By Dan Darrow

November 06, 2022

Today's Trade Ideas

Symbol: DKNG

Style: Event

Strategy: Strangle


Long Nov11 $12 call

Long Nov11 $10.50 put

Action Area: $.47 - $.62

Comments: DKNG is a speculative, short-term strangle idea. DKNG was rocked following its report on Friday morning as traders pointed to the disappointing user growth numbers as a cause for concern. The 28% drop put DKNG back into key year-to-date support at 10-11, and on its own, would make for an interesting few sessions to start the week. A potential big catalyst is coming for DKNG on Tuesday, though, and the combination of the stock sitting at make-or-break support and option prices falling post-earnings makes for an even better setup. California voters will weigh in on Prop 27 on election day, which is a measure that is attempting to legalize online sports gambling in the most populous state in the country. The outcome still appears up in the air according to polling, which means that DKNG could react sharply to the results on Tuesday. The Nov11 strangle will be a short-term, low debit trade targeting a move of $1.25+ following the election outcome on Tuesday. There will be no stop until after the results of the vote are announced, and a lack of movement will take a toll on the weekly options, so be sure to plan your size accordingly.

Symbol: KMX

Style: Swing

Strategy: Put Spread


Long Dec16 $60 put

Short Dec16 $55 put

Action Area: $1.40 - $1.70

Comments: KMX is a bearish trade idea. A sizable miss on earnings at the end of September sent Used Car Retailer KMX crashing into the 60s, and steady selling interest over the next few weeks drove it down into the mid-50s before it finally firmed up. The stock rebounded back above the 8day ema and 20day sma two weeks ago, but it has struggled to make progress above either since then. KMX was under pressure on Friday following CVNA’s weak results, and the weak action across the sector is setting up a potential near-term breakdown early this coming week. Under the 20day sma, KMX should resume its downtrend from October, and the 52-week low (54.85) is the only key focus level below. The Dec16 put spread will be targeting an initial move to <57.50 to begin locking in money, and the swing trade will have a tight stop above 65.25 or a 30-40% net debit loss, whichever happens first.

On The Radar

Our next option session will be on Tuesday (11/8) instead of Monday because I am still feeling a little under the weather. That will still give us time to break down the setup for the upcoming CPI report (11/10), as well as talk about the midterms, all the recent earnings, Fed/economic developments, and the overall market action. It will be a busy afternoon, and I hope you all can make it!

FOMC meetings have been volatile market-moving events for a while now, so it is no surprise that Wednesday’s rate decision and press conference from Powell delivered more of the same. The large reversal that session triggered a breakdown on the indices that lasted into Friday, though as the dust settled on the week, QQQ and SPY are faring much differently than one another. Tech has been noticeably weaker recently, and QQQ closed Friday under all moving averages and within striking distance of the October low. SPY, on the other hand, has benefitted recently from strong non-Tech performance, and managed to hold onto the 20day sma Thursday and Friday, and is still well off its October low. This relative performance gap is providing clues as to what names to focus on for bull trades, while Tech names (and companies that reported weak numbers this quarter) are still working better on the bear side. The midterm elections and CPI reading will be another round of market-moving events coming up this week, so we will continue to focus on a good mix of bullish and bearish trades to capitalize on movement in both directions. 

After a choppy week, TSLA turned lower late Friday morning and began to sell off increasingly fast, with a drop down to 203 nearly getting the stock into the target zone for the Nov25 strangle. It closed slightly off the low of the session but still down sharply, so we will be looking for early continuation lower on Monday to start managing the strangle. After we scale back risk, we can also institute a new technical stop for the trade.

VZ is at a big spot. After busting through the 20day sma last Friday, VZ spent the beginning portion of this past week grinding higher only to wipe out the momentum Thursday and Friday. The dip on Friday morning came close to backtesting the 20day sma, so it will be important for the stock to find buyers above that moving average on the way down, or the pattern could turn into a breakout failure. Because of the developing nature of the trade, we can adjust the stop for the Nov25 call to 36.40 to make sure the position is closed if the pattern turns into a failure.

Open Positions

* The following Open Positions pertain to the Options In Play trade ideas from this and previous editions. Disclosure of the Trader Co-Author’s actual portfolio holdings, as of the date of each publication, is made below under "Trader Author Portfolio Holdings.".

Trader Author Portfolio Holdings

**As of 4pm ET November 04 2022