By Dan Darrow

September 05, 2022

Today's Trade Ideas

Symbol: USO

Style: Swing

Strategy: Call Spread


Long Sep30 $73 call

Short Sep30 $79 call

Action Area: $2.00 - $2.70

Comments: USO is a bullish trade idea. The trading range on USO since the start of July has been as clean as you can draw up. Multiple rally attempts have stalled in the high-70s right at the 100day sma (including one this past Monday), and multiple selloffs have bounced at 70-71 and the 200day sma (which only came into play more recently). This past week saw both sides of the two-month range tested, and with indications Thursday and Friday that buyers are once again getting interested at 70-71, USO is setting up for a near-term bounce. The Sep30 call spread will be a shorter-term strategy targeting an initial move back up to 75.25+ (a rally into the 50day sma), though a run to 78-79 is possible based on recent price action. The swing trade will have a tight technical stop under 69.50 or a 30-40% net debit loss, whichever happens first. 

Symbol: ULTA

Style: Swing

Strategy: Call Spread


Long Oct21 $440 call

Short Oct21 $450 call

Action Area: $3.20 - $3.90

Comments: ULTA is a speculative bullish trade idea. Retail stocks trading near their 52-week high are few and far between, which makes ULTA’s current setup standout. After a strong quarter at the end of May, ULTA managed to hold relatively firm throughout the June, July, and August, putting it within striking distance of its year-to-date high (438.63) ahead of the late August earnings release. A strong beat-and-raise initially led to a pop into the 430s to probe that high, but the market-wide correction following Powell’s Jackson Hole speech dragged ULTA back into the 8ema. That moving average has continued to provide a floor on the stock over the past week, and as it rises high, it has helped lift the stock back up to the top of recent resistance around 425. With back-to-back strong earnings and a steady uptrend, ULTA looks set to breakout, and a pent-up move could be significant. The Oct21 call spread is a more speculative strategy as the trade is targeting a 52-week high breakout. The initial target is 439-440+, and the swing trade will use a 40-50% net debit loss as a stop.

On The Radar

Our next Option Session will be tomorrow (Tuesday 9/6) due to the Labor Day market holiday on Monday. After a few busy weeks to wrap up August, there is a lot to go over, including what comes next in September. With a huge lineup of economic events on the horizon, we will spend time breaking down the setups and how to position with options. I’m looking forward to catching up and hope you all can make it!

Easy come, easy go. The major rally that started on the FOMC day in late July (7/27) has been erased nearly as fast as it started. The indices completed the reversal lower this past week, with both QQQ and SPY dropping to wipe out the gains from Powell’s supposed dovish pivot. Not only are both currently below all near-term moving averages, but Friday’s large green to red reversal marked a backtest and failure of the 50day sma/8day ema on SPY and 8day ema on QQQ, potentially setting up more downside this coming week. Until QQQ and SPY stabilize and begin to reset key moving averages (the 8day ema and 50day sma are the two most important initially), expect more volatility and wide-ranging action, with possible greater overnight risk. We will continue to have a balanced mix of bullish and bearish trade ideas, including more volatility strategies to attempt to capitalize on upcoming events and interesting make-or-break patterns that have formed recently.  

We are going to tighten the stop on KSS. The Oct21 put spread was rolled down early this past week when KSS slid quickly into the ~28 level, but the stock proved to be resilient in that area. Buyers defended 27.50-28 each session during the week, and a headline Friday concerning a potential $2b real estate bid gave a quick pop on the stock back above 30. The bearish strategy revolved around a continuation lower post-earnings as KSS held under the 8day ema and 20day sma, so those two moving averages need to hold as resistance for the thesis to stand. Friday’s rally briefly put the stock above both, but it rolled over to end under the 20day sma, so we will need to pay close attention to it on Tuesday while using a new technical stop at 31 (above Friday’s high) for the remainder of the position. 

The UK competition committee ended up delaying their ruling on the ATVI/MSFT merger, saying they wanted to take a more in-depth look at the deal, and the decision was a non-event for the stock. The same day, a MSFT executive issued a press release saying they still anticipated a June 2023 closing, which may help sentiment in the near term. As it stands, ATVI is still trading a wide discount to the closing price and could still make a push into the low-to-mid 80s over the next several months, so the Jan20 call spread roll up will remain open. If there is a material update on the deal or if the price action deteriorates, we can reevaluate the call spread.

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 September 02, 2022