Top 4 Stocks to Watch in October 2022
Sep 29, 2022
The E-Mini S&P 500 Futures contract is currently trading at $3,735, down 21.71 percent from its opening price of 2022. In the last few days, we have tested year to date lows and managed to push a little lower. The new year to date low was set today at $3,613 and we have subsequently bounced off that new low.
/ES has returned to the $3,722 to $3,779 range. We have bounced around this range in June and July. We will be able to see how price action handles this range over the next couple of days.
VIX is currently above 30, placing it among the highest volatility ranges we’ve seen this year. This is another opportunity to sell premium for options traders. Many traders will be rolling their options positions at the end of this week, and it happens to correlate with high volatility. This makes for a good combination if you need to recenter positions.
This is also a good opportunity to roll your calls down if you just want to adjust your position or need some more short delta. Even though you’re rolling calls down into a down move, you’re going to benefit from selling higher volatility even if the market moves back toward your call.
1.) Pepsi Co. (PEP)
2.) Morgan Stanley (MS)
3.) Walgreens Boots Alliance Inc. (WBA)
4.) Abbott Laboratories (ABT)
Earnings Date: October 12th, 2022 (Before the Open)
Pepsi is currently trading at $169.39, down 1.63 percent from its opening price of 2022. Pepsi had developed a range in 2022 between $154 and $178 and has bounced back and forth all year. Being down less than two percent year to date, even with the recent sell-off, is a positive sign for this stock. Pepsi’s sales over the last five quarters have trended upward from $65 billion to $79.5 billion. Net income has seen a proportionally smaller increase over that period. Moving from about $5 billion to $7.5 billion. In the last two quarters Pepsi’s Balance Sheet has grown. Total liabilities moved above $75 billion and total assets are now above $90 Billion, indicating possible acquisitions and growth. Volatility in PEP is currently above 30 in the October and November options. Current IV Rank is 65.9 based on the tastyworks platform calculation. Although the profit to buying power ratio is high for a strangle or iron condor, we can assume that the likelihood of a two or three deviation move is not very high.
Earnings Date: October 13th, 2022 (Before the Open)
Walgreens is currently trading at $33.20, down 36.47 percent from its opening price of 2022. We set a year to date low on September 28th. The low $30 range is a range that was last traded predominantly in 2012. WBA has been in a downtrend since the start of 2022, creating lower lows and lower highs each month.
Walgreens’ sales have plateaued between $130 billion and $135 billion over the last four earnings reports. At the same time sales have dropped from $5 billion to $2.5 billion. Two quarters ago total liabilities popped up to $66 billion and total assets jumped up to more than $87 billion. Both came down last quarter. This type of balance sheet activity can be attributed to many different activities.
If you like WBA as a company or want to get long the consumer sector, this is a decent opportunity to go long into an earnings event. An at the money, four-dollar wide, short put spread could be opened in October prior to earnings and if the trade goes against you, you can roll it out to November to give yourself more time.
Volatility in October options is currently above 47 and above 44 in November. The current IV rank is 93.9 based on the tastyworks platform calculation.
Earnings Date: October 14th, 2022 (Before the Open)
There are several attractive earnings opportunities in the banking sector in October. I like Morgan Stanley because of the mostly dollar wide options ladder, price of the stock, and liquidity.
MS is currently trading at $81.47, down 17.96 percent from its opening price of 2022. MS set its year to date low on July 14th, at $72.05, and set its all-time high price on February 10th, 2022, at $109.73.
MS’s sales and net income have increased each quarter for the last five quarters. Sales grew from about $38 billion to more than $59 billion, and net income grew from $6 billion to more than $15 billion. MS’s balance sheet has a correlated growth pattern. Total liabilities grew from $773 billion to $1.08 trillion, and their total assets grew from $851 billion to $1.18 trillion.
A 25-delta, five-dollar wide iron condor in October had a 70% probability of reaching 50% profitability (P50) before expiration. Again, if the position moves too far against you after earnings, you have the opportunity to roll the position out to November, given that this is a defined risk position and defined risk positions usually have less adjustment opportunities.
If you have a directional bias, other defined options strategies work well going into earnings here too.
Earnings Date: October 19th, 2022 (Before the Open)
Abbott is currently trading at $98.72, down 29.2 percent from its opening price of 2022. ABT set its year to date low on September 28th. ABT has been in a downtrend since the start of 2022, posting lower lows and lower highs with long periods of sideways movement. Abbott’s all-time high price was reached just before 2022 on December 27th, 2021.
ABT’s sales and net income have also increased each quarter for the last five quarters, similarly to Morgan Stanley. ABT’s sales grew from about $27 billion to more than $43 billion, and net income grew from $447 million to more than $7 billion. Abbott’s balance sheet slightly contracted during that same period. Total liabilities fell from $45 billion to $39.1 billion. Total assets oscillated, starting at $76 billion, dipping, then returning to $75 billion.
A five-dollar wide, 35/20-Delta short put spread in October options has a $111 max profit with an 80% probability of reaching 50% profit before expiration. This would be a contrarian play going into earnings based on price action so far this year. However, the balance sheet indicates positive traits that may lead to high valuation soon. An Iron Condor could also be traded here if you’d like to go delta neutral.
Again, both defined risk earnings trades could be rolled out to November if the position moves too far against you after earnings.
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