3 Names On My “Nice” List

Hey Traders,

It may be hard to believe it …

But the holiday season is (almost) upon us!

And what better way to celebrate than by looking at some holiday trades?!

Today I want to dig into three names I’m watching …

And we’ll see if the pits are putting them on the “naughty” or “nice” list!

Here’s the three holiday names I like.

Target Corp. (Ticker: TGT)

TGT delivered its earnings report on Wednesday, and from looking at the chart, you would assume they delivered some pretty bad news …

Chart courtesy StockCharts

But actually, the retailer delivered overwhelmingly positive news, including surpassing Wall Street’s earnings and revenue expectation, and TGT assured investors that they have ample merchandise to get them through the holiday season, thanks in part to their ability to bypass supply chain bottlenecks by chartering their own cargo ships.

But the shares dropped 4.7% to $253.80 in the trading session following, and have continued to slide lower since then!

Frankly, I think TGT’s sell-off is an overreaction, and presents some good opportunities.

And I’m not the only one who thinks so …

TGT saw 150% of its normal trading volume on Friday, with calls outnumbering puts 2-to-1. 

Open interest is at 125% of its typical levels, and calls make up seven of the top 10 open interest positions. Specifically, traders have piled into the December 260-strike call, with 10,518 open contracts.

The December 230-strike put does have 9,328 contracts outstanding, but it is followed closely by the January 2022 220-strike, 210-strike, 260-strike, 250-strike, 270-strike, and 280-strike calls.

Options aren’t the absolute cheapest they’ve ever been, but implied volatility is only in the 30th percentile of its annual range, so you can get into a TGT trade without paying an arm and a leg.

In particular, it looks like the December 31 term is pricing in especially low vol expectations …

Just throwing that out there!

Mattel (Ticker: MAT)

MAT just debuted a new Barbie electric vehicle during the 2021 LA Auto Show … does that make this an EV play?! (Just kidding!)

In spite of supply chain worries, toy maker MAT has rocketed higher after delivering better-than-expected earnings last month, and telling investors that they expect the holiday season to be strong.

Chart courtesy StockCharts

Where’s this optimism coming from?

MAT owns much of its own supply chain, which gives it an advantage over competitors that must depend on outside players like factories and shipping lines.

MAT also said they anticipated the supply chain and labor shortages, and have spent months preparing and making moves to avoid disruptions and stocking issues.

In the options pits, at first glance you might assume that traders are bearish on the Barbie maker, with open interest showing puts outnumbering calls 1.7-to-1, and with seven of MAT’s top 10 open interest positions being puts.

However, three of the top five spots are January 2022 crash puts at the 3-strike, 8-strike, and 5-strike.

Does this mean traders are anticipating MAT essentially going bankrupt, and falling through the floor?

Quite the opposite, actually.

I would assume that most (or all) of these contracts are being used to hedge an underlying long position … which actually bodes quite bullishly.

Otherwise, looking past the November contracts that just expired, the January 2022 25-strike call is actually the most popular among options traders: another bullish sign.

Personally, I would not be surprised to see MAT continue to move higher, especially if retail sales live up to expectations, and they’re able to keep their products on shelves when others are not.

Alliance Resource Partners (Ticker: ARLP)

Now, for those of you on the naughty list this year …

You just might get a little something in your stocking from ARLP …

(I know, I’m hilarious.)

But seriously … we’re headed towards an energy crisis, making energy a great sector to be in right now, even with the oil slide on Friday.

Did you know that all the coal that will be mined in 2022 is already sold?

That bodes well for coal miner ARLP, who has already been doing quite well in the fossil fuel space for some time now:

Chart courtesy StockCharts

The shares are currently heading towards potential support on the charts, and I wouldn’t be shocked to see buyers stepping in and giving the shares a continued boost like we started to see on Friday. 

In the pits, options traders are already piling on, with current open interest showing calls outnumbering puts 2.4-to-1. Though volume was light on Friday, open interest is at 105% of its typical levels, so the stock is definitely grabbing a few more eyeballs than usual.

Bill Griffo actually gave out a few specific ways to play ARLP during his live appearance on Friday.

Click here to see what he has to say, and how he plans to trade it!

Your Only Option,

Mark Sebastian

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