A R G U S W E E K LY O P T I O N S WAT C H

by Mark Arbeter, CMT Week of May 9, 2022

SHORT-TERM MARKET WRAP

OPTION TRADE OF THE WEEK
Thursday, May 5, was a brutal day for stocks, especially following the strong gains of the day
Name.......... Occidental Petroleum
before (following the FOMC meeting). Risk On. Risk Off. It never seems to end! The S&P 500
is back near its closing lows after cratering 3.6%, its worst day since April 29. NYSE breadth Ticker.........................................OXY
was horrible at -2,725. NYSE declining volume/total volume and declining issues/total issues Share Price........................... $64.89
both registered 90% days, a pretty good washout, at least for a day. On May 6, the major indices
closed far off their lows, offering some “good” news. Recommended Strategy
Trade Type.................BUY CALLS
Thursday was the most-lopsided day for NYSE declines in almost two years. That is probably
the type of action needed to clear the decks and allow for an eventual intermediate-term bottom. Exp. Date............................6/17/22
The percentage of “500” stocks above their 200-day moving average was 7% on Thursday, the Strike Price..........................$70.00
weakest reading since the pandemic low. We have been worried about poor market breadth for
some time, as major pieces of a correction or bear market occur when this reading is below 45%.
Price......................................$3.85
OXY had a massive recovery from
The next point of support for the “500” is the 100-week average at 4,040, almost hit intraday November 2020 until March 2021,
on Friday, and then a 38.2% retracement of the rally since the pandemic targets 3,800. A 50% rising to $32 from $9. The shares
giveback as well as the 200-week average are near 3,500. The size of the current rectangle then went sideways, trading in a
is 485 points. A strong break to the downside and out of the trading range could result into a range between $22 and $36 for
measured move to 3,630. almost a year. In February 2022,
the stock broke out of the bullish
The Nasdaq plunged 5% on Thursday (its worst day since June 2020) and another 1.4% on Fri- consolidation, traced out a flag back
day. The next potential support is a FIBO retracement of 50% of the rally since the pandemic low, to its 21-day exponential average,
targeting 11,400. A downside target based on the size of the trading range comes in at 10,605. and then spiked higher in late Feb-
ruary, ultimately peaking on March
We thought yields would turn lower after the FOMC meeting, but the 10-year popped to 3.1% 21 in the low $60s. Over the past
on Friday, with short rates back up as well. six weeks, OXY has drifted side-
With volatility rising, selling put options on former leaders seemingly is attractive. ways back to its rising 50-day. Over
the past few days, the shares have
CBOE EQUITY-ONLY PUT/CALL RATIO: CONTRARY INDICATOR bounced and have broken to new
recovery highs. Relative strength
High put/call (P/C) levels are a sign of fear (bullish from a contrarian view), while low P/C versus the “500” has been strong
levels are a sign of complacency (bearish from a contrarian view). The trend of P/Cs is more since October 2020.
important than absolute levels. When the intermediate- to longer-term trend of P/Cs is lower,
it is bullish for stocks. When the trend is higher, it is bearish for stocks from an intermediate-/
longer-term basis.

Last Signal: This P/C is bullish for the short term.

Long-term P/C: The 21-day P/C is bearish for the intermediate term.

OEX PUT/CALL RATIO: SMART MONEY INDICATOR

This is a smart money indicator, so it’s best to follow these investors.

Last signal: This P/C is neutral for the short term.

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Argus Covered Call Strategies

The below strategies, in addition to being selected based on proprietary options screening criteria using Argus ratings and target
prices, are screened on two additional characteristics:
* A beta lower than 1.2, indicating moderate- to low-volatility and thus lower likelihood of the underlying security being called; and
* An Argus Financial Strength Score of at least Medium-High, indicating a healthy balance sheet and the tendency of having a stock buyback program
that provides support for the shares to minimize downside during the strike period.

COVERED CALL STRATEGIES - MODERATE BETA, STRONG FINANCIAL STRENGTH

Current Recommended Strike Annualized Financial
Name Ticker Share Price Exp. Date Strike Price Price Return Beta Strength Score
Adobe Inc. ADBE $391.01 6/3/22 $390 $21.35 65.4% 1.18 High
Apple Inc. AAPL $157.28 6/3/22 $160 $4.90 63.2% 1.06 High
Bank of America Corp. BAC $37.45 6/3/22 $37 $1.79 46.6% 1.17 Medium-High
Caterpillar Inc. CAT $214.65 6/3/22 $210 $11.70 39.6% 0.89 Medium-High
Chipotle Mexican Grill CMG $1,354.53 6/3/22 $1,350 $71.00 58.6% 1.07 Medium-High
EBay Inc. EBAY $48.81 6/3/22 $48 $2.71 46.1% 1.16 Medium-High
Home Depot Inc. HD $294.31 6/3/22 $290 $16.35 47.9% 0.90 Medium-High
Mastercard Inc. MA $347.12 6/3/22 $345 $16.50 51.9% 1.08 High
Moderna Inc. MRNA $134.40 6/3/22 $130 $15.05 84.4% 0.94 Medium-High
Nike Inc. NKE $114.49 6/3/22 $114 $5.75 58.6% 1.08 High
S&P Global Inc. SPGI $345.76 6/3/22 $345 $12.70 38.8% 0.92 Medium-High
Unitedhealth Group Inc. UNH $499.62 6/3/22 $495 $20.35 36.9% 0.94 Medium-High
Zoetis Inc. ZTS $169.21 6/3/22 $170 $7.10 34.3% 0.89 Medium-High

Pre-Earnings Call Buying Strategies

The strategies below are screened based on Argus fundamental research analysts having an above-consensus view on near-term
earnings announcements. The call purchase is intended to enable the buyer to take advantage of expected positive price action
following the release of the company’s earnings.

PRE-EARNINGS CALL BUYING STRATEGIES - ARGUS AHEAD OF CONSENSUS

Current Recommended Strike EPS
Name Ticker Share Price Exp. Date Strike Price Price Report Date
Walmart Inc. WMT $149.56 5/20/22 $148 $4.70 5/17/22
Analog Devices Inc. ADI $156.13 5/20/22 $155.00 $6.00 5/18/22
Cisco Systems Inc. CSCO $49.33 5/13/22 $49.00 $1.83 5/18/22
TJX Companies, Inc. TJX $60.41 5/20/22 $60.00 $2.25 5/18/22

ETF Options Plays

In this table, we provide recommended call options strategies on the S&P 500, as well as other prominent and liquid ETFs.

ETF COVERED CALLS

Current Recommended Strike Annualized
Name Ticker Share Price Exp. Date Strike Price Price Return Risk level
S&P 500 Index SPY $411.34 5/16/22 $409 $8.01 51.3% Low
Russell 2000 IWM $182.58 5/18/22 $180 $5.49 50.0% Low
Invesco Nasdaq QQQ QQQ $309.25 5/16/22 $306.00 $8.55 64.3% Moderate
Financials Sector SPDR xlf $34.74 6/10/22 $34.00 $1.60 27.1% Moderate
Technology Sector SPDR XLK $140.00 5/20/22 $140.00 $3.82 62.0% Moderate
Energy Sector SPDR XLE $82.92 5/20/22 $83.00 $2.08 69.8% Moderate

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