Weekend Trader Alert

Weekend Trader Alert

December 18, 2022

Open Positions Update

  • Close the Morgan Stanley (MS) February 17, 2023, 87.5-strike call on Monday, December 19. Close the position at a limit price within the range of the current market price when you place the order.
The following is this week's recommendation:

Lyondellbasell Industries (LYB)

Place a limit order to buy the Lyondellbasell Industries (LYB) February 17, 2023 85-strike put at a limit price within range of the current market asked price when you place your order. At the close on Friday, December 16, this option was offered at $6.80. LYB closed at $80.58 on Friday, December 16.

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 Tuesday, January 17, close the position.
  • If there is a change to the above closeout parameters, we will notify you in your regular Sunday evening communication.
Chemical concern LyondellBasell Industries (LYB) is experiencing a bear flag breakdown on its daily and weekly charts. The equity was recently rejected at the 20-week moving average, and broke below the $82.50 pivot level. The shares also just failed at their year-to-date anchored volume-weighted average price (AVWAP), as well as their -10% year-to-date level. What's more, peak put at the 74.80-strike just expired, removing potential support from the $75 gap level.
A shift in the option pits could pressure the shares lower still. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), LYB sports a 50-day call/put volume ratio of 2.56 that stands in the 86th percentile of annual readings. Since 2021, when this call/put ratio has been this elevated, it's represented a peak in price.

Now looks like the ideal time to speculate with options. LYB's implied volatility (IV) stands at 33%, versus its two-month historical volatility (HV) of 43%, indicating that premiums are reasonably priced. Our recommended February 85 put has a leverage ratio of -6.18, and will double on a 13.88% drop in the underlying shares.

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