earnings last week that were more miss than hit. Earnings were the lone bright spot, as FIVE beat the consensus EPS estimate. Sales were higher from a year earlier but fell just short of analyst expectations. Comparable sales were higher by 2.7%, but that was considerably less than the 3.2% forecast. Perhaps most important, FIVE’s sales and earnings projections for next quarter came in below analyst estimates.
The reaction to FIVE’s numbers was mixed. There were several “maintains” ratings, meaning nobody wanted to rock the boat. Price targets were tweaked both up and down, with a couple of firms adjusting by a mere buck or two, which amounted to less than 1% of the target. Analysts overall are bullish on the shares, giving it a consensus buy rating. The average target price is in the $215-220 range, which is around 17% above Friday’s close.
This bullishness was warranted going back to last year. From early July through mid-April, FIVE was on fire, doubling in value. It actually outperformed NVIDIA (NVDA) during that period. But for the past two months, it’s been a different story. The stock is down 16%. The 50-day moving average has rolled over into a decline for the first time since last July. A post-earnings rally of 15% was rejected at the 50-day after just three days. Note that the short strike of our call spread sits a point above the 50-day. However, the downtrend should pull the trendline below this strike within the next week, setting up a point of resistance that should keep the short strike out of the money.
If you agree that FIVE will continue to struggle under the weight of its 50-day moving average (blue line), consider the following credit spread trade that relies on the stock staying below 195 (red line) through expiration in 6 weeks:
Buy to Open the FIVE 21 Jul 200 call (FIVE230721C200)
Sell to Open the FIVE 21 Jul 195 call (FIVE230721C195) for a credit of $1.30 (selling a vertical)
This credit is $0.05 less than the mid-point price of the spread at Friday’s $185.20 close. Unless FIVE drops sharply at the open on Monday, 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 $128.70. This trade reduces your buying power by $500, making your net investment $371.30 per spread ($500 – $128.70). If FIVE closes below 195 on July 21, both options will expire worthless and your return on the spread would be 35% ($128.70/$371.30).
Option Trade of the Week – A Gnawing Feeling
A Gnawing Feeling
With earnings season winding down, there are few post-earnings plays to consider. But the cupboard isn’t completely bare. After a couple of bullish trades, we’re going the other way with a bearish play on pet food provider Chewy (CHWY), which reported earnings after the bell on Wednesday. The company easily beat forecasts on earnings and topped revenue expectations. Moreover, CHWY announced it would expand into Canada in 3Q, its first foray outside the U.S. The stock soared on the news, spiking as high as 27% the next day before closing 22% higher.
So why the bearish trade? The number of active customers declined for the second quarter in a row, leading some analysts to question CHWY’s ability to maintain strong sales growth. In addition, competitors have noted lower selling prices and customers trading down to cheaper brands. Analysts had a lukewarm reaction to the earnings blowout, with a few small target price increases. That pushed the average price 27% above Friday’s close, which seems excessive for a stock that’s down 33% from an early-February high.
The stock was unable to follow through on Thursday’s surge, falling back on Friday when the market soared. Sitting overhead is the declining 200-day moving average at 38, a trendline the stock last closed above more than two months ago. With earnings – and the huge pop – now out of the way, we are betting on the stock struggling to overtake the 200-day, which is where the short call strike of our spread resides.
If you agree that CHWY will continue to trade under the weight of its 200-day moving average (blue line), consider the following credit spread trade that relies on the stock staying below 38 (red line) through expiration in 6 weeks:
Buy to Open the CHWY 14 Jul 40 call (CHWY230714C40)
Sell to Open the CHWY 14 Jul 38 call (CHWY230714C38) for a credit of $0.47 (selling a vertical)
This credit is $0.03 less than the mid-point price of the spread at Friday’s $35.51 close. Unless CHWY drops sharply at the open on Monday, 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 $45.70. This trade reduces your buying power by $200, making your net investment $154.30 per spread ($200 – $45.70). If CHWY closes below 38 on July 14, both options will expire worthless and your return on the spread would be 30% ($45.70/$154.30).
Option Trade of the Week – Losing Power
May 1, 2023
Dear [[firstname]],
Here is your Option Trade of the Week, as included in this past weekend’s Saturday Report for our Terry’s Tips Insider Members. This is a post-earnings stock trade on a utility that closed flat today, so you can enter the position at the same price as my Insiders. Good luck with the trade!
But first, how about our Honey Badger portfolio?! Trading only QQQ options, it’s on fire, up a whopping 30% for 2023. Of course, don’t forget that our portfolios beat their underlying stock performance by an average of 22% in 2022.
Don’t miss out on the profits. For our loyal (thanks for that, by the way) newsletter subscribers, I’m keeping the sale going that saves you more than 50% on a monthly subscription to Terry’s Tips.
You’ll get …
- A month of all trade alerts in our four portfolios, giving detailed instructions for entering and exiting positions.
- Four to five (depending on the month) weekly issues of our Saturday Report, which shows all the trades and positions for our four portfolios, a discussion of the week’s trading activity and early access to our Option Trade of the Week.
- Instructions on how to execute the 10K Strategy on your own.
- A 14-day options tutorial on the opportunities and risks of trading options.
- Our updated 10K Strategy white paper, a thorough discussion of the strategy basics and tactics.
- Full-member access to all our premium special reports that can make you a wiser and more profitable options trader.
To become a Terry’s Tips Insider Member, just Click Here, select Sign Up Now and use Coupon Code D21M to start a monthly subscription to Terry’s Tips for half off. You can cancel after a month but, of course, still keep all the valuable reports.
We look forward to having you join us! Now on to the trade …
Losing Power
NextEra Energy (NEE) is an electricity generator and provider operating in southern Florida. You may know it by its principal subsidiary – Florida Power & Light, the largest electric utility in the U.S. NEE reported earnings this week that seemed strong. The company swung to a profit and easily beat both earnings and revenue estimates. It added 65,000 customers, as everyone is moving to Florida. It reiterated its earnings projections for 2023 and it plans to boost dividends by 10% per year through next year.
What’s not to like?
Well, analysts apparently were not energized, as the shares were hit with a downgrade and a few target price cuts (there was one target increase). Despite the sour reaction, the stock has an overall outperform rating and average target price 23% above Friday’s close. In fact, the target sits just above NEE’s all-time high, which seems a bit overinflated. This tells me that there is more than ample room for further downgrades and target cuts.
The stock price followed the analysts’ lead by dropping 6.3% in the two days following earnings. That pulled the shares below the 20-day moving average, a trendline that had guided NEE higher during the previous month. The stock also fell below the 50-day moving average but recovered later in the week. That said, NEE closed the week 3% below its pre-earnings price.
The most daunting technical obstacle, however, is the flat 200-day moving average, sitting between the 80 and 81 levels. This trendline has served as both support and resistance and now appears ready to keep the shares below the 80 level. I’ll note that the stock hit a two-month high a point below the 200-day a week ago. This trade is based on this resistance holding as NEE struggles with the post-earnings blues.
If you agree that NEE will fail to overtake its 200-day moving average (blue line) for the next few weeks, consider the following trade that relies on the stock staying below $80 (red line) through expiration in 7 weeks:
Buy to Open the NEE 16 Jun 82.5 call (NEE230616C82.5)
Sell to Open the NEE 16 Jun 80 call (NEE230616C80) for a credit of $0.50 (selling a vertical)
This credit is $0.05 less than the mid-point price of the spread at Friday’s $76.63 close. Unless NEE sags at the open on Monday, 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 $48.70. This trade reduces your buying power by $250, making your net investment $201.30 per spread ($250 – $48.70). If NEE closes below $80 on June 16, both options will expire worthless and your return on the spread would be 24% ($48.70/$201.30).
Testimonial of the Week
It is often said that options are to stock trading as chess is to checkers. I was looking to find the chess master amongst the checker’s champs, and Terry is the one. Looking for the very smart yet understandable way to trade options? Look no further.
~ Phil Wells
Any questions? Email Terry@terrystips.com. Thank you again for being a part of the Terry’s Tips newsletter.
Happy trading,
Jon L
Option Trade of the Week – Stuck in Neutral
April 18, 2023
Dear [[firstname]],
Here is your Option Trade of the Week, as included in this past weekend’s Saturday Report for our Terry’s Tips Insider Members. This stock hasn’t done much this week, so you can enter this trade at about the same price as my Insiders. Good luck with the trade!
But first, it’s time for my usual pitch for our premium Terry’s Tips service. We’re solidly in the black this year, led by our Honey Badger portfolio (it trades QQQ options), which is up an impressive 23%. Don’t forget that our portfolios beat their underlying stock performance by an average of 22% in 2022.
Don’t get left behind. For our loyal newsletter subscribers, I’m keeping the sale going that saves you more than 50% on a monthly subscription to Terry’s Tips.
You’ll get …
- A month of all trade alerts in our four portfolios, giving detailed instructions for entering and exiting positions.
- Four to five (depending on the month) weekly issues of our Saturday Report, which shows all the trades and positions for our four portfolios, a discussion of the week’s trading activity and early access to our Option Trade of the Week.
- Instructions on how to execute the 10K Strategy on your own.
- A 14-day options tutorial on the opportunities and risks of trading options.
- Our updated 10K Strategy white paper, a thorough discussion of the strategy basics and tactics.
- Full-member access to all our premium special reports that can make you a wiser and more profitable options trader.
To become a Terry’s Tips Insider Member, just Click Here, select Sign Up Now and use Coupon Code D21M to start a monthly subscription to Terry’s Tips for half off. You can cancel after a month but, of course, still keep all the valuable reports.
We look forward to having you join us! Now on to the trade …
Stuck in Neutral
Used-car retailer CarMax (KMX) is a stock that attracts a wide range of opinions. This week, KMX reported earnings that had something for both bulls and bears. On the bullish side, earnings per share (EPS) more than doubled the consensus estimate. But the bears will point out that net income fell 57% from a year earlier. Revenue declined 25% and fell far short of expectations. And the company pointed out that “headwinds remained due to widespread inflationary pressures, climbing interest rates, tightening lending standards, and prolonged low consumer confidence.” Even so, KMX affirmed its long-term financial targets.
Analysts were all over the road with their reactions. Some pointed to the success of KMX’s cost management strategy. Others reiterated the headwinds the company itself discussed. If there is a consensus, it appears that the short to neutral term will be challenging, while the longer-term outlook is encouraging.
KMX’s chart also has some headwinds in the form of the 200-day moving average. The stock hasn’t closed a day above this declining trendline since December 2021. Rally attempts in August and February were stopped in their tracks by the 200-day. And so was the post-earnings pop this week.
This trade is a bet that the short-term road will be bumpy for KMX and that the 200-day will continue to keep the stock in a six-month trading range bounded on the upside by the 75 level. This is also where the 200-day currently resides.
If you agree that KMX will struggle under the weight of its 200-day moving average (blue line) for the next few weeks, consider the following trade that relies on the stock staying below $75 (red line) through expiration in 7 weeks:
Buy to Open the KMX 2 Jun 78 call (KMX230602C78)
Sell to Open the KMX 2 Jun 75 call (KMX230602C75) for a credit of $0.70 (selling a vertical)
This credit is $0.05 less than the mid-point price of the spread at Friday’s $69.46 close. Unless KMX plunges at the open on Monday, 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 $68.70. This trade reduces your buying power by $300, making your net investment $231.30 per spread ($300 – $68.70). If KMX closes below $75 on June 2, both options will expire worthless and your return on the spread would be 30% ($683.70/$231.30).
Testimonial of the Week
Thanks so much for detail explanation of each trade. I simply love your report and eagerly waiting for your report every Saturday. I am glad I found you guys. I am super happy to learn how your make a trade and invest with so much dedication, active management and vast array of knowledge, otherwise it’s simply not possible to see such wonderful returns.
~ Senjeev
Any questions? Email Terry@terrystips.com. Thank you again for being a part of the Terry’s Tips newsletter.
Happy trading,
Jon L
Option Trade of the Week – In Need of Restoration
April 3, 2023
Dear [[firstname]],
Here is your Option Trade of the Week, as included in this past weekend’s Saturday Report for our Terry’s Tips Insider Members. After three straight put spreads, it was time for a bearish post-earnings play, this time on a higher-end retailer. Good luck with the trade!
But first, it’s time for my usual pitch for our premium Terry’s Tips service. Though our portfolios slipped slightly last week (hey, it happens), we still had a solid first quarter. And our Honey Badger portfolio (it trades QQQ options) was up an impressive 22%. Don’t forget that our portfolios beat their underlying stock performance by an average of 22% in 2022.
Don’t get left behind. For our loyal newsletter subscribers, I’m keeping the sale going that saves you more than 50% on a monthly subscription to Terry’s Tips.
You’ll get …
- A month of all trade alerts in our four portfolios, giving detailed instructions for entering and exiting positions.
- Four to five (depending on the month) weekly issues of our Saturday Report, which shows all the trades and positions for our four portfolios, a discussion of the week’s trading activity and early access to our Option Trade of the Week.
- Instructions on how to execute the 10K Strategy on your own.
- A 14-day options tutorial on the opportunities and risks of trading options.
- Our updated 10K Strategy white paper, a thorough discussion of the strategy basics and tactics.
- Full-member access to all our premium special reports that can make you a wiser and more profitable options trader.
To become a Terry’s Tips Insider Member, just Click Here, select Sign Up Now and use Coupon Code D21M to start a monthly subscription to Terry’s Tips for half off. You can cancel after a month but, of course, still keep all the valuable reports.
We look forward to having you join us! Now on to the trade …
In Need of Restoration
We’ve had three straight bullish plays in this space (all doing well), so it’s time to put one on the bearish side of the ledger. Even though earnings reports slowed to a trickle, we found one that fit the bill.
High-end home furnishings retailer RH (RH), formerly known as Restoration Hardware (an odd name that was deservedly dumped in 2017), reported earnings after the bell on Wednesday. It was one of the few companies this quarter that missed on all counts – earnings, revenue and guidance. And these weren’t small misses. Earnings per share, for example, came in at $2.88 compared to the $3.32 expected by analysts. The sales forecast for next quarter is $720-735 million, while the Street is expecting $827 million. To top it off, RH’s CEO said the next several quarters would be challenging, citing housing weakness and bank failures. Not a good outlook.
Analysts couldn’t get their price target cuts out the door fast enough. One lowered it from $280 to $225, well below Friday’s close. In fact, several lowered their targets below the current share price. Even with the cuts, the average target is 13% above the stock price and the average analyst rating is a moderate buy. This suggests that more target cuts and perhaps a few downgrades would be deserved for a stock that is down 9% this year and 67% from its all-time high hit in August 2021.
RH’s chart is filled with all sorts of bearish indicators. The 20-day moving average has been plunging since mid-February and bearishly crossed below the 50-day, which itself has rolled over into a decline. The 20-day also crossed below the 200-day, which has been trending lower since January 2022. That’s why we’re going with a bearish call spread with the short strike sitting just above the 20-day. Note that the 20-day hasn’t allowed a single close above it since turning lower six weeks ago.
If you agree that RH will continue to languish below its 20-day moving average (blue line) after a disappointing earnings report and downbeat guidance, consider the following trade that relies on the stock staying below $255 (red line) through expiration in 6 weeks:
Buy to Open the RH 12 May 260 call (RH230512C260)
Sell to Open the RH 12 May 255 call (RH230512C255) for a credit of $1.75 (selling a vertical)
This credit is $0.05 less than the mid-point price of the spread at Friday’s $243.55 close. Unless RH plunges, 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 $173.70. This trade reduces your buying power by $500, making your net investment $326.30 per spread ($500 – $173.70). If RH closes below $255 on May 12, both options will expire worthless and your return on the spread would be 53% ($173.70/$326.30).
Any questions? Email Terry@terrystips.com. Thank you again for being a part of the Terry’s Tips newsletter.
Happy trading,
Jon
Option Trade of the Week – Cry Me a Rivian
March 7, 2023
Dear [[firstname]],
Here is your Option Trade of the Week, as given to our Terry’s Tips Insider Members as part of their Saturday Report. I again stayed on the bearish side this week, as this market is looking very vulnerable, especially after today’s Congressional testimony from Jerome Powell.
However, as I did a couple of weeks ago, I’m revising the trade because the position has run away from the opening price. Because of a huge plunge in the stock price today, the trade is already up nearly 20% in just two days. Because I still believe in the premise of the trade, I’m changing the strikes to give you a similar entry credit … and, of course, profit. Good luck with it.
Before getting to the trade, I wanted to let you know that the Terry’s Tips portfolios are on a hot streak. The combined four portfolios are now beating the S&P 500, led by the Boomer’s Revenge portfolio, which is up a whopping 18% so far this year! That’s on top of the 33% gain during last year’s horrible market performance. Overall, our portfolios beat their underlying stock performance by an average of 22% in 2022.
Don’t get left behind. For our loyal newsletter subscribers, I’ve decided to keep the sale going that saves you more than 50% on a monthly subscription to Terry’s Tips. For just $98, you’ll get:
- A month of all trade alerts in our four portfolios, giving detailed instructions for entering and exiting positions.
- Four to five (depending on the month) weekly issues of our Saturday Report, which shows all the trades and positions for our four portfolios, a discussion of the week’s trading activity and early access to our Option Trade of the Week.
- Instructions on how to execute the 10K Strategy on your own.
- A 14-day options tutorial on the opportunities and risks of trading options.
- Our updated 10K Strategy white paper, a thorough discussion of the strategy basics and tactics.
- Full-member access to all our premium special reports that can make you a wiser and more profitable options trader.
To become a Terry’s Tips Insider Member, just Click Here, select Sign Up Now and use Coupon Code D21M to start a monthly subscription to Terry’s Tips for half off. You can cancel after a month but, of course, still keep all the valuable reports.
We look forward to having you join us! Now on to the trade …
Cry Me a Rivian
Electric car maker Rivian (RIVN) reported earnings on Tuesday after the bell that were mixed at best. The company narrowed its adjusted Q4 loss to beat the consensus estimate but missed considerably on revenue. Of greater importance, however, is RIVN’s expected 2023 production of 50,000 compared to the expected 60,000 units.
But on Friday, word “leaked” of a 62,000-unit goal discussed at an internal company meeting. The shares reacted with a 7.6% surge, but still closed the week lower. Although nobody knows for sure, this looks to me like a classic “buy the rumor, sell the news” scenario.
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What is known, however, is that the stock was hit with a number of lowered price targets on the earnings news. Yet even with the reductions, the average target price is nearly double Friday’s close. That’s awfully optimistic for a stock that is down 70% from its 52-week high and 8% so far this year. Moreover, the EV space is getting more crowded, even as the dominant player – Tesla – is enjoying a resurgence.
On the chart, RIVN is trading toward the bottom of a two-month range that is being pressured by the declining 20-day (red line) and 50-day (blue line) moving averages. The short call strike of our bearish credit spread sits above these trendlines, so the stock will have to break through this double-barrelled resistance to move the spread into the money.
If you agree that RIVN will struggle with technical resistance following an uninspiring earnings report, consider the following trade that relies on the stock staying below $19 (green line) through expiration in 6 weeks:
Buy to Open the RIVN 14 Apr 18 call (RIVN230414C18)
Sell to Open the RIVN 14 Apr 16 call (RIVN230414C16) for a credit of $0.45 (selling a vertical)
This credit is $0.01 less than the mid-point price of the spread at Tuesday’s $14.64 close. Unless RIVN 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 $43.70. This trade reduces your buying power by $200, making your net investment $156.30 per spread ($200 – $43.70). If RIVN closes below $16 on Apr. 14, both options will expire worthless and your return on the spread would be 28% ($43.70/$156.30).
Testimonial of the Week
I have been a subscriber for about a year. I autotrade in 2 different accounts, all your strategies. I read everything you write on Saturdays. I love your happiness thoughts and everything else. I usually do not communicate at all but I had to tell you how well my accounts with you are doing compared to everything else. You are awesome. Keep up the good work. Thank you. – Maya
Any questions? Email Terry@terrystips.com. Thank you again for being a part of the Terry’s Tips newsletter.
Happy trading,
Jon
Option Trade of the Week – Low Energy
February 22, 2023
Dear [[firstname]],
Here is your Option Trade of the Week, as given to our Terry’s Tips Insider Members as part of their Saturday Report. I stayed on the bearish side this week but opted for an ETF rather than a post-earnings trade.
I’m doing something I rarely do with these trades for the free newsletter – I’m altering it because the trade has run away from the opening price. That is, it’s already up close to 20% in just two days. Because I still believe in the premise of the trade, I’m changing the strikes to give you a better chance for entry … and, of course, profit. Good luck with it.
Before getting to the trade, I wanted to let you know that the Terry’s Tips portfolios are on a hot streak. The combined four portfolios are now beating the S&P 500, led by the Boomer’s Revenge portfolio, which is up a whopping 23% so far this year! That’s on top of the 33% gain during last year’s horrible market performance. Overall, our portfolios beat their underlying stock performance by an average of 22% in 2022.
Don’t get left behind. For our loyal newsletter subscribers, I’ve decided to keep the sale going that saves you more than 50% on a monthly subscription to Terry’s Tips. For just $98, you’ll get:
- A month of all trade alerts in our four portfolios, giving detailed instructions for entering and exiting positions.
- Four to five (depending on the month) weekly issues of our Saturday Report, which shows all the trades and positions for our four portfolios, a discussion of the week’s trading activity and early access to our Option Trade of the Week.
- Instructions on how to execute the 10K Strategy on your own.
- A 14-day options tutorial on the opportunities and risks of trading options.
- Our updated 10K Strategy white paper, a thorough discussion of the strategy basics and tactics.
- Full-member access to all our premium special reports that can make you a wiser and more profitable options trader.
To become a Terry’s Tips Insider Member, just Click Here, select Sign Up Now and use Coupon Code D21M to start a monthly subscription to Terry’s Tips for half off. You can cancel after a month but, of course, still keep all the valuable reports.
We look forward to having you join us! Now on to the trade …
Low Energy
Although there were plenty of earnings reports this week, there weren’t many tradeable choices. By that I mean stocks with options that have decent bid/ask spreads. So, we’re taking a week off from post-earnings plays and going with a powerhouse ETF, the SPDR Utilities ETF (XLU). This market-cap-weighted, $15 billion fund holds utilities companies included in the S&P 500, including NextEra Energy (NEE), Duke Energy (DUK) and Southern Co. (SO).
XLU has underperformed in 2023, falling around 3% compared to the 6.5% increase in the S&P 500. The slide has been guided lower by the 20-day moving average, although the ETF closed slightly above this trendline last Friday. But the 20-day re-asserted itself this week to continue XLU’s slide.
XLU’s top 10 holdings have a similar story, as one would expect. The average return in 2023 is -2.4%, with eight of the 10 in the red. Seven are trading below their respective 50-day moving averages. And eight of the 10 50-day moving averages are declining or rolling over.
This trade is based on XLU continuing its downtrend over the next several weeks. The nearest level of support rests at the 64.50 level (3.6% below Wednesday’s close), the site of bottoms in February and June of last year. The declining 20-day moving average (blue line) remains in play as resistance, which is below the short call strike of our spread (red line), meaning the ETF will have to pierce this resistance to move the spread into the money.
If you agree that XLU will continue to struggle under the weight of moving-average resistance, consider the following trade that relies on the ETF staying below $68.50 through expiration in less than 6 weeks:
Buy to Open the XLU 31 Mar 70.5 call (XLU230331C70.5)
Sell to Open the XLU 31 Mar 68.5 call (XLU230331C68.5) for a credit of $0.50 (selling a vertical)
This credit is $0.02 less than the mid-point price of the spread at Wednesday’s $66.94 close. Unless XLU 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 $48.70. This trade reduces your buying power by $200, making your net investment $151.30 per spread ($200 – $48.70). If XLU closes below $68.50 on Mar. 31, both options will expire worthless and your return on the spread would be 32% ($48.70/$151.30).
Any questions? Email Terry@terrystips.com. Thank you again for being a part of the Terry’s Tips newsletter.
Happy trading,
Jon L
Option Trade of the Week – No Do-Over for Earnings
February 15, 2023
Dear [[firstname]],
Here is your Option Trade of the Week, as given to our Terry’s Tips Insider Members as part of their Saturday Report. It’s another post-earnings trade, this time on the bearish side. And you can now collect even more premium for this trade than when I first sent it out.
Before getting to the trade, it’s time for another plug to join Terry’s Tips as an Insider Member that lets you trade up to four portfolios. These portfolios use our proprietary 10K Strategy, which has generated average annual gains of 60% for the past five years in actual brokerage accounts (including all commissions). In 2022, our portfolios beat their underlying stock performance by an average of 22%.
And we’re off to a great start in 2023 … in fact, our portfolio based on IWM, the popular small-cap ETF, is up nearly 14% year to date.
For our loyal newsletter subscribers, I’ve decided to keep the sale going that saves you more than 50% on a monthly subscription to Terry’s Tips. For just $98, you’ll get:
- A month of all trade alerts in our four portfolios, giving detailed instructions for entering and exiting positions.
- Four to five (depending on the month) weekly issues of our Saturday Report, which shows all the trades and positions for our four portfolios, a discussion of the week’s trading activity and early access to our Option Trade of the Week.
- Instructions on how to execute the 10K Strategy on your own.
- A 14-day options tutorial on the opportunities and risks of trading options.
- Our updated 10K Strategy white paper, a thorough discussion of the strategy basics and tactics.
- Full-member access to all our premium special reports that can make you a wiser and more profitable options trader.
To become a Terry’s Tips Insider Member, just Click Here, select Sign Up Now and use Coupon Code D21M to start a monthly subscription to Terry’s Tips for half off. You can cancel after a month but, of course, still keep all the valuable reports.
We look forward to having you join us! Now on to the trade …
No Do-Over for Earnings
Take-Two Interactive Software (TTWO) – the developer of popular video games such as Grand Theft Auto and Red Dead Redemption – reported earnings this week that were not fun and games. The company fell short of expectations for earnings and revenue (more specifically, net bookings), citing gamers being more careful with their spending. To add more misery, TTWO lowered its revenue guidance for the fourth quarter and FY 2023. The company also announced cost-cutting measures, including dropping personnel.
Analysts were mostly disappointed in the report, responding with a series of lowered target prices (there was one increase). The new average target is still 17% above Friday’s closing price, so there’s room for more cuts. There were no rating changes, which seems at odds with the price moves. Given that 80% of covering analysts rate the stock a buy or better, you’d think there could be some downgrades based on earnings that could put pressure on the shares.
Despite the poor report, TTWO surged nearly 8% the day after earnings. But that brought the stock close to its declining 200-day moving average, a trendline it last traded above exactly one year ago. Moreover, it’s noteworthy that the shares sagged throughout the rest of the week following the earnings pop. This trade is thus based on the 200-day resistance holding over the next several weeks, as we are playing a call spread with the short call strike sitting above the trendline.
If you agree that TTWO will continue to struggle under the weight of the 200-day moving average (blue line), consider the following trade that relies on the stock staying below $117 (red line) through expiration in 7 weeks:
Buy to Open the TTWO 31 Mar 120 call (TTWO230331C120)
Sell to Open the TTWO 31 Mar 117 call (TTWO230331C117) for a credit of $0.85 (selling a vertical)
This credit is $0.05 less than the mid-point price of the spread at Friday’s $111.10 close. Unless TTWO 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 $83.70. This trade reduces your buying power by $300, making your net investment $216.30 per spread ($300 – $83.70). If TTWO closes below $117 on Mar. 31, both options will expire worthless and your return on the spread would be 39% ($83.70/$216.30).
Any questions? Email Terry@terrystips.com. Thank you again for being a part of the Terry’s Tips newsletter.
Happy trading,
Jon
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