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 2, 2022

SHORT-TERM MARKET WRAP

OPTION TRADE OF THE WEEK
April was a brutal month for stocks, with extreme and broad weakness and few stocks escaping
Name..................... Microsoft Corp.
an absolute pounding. The S&P 500 fell almost 11%, the Nasdaq and the QQQs both plum-
meted 15.6%, the NYSE gave up 8%, the DJIA fell 7%, the Russell 2000 tumbled 12.6%, and Ticker.......................................MSFT
the S&P MidCap 400 dropped 10%. It was the worst month for the Nasdaq and QQQs since Share Price......................... $277.52
October of 2008.
Recommended Strategy
S&P 500 sectors were led lower by Communication Services (XLC -16%), Consumer Dis-
Trade Type....................SELL PUT
cretionary (XLY -15%), Technology (-13.5%), Financials (XLF -12.6%), and Industrials (XLI
-9%). Within the index, NFLX crashed 51%, ALGN 36%, NVDA 35%, WBD and AMD 31%, Exp. Date............................6/17/22
and PYPL, SCHW, STT and AMZN 27%. Strike Price........................$270.00

Market sentiment in the options market finally has started to get more bearish. The five-day
Price....................................$11.20
CBOE put/call (P/C) has jumped to 0.72, the highest level since the correction started. That’s Microsoft, a former market leader,
a plus. Still, historically, that is nowhere near prior peaks during corrections/bear markets. The has been pummeled, falling to a
AAII poll is showing a third consecutive week of less than 19% bulls. Bears rose to 59.4% recent closing low of $270 from $342
this week, while the spread hit 43 percentage points in favor of bears. Both these figures are
at the end of 2021. The shares have
the most-bearish this poll has been since March 2009. Sometimes the participants in this poll
fallen into the $270-$275 range five
represent the smart money, not the dumb money. The latest big money manager’s poll from
Barron’s showed the second-lowest percentage of bulls in the survey’s history -- so the smart different times since January and
money here is aligned with the AAII poll. are getting close again. If the stock
breaks $270, the next chart support
The NAAIM Exposure Index has dropped to 46% from 83% three weeks ago, the lowest reading is at $260. MSFT has traced out mul-
since early March (when it fell to 30%). During corrections, a reading under 50% generally tiple bullish momentum divergences
will lead to (at least) a counter-trend rally, if not the mark of a key bottom. on the daily chart, after cycling into
oversold territory in January. We rec-
With volatility rising, selling put options on former leaders seemingly is attractive.
ommend you sell the June 270 puts
for $11.20. If the stock is below $270
CBOE EQUITY-ONLY PUT/CALL RATIO: CONTRARY INDICATOR
at expiration, the net cost to buy is
High put/call (P/C) levels are a sign of fear (bullish from a contrarian view), while low P/C $258.80. If the shares are above
levels are a sign of complacency (bearish from a contrarian view). The trend of P/Cs is more $270, you keep the put premium.
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 inter-mediate-/
longer-term basis.

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

Long-term P/C: The 21-day P/C is bullish 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 WEEKLY
OPTIONS WATCH

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 $395.95 5/27/22 $395 $21.25 61.1% 1.20 High
Apple Inc. AAPL $157.65 5/27/22 $160 $5.40 64.3% 1.08 High
Broadcom Inc. AVGO $554.39 5/27/22 $550 $28.80 56.1% 1.10 Medium-High
Caterpillar Inc. CAT $210.54 5/27/22 $210 $9.10 51.8% 0.89 Medium-High
Citigroup Inc. C $48.21 5/27/22 $49 $1.70 63.4% 1.15 Medium-High
EBay Inc. EBAY $51.92 5/27/22 $52 $3.10 68.9% 1.18 Medium-High
Home Depot Inc. HD $300.40 5/27/22 $300 $13.55 55.9% 0.93 Medium-High
Mastercard Inc. MA $363.38 5/27/22 $360 $19.90 52.2% 1.12 High
Moderna Inc. MRNA $134.41 5/27/22 $130 $16.50 101.0% 1.01 Medium-High
Nike Inc. NKE $125.70 5/27/22 $129 $6.75 44.7% 1.09 High
Travelers Cos. TRV $171.06 5/27/22 $175 $4.70 36.6% 0.96 Medium-High
Unitedhealth Group Inc. UNH $508.55 5/27/22 $510 $16.65 42.7% 0.93 Medium-High
Wells Fargo & Co. WFC $43.63 5/27/22 $44 $1.74 61.3% 1.16 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
Tyson Foods Inc. TSN $93.16 5/20/22 $90 $5.88 5/9/22
AECOM ACM $70.56 5/20/22 $70.00 $3.90 5/9/22
Electronic Arts Inc. EA $118.05 5/13/22 $120.00 $3.90 5/10/22
Int’l Game Tech PLC IGT $21.83 5/20/22 $19.00 $4.40 5/10/22

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 $412.00 5/9/22 $410 $10.24 74.8% Low
Russell 2000 IWM $184.95 5/9/22 $183 $5.86 79.7% Low
Invesco Nasdaq QQQ QQQ $313.25 5/9/22 $310.00 $10.51 87.5% Moderate
Cons Staples Sector SPDR XLP $77.64 5/20/22 $77.00 $1.92 29.3% Moderate
Technology Sector SPDR XLK $141.42 5/13/22 $140.00 $4.85 65.4% Moderate
Energy Sector SPDR XLE $75.15 5/20/22 $75.00 $3.09 70.9% Moderate

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 ARGUS WEEKLY
OPTIONS WATCH

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