Weekend Trader Alert

Weekend Trader Alert

November 20, 2022

Open Positions Update

There are no portfolio updates this week.

The following is this week's recommendation:

Etsy (ETSY)

Place a limit order to buy the Etsy (ETSY) January 20, 2023 110-strike call at a limit price within range of the current market asked price when you place your order. At the close on Friday, November 18, this option was offered at $14.40. ETSY closed at $113.92 on Friday, November 18.

Do not attempt to enter this position after Monday's close.

Please use the following guidelines to manage the position:
  • Exit the position if the option is at a 100% gain from your entry price.
  • If the option has not reached its target profit by 3:00 p.m. Eastern time on Monday, December 19, close the position.
  • If there is a change to the above closeout parameters, we will notify you in your regular Sunday evening communication.
E-commerce name Etsy (ETSY) is breaking out in a cup and handle pattern, and retested its breakout to close out the week as it pushed above its year-to-date breakeven level. A confluence of rising moving averages linger below to support the shares, which also broke above their year-to-date average volume-weighted average price (VWAP). Plus, the equity is trading at seven times is initial public offering (IPO) price of $112, while the -50% year-to-date region could at as support in the event of a trend change.

Analysts lean mostly bearish on Etsy stock, meaning the security could benefit from a shift in sentiment. Of the 27 firms in coverage, 14 still carry a tepid "hold" or worse rating. Plus, shorts are in covering mode, and short interest makes up 9.9% of ETSY’s available float.

Additional tailwinds could come from a shift in the options pits. This is per the stock’s 50-day put/call volume ratio of 1.53 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which is rolling over from all-time-high levels. Rollovers above 1.0 have previously been bullish for the equity.

It's also worth noting the ETSY’s Schaeffer's Volatility Scorecard (SVS) stands at an elevated 83 out of 100. This means the equity has exceeded options traders' volatility expectations during the past year. Our recommended January 2023 110-strike call has a leverage ratio of 4.9, and will double in value on a 21.8% pop in the underlying shares.

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