CNBC Unusual Call on XRT and AGN. What does Ichimoku Say?

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CNBC Unusual Call on XRT and AGN.  Today on CNBC Jon and Pete Najarian spot unusual activity on XRT and AGN before earnings.   Let’s examine them with Ichimoku and see what it says.

Here is the CNBC video clip:

Let’s look at XRT first.   This is the SPDR S&P Retail ETF.    Here is the unusual call activity for XRT that was seen.    8965 Sept 46 Calls where purchased at 1.05 when a bid/ask of 1.02×1.05.    The open interest at end of business for these Sept 26 calls is 10,802.   At Friday market close, the Open interest was 179.   This definitely indicates people buying this single call.   We don’t see any other activity at another strike in this quantity to indicate it is a complex option strategy.    As a result, we will assume this is a single call that someone is betting on price getting at or above 47.05 by Sept expiration.


Let’s now look at the Ichimoku charts provided by Thinkorswim. Below is the monthly chart for XRT.    It shows that it has been in a long term bullish trend and finally it started it’s major pull back.   The major pull back has not been a “clean” pull back.     It is an “ugly” pull back.    There is a small consolidation pattern between 42.74 and 46.41.    The resistance that is controlling the major pull back is 44.49      In order for the bullish trend to resume, price has to break this resistance again and break the top of the bullish consolidation resistance of 46.41.    Let’s see if the weekly time frame can give us a clue on what is going to happen.


Below is the weekly time frame.  The sentiment is bearish and it is being controlled by 46.41.    In order to start a bullish trend, two major resistances have to be conquered.    They are at 44.49 and 46.41.



Below is the daily time frame.    It doesn’t show clear bullish signs at all.    It’s major resistance is at 44.27.


Let’s look at the Greeks for the option.  RIght now, the delta is $34/contract and the cost of the option for  1 contract was 105.     If the stock moves up $1 then the stock option can gain over 30% in gain assuming volatility remains the same.      We don’t know what the risk for this trader will be.   They paid $105/contract but we don’t know at what price they are willing to get rid of the contract.  The stop based on daily should be below 42.21.

I personally don’t like this trade.  It doesn’t fit my trading plan so I will walk away from this opportunity.   Good luck to the people taking this trade with this trader!  I will put an alert at 42.21.  If price gets there…maybe I will revisit it to see if a trade exits at that point with a good reward/risk.


Let’s look at AGN now to see there is an opportunity.   There was a big bet for bullish vertical spread for 210/230 for Sept.   Basically buying the 210 call and selling the 230 call.   Right now, the cost is $950/contract to make a potential of 1050.  The stock has to get above 230 by expiration in order to make max profit.   Below is the risk graph:


Below is the monthly chart.   It shows the major support is at 197.74 which it held this month.   The major resistance is at 258.63.


Below is the weekly time frame.    It shows the trend is strong bearish.    The weekly resistance matches the monthly time frame.   However, we don’t see any over extension or anything else to say the bearish trend is over.   The monthly support did hold but we have to see some signs for the instrument bottoming order to take a trade to target the major resistance at 158.63 long term or even through earnings.


If the trader is looking to exit the trade before September…maybe after earnings, they took this trade to trade the delta for the vertical spread.   The delta is $17.81 assuming volatility remains the same.

The reward/risk whether trading the delta or waiting to expiration is not 3:1 reward/risk.   As a result, we did not take this trade.   We will wait for after earnings to see if there is an opportunity with a lower volatility.


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