DailyPlay – Opening Trade (KR) – May 28, 2024

KR Bearish Opening Trade Signal

Investment Rationale

As consumer stocks continue to underperform, supermarkets are notorious for operating on razor-thin margins. Kroger recently had a few months of stellar performance that pushed its valuation to well beyond its historical averages but is now at risk of a pullback. 

Technical Analysis

After a period of outperformance starting in Feb, KR has quickly reversed those gains and started to break below its key $54-55 support area along with strong underperformance. As momentum turns negative, KR looks set to close its gap at $50 and potentially revisit $46 extended downside targets. 

KR – Daily

Fundamental Analysis

Operating on razor-thin margins of 2%, KR’s 1% revenue growth that’s expected is not compelling considering its higher-than-average valuation. Trading at 12x forward earnings, KR is trading at a premium relative to itself and peers and at risk of multiple compressions. 

Trade Details

Strategy Details

Strategy: Long Put Vertical Spread

Direction: Bearish Debit Spread

Details: Buy to Open 17 Contracts July 5th $53/$49 Put Vertical Spreads @ $1.20 Debit per Contract.

Total Risk: This trade has a max risk of $2,040 (17 Contracts x $120) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $120 to select the # contracts for your portfolio.

Trend Continuation Signal: This is a bearish trade on a stock that recently turned bearish.

1M/6M Trends: Bearish/Neutral

Relative Strength: 7/10

OptionsPlay Score: 134

Stop Loss: @ $0.60 Credit. (50% loss of premium paid)

View KR Trade

Entering the Trade

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

Please note that these prices are based on Friday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

View KR Trade