Weekend Trader Alert
May 5, 2024
Open Positions Update
- Close the Waste Management (WM) July 19, 2024, 210-strike call on Monday, May 6. 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:
Spotify Technology (SPOT)Place a limit order to buy the Spotify Technology (SPOT) July 19, 2024 290-strike call at a limit price within range of the current market asked price when you place your order. At the close on Monday, May 3, this option was offered at $23.80. SPOT closed at $296.07 on Monday, May 3.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, June 3, close the position.
- If there is a change to the above closeout parameters, we will notify you in your regular Sunday evening communication.
Shares of Spotify (SPOT) retested their 50-day moving average after earnings late last month, and are now trading above all major trendlines. The equity also filled a post-earnings gap, which potentially shook out weak-handed bears. A third attempt to breakout from the round $300 mark and move above that level could see a run on higher strike to $330 or $340. Adding to this bullish technical setup, SPOT just bounced right into a stacked put open interest level at the 280- and 270-strike.
A shift in options trader sentiment could help the shares move higher. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security’s 50-day put/call volume ratio of 1.15 is higher than 86% of annual readings. It’s worth noting that this ratio has rolled over from a peak, and price action tends to shift higher in the instances.
Short interest is relatively low, but the shares have rallied amidst a near 50% build since early December. And despite the outperformance, 11 covering brokerages still recommend a tepid “hold” on SPOT.
Amid a post-earning volatility crush, now looks like the right time to speculate with options. Spotify stocks' Schaeffer's Volatility Index (SVI) of 34% ranks in the low 11th percentile of 12-month readings, meaning options traders are pricing in lower-than-usual volatility expectations.
Our recommended July 290 call have a leverage ratio of 7.7, and will double in a 13.7% rise in the underlying shares.
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