CPI Awakens The Nasdaq

May 10, 2023

The Consumer Price Index (CPI) came and went and tech stocks were the big winners. That has been the case most of the time post-COVID when CPI numbers are released that are lower than market expectations.

The market was expecting to see CPI come in around 5.0% and actual numbers came in slightly less, at 4.9%. The ‘Excluding Food and Energy’ category came in right at expectations.

The market gapped up pre-market but spent most of the morning falling lower.  Technically the S&P 500 (SPY) closed higher on the day due to the gap up, but it finished lower than the open.

As I mentioned, it’s the tech stocks that typically react well when the CPI beats expectations and the slumbering index finally broke higher.  Here’s a daily chart of the Nasdaq-100 (QQQ) and we can see the breakout above the previous resistance.  Our next key level to pass is around $335 (horizontal green line).

We will see if the QQQs keep heading higher after the Producer Price Index (PPI) report this morning.

Accenture (ACN) is the trade of the day.  I’m overall bearish on the trade and see a point of potential resistance around $280.  The stock traded higher than 1 average true range yesterday.  When that happens in a downtrend, that’s when my co-host of Options Testing Lab, Haley, teaches people to start looking for call spread opportunities.

With the price of the stock moving higher today, the call premiums are elevated, but I still think ACN will hit resistance and not move higher than $280.  The company has earnings at the end of June, but that’s also helping to drive implied volatility into the option prices and elevating potential credit.

Let’s look at the 16 JUN expirations.

We can sell the 16-JUN 280 calls while simultaneously buying the 16-JUN 285 calls to create a credit spread.  The spread is showing a credit of $1.32.  Since the width of the strikes is $5, that means the risk on this trade is $5 – $1.32 = $3.68.

As time ticks by, the Daily P/L line will be drawn closer to the green (P/L at expiration) line.  This trade has a potential for profit at the option expiration date as long as the stock stays below $281.34.  Of course, you can close this trade earlier by purchasing the spread back.  This trade will benefit from time decay, a decrease in volatility, a decrease in price, or a combination of each of those items.

The trade is dead if ACN trades above $280.  Close the spread and exit.  If that happened today, that would be an approximate loss of about $112 per spread.  

If you have any questions, comments, or anything we can help with, reach us at any time.

Email: [email protected]

Phone: (866) 257-3008

Jeff Wood

Editor, Filthy Rich Dirt Poor
Coach, Options Testing Lab

Any trade or trade idea discussed is for educational purposes only.  They will not be tracked as an official trade recommendation. 

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