Weekend Trader Series
September 11, 2022
Open Positions Update
- Close the Expedia (EXPE) October 21, 2022, 110-strike put on Monday, September 12. Close the position at a limit price within the range of the current market price when you place the order.
- The Match (MTCH) October 21, 2022, 65-strike put reaches its time-stop this Monday, September 12. Close the position at a limit price within range of the current market price when you place the order.
The following is this week's recommendation:
Kroger (KR)Place a limit order to buy the Kroger (KR) January 20, 2023 49-strike call at a limit price within range of the current market asked price when you place your order. At the close on Friday, September 9, this option was offered at $5.75. KR closed at $51.94 on Friday, September 9.Do not attempt to enter this position after Monday's close.Please use the following guidelines to manage the position:- Exit the position if the option is at a 100% gain from your entry price.
- If the option has not reached its target profit by 3:00 p.m. Eastern time on Monday, October 10, close the position.
- If there is a change to the above closeout parameters, we will notify you in your regular Sunday evening communication.
The shares of Kroger (KR) have been enjoying post-earnings tailwinds, with shares back above the $50 region, after the grocery concern also announced a new product launch. The security had failed to sustain a move above that area – which corresponds to its 10% year-to-date level – the week prior, when it pulled back to the 40-day moving average. Just below, the $49.50 level is the site of Kroger stock’s mid-January peak, and also stands 20% below is 2022 closing high, with that region acting as resistance in June and July.
What’s more, KR broke above a trendline connecting lower highs in early August, which is now sloping higher – a potential bullish signal for the shares. The equity’s 18-month moving average is also noteworthy, as it has served as both support and resistance over the last 10 years, with the exception of 2018 and 2019. Previous rallies from this moving average have been impressive, and given the stock just troughed at this trendline in July and is rallying above big September 47-strike put open interest (OI) interest, it looks like shares may soon add to their more than 10% year-to-date gain.
The brokerage bunch remains fiercely pessimistic towards Kroger stock, leaving plenty of room for upgrades to roll in moving forward. In fact, 20 of the 27 analysts in question still call KR a tepid "hold" or worse, while only seven say "buy" or better.
The security has frequently exceeded option traders' volatility expectations during the past year, per Kroger stock’s Schaeffer's Volatility Scorecard (SVS), which sits at an elevated 75 out of 100. Our recommended January 20, 2023 49-strike call has a leverage ratio of 6.3, and will double in value on a 16.1% rise in the underlying equity. It’s also worth noting this option’s implied volatility (IV) is slightly below KR’s historical volatility (HV).
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