Shortly after the open today, I filmed my weekly In The Money segment with Fidelity Investments. Click below to watch and see my notes below the video:
Macro: Monday’s gap open on Pfizer (PFE) vaccine news was technically significant in the S&P 500 (SPX), the fact that it opened on the high, closed on the low, and gave back all of the gains from a very brief all-time high, possibly suggesting a little exhaustion after an 11% rally since the start of the month.
Rotation out of Tech and into Cylicals like Banks, Industrials, Transports, and Energy will likely have staying power.
Items to watch, how vicariously will trump contest the election outcome, how likely are the Dems to flip two Senate seats in a Georgia runoff and thus have Dems control the Senate, the House, and the WH, and what is the likelihood of further fiscal stimulus in a lame-duck period?
Lastly, lots of good news and coronavirus therapies and vaccines, but the timing of them being widely commercially available is likely longer than most think, social distancing measures will be around for probably half of 2021 and this winter is likely going to get worse before it gets better as it relates to cases and deaths.
Trade Idea#1: PFE rolling bullish trade idea up and out…
PFE ($37) Buy Nov 37 call for $1.50
Obviously, Monday’s news bout their coronavirus vaccine was great news causing the stock to gap to a new 52-week high, but it has since given back much of its gains.
The Nov 37 call that could have been bought for 1.50 when the stock was $37 is now worth $1.80 with the stock at $38.50
Here is the price history of this call, was worth more than $5 when the stock was near $42
Now I think it makes sense to roll this view up and out with a little more than a week to Nov expiration:
Sell to Close Nov 37 call at $1.80 for a 30 cent profit and
Buy to open PFE ($38.50) Jan 39 – 45 call spread for $1.40
-Buy to open 1 Jan 39 call for $1.85
-Sell to open 1 Jan 45 call at 45 cents
Break-even on Jan expiration:
Profits of up to 4.60 between 40.40 and 45 with max gain above 45
Losses of up to 1.40 between 39 and 40.40 with max loss of 1.40 at 39 or lower.
Rationale: this trade idea risks ~4% of the stock price, breaks even up 4.5% and has a max gain of 12% if the stock is up 16% in two months.
PFE’s gap broke the 2yr downtrend, making my new target the 24-month highs near 44:
Trade Idea #2: Electronic Arts (EA) Stay at home stocks have seen massive selling since the announcement of the vaccine….some baby with the bathwater… gaming might be one of the spaces that do not deserve to be…
Leg into bullish trade for the new year…
Bullish Trade Idea: EA ($118) Buy Dec – Jan 125 call calendar for $1.25
-Sell to open 1 Dec 125 call at $2
-Buy to open 1 Jan 125 call for $3.25
Break-even on Dec expiration:
The ideal scenario is that EA is near $125 on Dec expiration, if below the short call will expire worthless and you will be left long the Jan 125 call for only $1.30 as opposed to the $3.50 it costs now. If the stock is at or above the 125 strike then the short call can be covered if you want to stay long the Jan 125 call.
MAX RISK is $1.25 or ~1%
EA 1yr chart found support at the April breakout level.
Lookback: Last week I detailed a bullish trade idea in shares of LYFT:
LYFT ($29.20) buy Jan 30 – 42.50 call spread for $2.50
Now with the stock a week later at $38.30 the Jan call spread is worth $7.50, which is a nice gain in a week, I think it makes sense to close the trade and look to re-enter the bullish view on a pullback after such a sharp short-term rally.