DailyPlay – Opening Trade (ALGN) – June 8, 2022

View ALGN Trade

Strategy Details

Strategy: Short Put Vertical Spread

Direction: Bullish

Details: Sell to Open 2 Contracts July 8, 2022 $265/$245 Put @ $6.25 Credit.

Total Risk: This trade has a max risk of $2,750 (2 Contracts x $1,375 per contract).

Counter Trend Signal: This is a Bullish strategy on a stock that is experiencing a bearish trend.

1M/6M Trends: Neutral/Bearish

Technical Score: 1/10

OptionsPlay Score: 87

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that if there is a multi-leg option strategy, it should be entered as a single trade. 

Investment Rationale

When I see a large down move in a stock – that then dramatically decreases its average trading range AND goes sideways for several price bars – it usually says to me that there is an institutional buyer quietly bidding for the name. This might very well be the case with Align Technology (ALGN). It’s had nearly four identical weekly small ranges in the past four weeks, since bottoming right by the weekly Propulsion Full Exhaustion level (~$247) a month ago – all while seeing its weekly range come into levels not seen in eight months. 

Given that this week also marks a Setup -9 count – the first of the whole decline – to me, it is now both a logical time AND location to view this as a play against support. We can do that by either selling a downside put spread or buying an upside call spread, and my inclination is to do the former, as I have a very defined level that I know I don’t want to be long any longer if breached (i.e., $245). Thus, I’m willing to short a July 8th $265/$245 put spread for $6.25 (i.e., yesterday’s closing mid-prices), which represents about 31% of the strike differential.

ALGN – Weekly