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.