By Dan Darrow

August 28, 2022

Today's Trade Ideas

Symbol: KSS

Style: Swing

Strategy: Put Spread


Long Oct21 $30 put

Short Oct21 $22.50 put

Action Area: $2.25 - $2.70

Comments: KSS is a bearish trade idea. Ongoing deal talks fell apart at the beginning of July on KSS, and the stock fell sharply too. KSS had been sliding for a couple of months as Retail was clobbered and traders grew increasingly skeptical of any deal, and when it was formally announced talks were over, KSS dropped below 30 to hit its worst level since late 2020. A rebound across the sector in August and momentum from short-covering fueled a run on KSS above 36, but a significant miss on guidance two weeks ago was a reality check for the rally. KSS has slipped back below 30 now and is consolidating under previous resistance again, and the declining 50day sma should set up a near-term leg lower on the stock. The Oct21 put spread will be targeting an initial move to <28.25 to retest the low from the past week, and the swing trade will have a tight stop above 31.75 (above the 50day sma) or a 40-50% net debit loss, whichever happens first.

 Symbol: ALGN

Style: Swing

Strategy: Put Spread


Long Oct21 $250 put

Short Oct21 $240 put

Action Area: $3.20 - $3.85

Comments: ALGN is a bearish trade idea. Ever since ALGN turned in a sizable miss and guide lower in July, it’s been on watch for a short opportunity. Buying bad news was the theme early in the quarter, and ALGN was a big beneficiary of positive sentiment at the time. The stock closed up sharply after widely missing expectations, and it continued to grind higher over the following two weeks to probe 300. Buying eventually dried up around the round number, and a reversal lower started soon after, with the past week’s drop putting the stock at a critical level. ALGN closed below the key 50day sma on Friday, and it broke the couple-month uptrend, opening it up for a sustained mover lower. The Oct21 put spread will be targeting an initial move to <247 (pre-earnings low) to lock in money, and the swing trade will use a 40-50% net debit loss as a stop.

On The Radar

Powell giveth (according to bulls post-FOMC rate meeting), and Powell taketh away. The statement from the Fed Chair on Friday morning was the biggest event of the week, and the hype was proven accurate as indices were crushed following the hawkish language. QQQ and SPY ended the session down significantly, and both closed the week under the key 100day sma, opening up the possibility of even greater downside this coming week. If buyers don’t step in early on Monday to stabilize QQQ and SPY, watch for a move into the 50day sma on both (303.52, 398.56, respectively), with the FOMC rate decision day gaps underneath. The speed with which momentum stopped on the recent rally and flipped to selling has been staggering, but now that the indices are losing key moving averages, we need to get back in the mindset of taking trades and keeping stops tight. Volatility may stay elevated in the near term, so we will have a balanced mix of bullish and bearish trade ideas and keep focusing on the quality volatility strategy setups when they arise. 

Treasuries (TLT) may have closed higher on Friday, but High-Yield did not. HYG was knocked sharply lower following Powell’s statement, and the slide into the close put it at the worst level of the week and solidly below the key 50day sma. Having broken that moving average, there is now a path down to 74.55 to fill the 7/14 gap, and we will be watching for a move <75 to lock in some more money on the Oct21 put spread. We can also tighten the stop on this trade moving forward to 77.75 (a reset above all near-term moving averages). 

BIIB was on watch all week for a pick-up in volume and a tightening of the spreads on the Oct21 options, but neither materialized. The stock dropped sharply over the five-day stretch, putting it around 200 heading into the upcoming week, and changing the setup for the proposed strangle. The stock still should move significantly on the release of the Phase 3 Alzheimer’s results in September, but the risk has been more skewed to the bear side. I will send out an update tomorrow morning with new contracts for the BIIB strangle (with a more balanced risk profile on the bull/bear sides) depending on where the stock opens, and we can begin to focus on an initiation the next few sessions.

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 August 26, 2022