This was a fun read on Bear Markets.
It's similar to what I would say on the podcast.
The left side of the "Momentum Mountain" is easy.
The right side takes a lot of skill.
Let's get to today's Top 3...
UNUSUAL OPTIONS ACTIVITY
1. This is what the NVDA Options Say
2. Time to Buy NKE?
3. Getting Long RKT Into Earnings
UNUSUAL OPTIONS ACTIVITY NVDA STOCK
This is what the NVDA Options Say
What a long battle it has been for NVDA’s ARM purchase. Bloomberg is reporting that:
“Nvidia Corp. is quietly preparing to abandon its purchase of Arm Ltd. from SoftBank Group Corp. after making little to no progress in winning approval for the $40 billion chip deal, according to people familiar with the matter… The purchase -- poised to become the biggest semiconductor deal in history when it was announced in September 2020 -- has drawn a fierce backlash from regulators and the chip industry, including Arm’s own customers. The U.S. Federal Trade Commission sued to stop the transaction in December, arguing that Nvidia would become too powerful if it gained control over Arm’s chip designs. The acquisition also faces resistance in China, where authorities are inclined to block the takeover if it wins approvals elsewhere.”
The stock has taken a beaten in the last few weeks.
What Does the NVDA Stock Chart Say?
NVDA stock was down as much as 30% for the year at the lows yesterday before it climbed back.
Notice that it recouped the 200dma at $221, which is holding (so far) today.
Below that, you have some likely support near $194. The stock drew in some buyers back in the summer who might want to buy some more.
That said, the stock is in a 3-month downtrend.
The Bears have likely covered some of their position here and will re-load back up near the $250-$270 range and play against that $270 level. Look at that volume in November – December… a lot of investors are stuck up there.
With the 50dma pointing lower and the large differential between the 50 and 200dma, it’s likely range-bound between $194 - $270 in the near-term, which will narrow considerably over the next few months.
Options Activity in NVDA Stock
NVDA is seeing massive options trading in the front week as more than 250,000 contracts have changed hands. There are buyers across the board lifting volatility 20 points in the process.
The 1-week $225 Straddle is ~$18.00. That gives us breakeven prices of $207 and $243.
The 1-standard deviation range is closer to $202.50 and $247.50.
Earnings are not until mid-February so this is likely focused on the Fed tomorrow or a potential announcement on the deal by NVDA.
UNUSUAL OPTIONS ACTIVITY NKE STOCK
Time to Buy NKE?
Wells Fargo upgrades NKE to Overweight from Equal weight, keeping its Price Target at $175:
“We see a favorable risk/reward and view the pullback as a rare buying opportunity for this best-in-class global athletic name, particularly ahead of accelerating trends into FY23… Based on our industry checks in China, we see the brand as better equipped than most to manage the volatility, given its strong consumer connections, strategic partnerships, use of Express Lane, and greater use of marketing, especially we expect once we get past any geopolitical headwinds in China during the Beijing Olympics.”
NKE has been on a volatile ride over the last 6 months.
What Does the NKE Stock Chart Say?
NKE has climbed higher establishing two clear ranges. First, between $125 to $145 from October 2020 to June 2021. Then, from $145 to $179 since.
You can see the big volume days (blue arrows) that brought in the big money.
The stock is firmly below the 50 and 200dma. It has even tried to get above the 200dma near $153 and was rejected.
NKE stock is now hanging on by a thread here at that $145 range.
The Bears are looking for a break of $145 to flush out the weak hands and target $125.
A near-term range is likely $20 up and $20 down.
Options Activity in NKE Stock
Given the upgrade this morning, I was reminded of a trade that happened yesterday in NKE.
A buyer stepped in for 10,000 NKE June 17th $125 Calls paying $22.45.
Earnings are in Mid-March.
This buyer is using options to protect against a potential breakdown like the one discussed above. So, instead of owning stock this Call buyer sees value in that $125 Put for $5.
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UNUSUAL OPTIONS ACTIVITY RKT STOCK
Getting Long RKT Into Earnings
RKT is a fintech stock that’s the best stock in a unfavored industry right now – the mortgage-refinance business. With interest rates rising that business gets killed.
That said, RKT has many other areas it is developing, a growing technology team, and management set on establishing partnerships to get the company’s flywheel going.
I like the company, but it has lost all momentum.
What Does the RKT Stock Chart Say?
It’s been straight down for RKT stock after the huge spike in March.
It is firmly below both the 50 and 200 dma. In fact, it’s really having trouble with the 50dma since March.
My worry about this stock is the lack of volume on the downside.
There are many new investors in this stock that refuse to sell... For now.
Unfortunately, bottoms usually start with a huge volume washout.
The Bears will likely continue leaning on the stock until they get a huge volume day up or down.
And it looks like someone has something to say about that.
Options Activity in RKT Stock
There is unusual options activity in RKT this morning. Someone is selling Put options and collecting premium to buy Call options.
More specifically, they sold 4,000 RKT June $11.89 Put at $1.34 to buy 10,000 RKT February $13.50 Calls for $0.61.
Earnings are due in early February, so these Calls will get the earnings.
I like the play, but I’d rather wait until I could point to a bottom.
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