Weekend Trader Alert
October 16, 2022
Open Positions Update
- Please extend the scheduled time-stop date on the Allstate (ALL) January 20, 2023, 125-strike call to Monday, October 31.
The following is this week's recommendation:
Place a limit order to buy the Hershey (HSY) January 20, 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, October 14, this option was offered at $21.20. HSY closed at $222.71 on Friday, October 14.
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, November 14, close the position.
- If there is a change to the above closeout parameters, we will notify you in your regular Sunday evening communication.
Hershey (HSY) has several layers of support on the charts, including its 20-week moving average as well as a long-term trendline connecting multiple lows in 2021 and in June and September of 2022. This pattern appears to be echoing the 2021 consolidation that led to a massive breakout, indicating a next leg higher for HSY could be imminent.
The stock is armed with an array of moving averages that support a bullish thesis. Its 160-day trendline is just around the $220 level, which has been a critical area of support through its bull run and is double its 2020 Covid lows. Plus, the top put open interest position is at the 220-strike – supportive of the current price. The 230-strike peak call level will evaporate in October, potentially allowing a breakout.
Meanwhile, HSY’s 50-day put/call volume ratio of 1.41 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks in the 80th percentile of its annual range. This ratio has typically indicated bullish price action in the past, and an unwinding of this pessimism could provide tailwinds.
Hershey is also entering a seasonally favorable period. Historically, the stock finished positive 67% of the time through the holding period, with November and December providing the third- and first-best returns on a monthly basis, respectively. Our recommended January 2023 210-strike call has a leverage ratio of 7.2 and will double in value on a 13.5% pop in the underlying shares.
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