Weekend Trader Alert

October 30, 2022

Open Positions Update

  • Please extend the scheduled time-stop date on the General Mills (GIS) January 20, 2023, 72.50-strike call to Monday, November 14.
  • Close the Workday (WDAY) December 16, 2022, 160-strike put on Monday, October 31. 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:


Illinois Tool Works (ITW)

Place a limit order to buy the Illinois Tool Works (ITW) March 17, 2023 200-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 28, this option was offered at $24.60. ITW closed at $214.05 on Friday, October 28.

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 28, close the position.
  • If there is a change to the above closeout parameters, we will notify you in your regular Sunday evening communication.
Illinois Tool Works (ITW) has several layers of technical support in place. The shares are above their 200-day moving average, which was an area of post-earnings resistance in August; the $204 level, which is 1.2 times ITW’s July closing low; and the $197 level, which is 0.8 times the stock’s all-time monthly closing high. Furthermore, the equity just conquered a trendline connecting lower highs since August, as well as trendline connecting lower highs since its early-January peak – potentially signaling early stages of a move toward this year’s highs. 



Technical breakouts such as these preceded significant rallies in 2018 and 2020, after the stock pulled back to its 60-month (or five-year) moving average. Plus, support at the $180 level is three times ITW’s 2007 peak at $60, and is the site of a major peak in 2018.
 
Meanwhile, short interest has increased 40% since early September, and would take six days to cover at the security’s average pace of trading. These shorts are likely underwater, which could lead to a bout of short covering.

Analysts are still hesitant towards ITW, despite the stock’s improving technical backdrop and positive post-earnings reaction earlier this week. Of the 23 in coverage, only four carry a “buy” or better rating, with 15 a “hold” and four a “sell” or worse. Our recommended March 200-strike call has a leverage ratio of 6.1 and will double in value on a 16.4% pop in the underlying shares.


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