Weekend Trader Alert

Weekend Trader Alert

January 15, 2023

Open Positions Update

There are no portfolio updates this week.

The following is this week's recommendation:

Honeywell International (HON)

Place a limit order to buy the Honeywell International (HON) March 17, 2023 210-strike call at a limit price within range of the current market asked price when you place your order. At the close on Friday, January 13, this option was offered at $12.50. HON closed at $216.61 on Friday, January 13.

Do not attempt to enter this position after Tuesday'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, February 13, close the position.
  • If there is a change to the above closeout parameters, we will notify you in your regular Sunday evening communication.

Honeywell International (HON) experienced a bull flag breakout on the charts, confirmed by a successful retest and amid rising buying volume, which presented good opportunities in the past. The shares also broke above their 20-day moving average and through the 210-strike call level. With little overhead resistance from calls now, there is potential to run to the 230-strike. HON has also found an added layer of support at its 20-week moving average.

 
The brokerage bunch hasn’t been more bearish toward Honeywell stock in the last few years, and an optimistic shift could push the stock higher. Of the 30 analysts in coverage, 15 carry a “hold” or worse rating.
 
At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), HON’s 50-day put/call volume ratio of 1.73 ranks in the 94th percentile of its annual range. An unwinding of this pessimism could provide tailwinds. Plus, two of the last three times it was this elevated preceded a big bull rally.
 
Now also looks like a good time to weigh in on the security's next move with options. The stock is seeing attractively priced premiums at the moment, per its Schaeffer's Volatility Index (SVI) of 19%, which sits in the 5th percentile of annual readings. Furthermore, the security's Schaeffer's Volatility Scorecard (SVS) sits at a relatively high 76 out of 100, meaning HON has exceeded option traders' volatility expectations during the past year.
 
The first quarter of the year has been seasonally bullish for Honeywell stock, and Market Chameleon data gives us a 56.5% win rate. Our recommended March 210-strike call has a leverage ratio of 11.8, and will double on an 8.4% rise in the underlying shares.  


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