Trade Summary: April 11, 2016

| April 11, 2016

April 11, 2016

 

 Trade Rationale

It’s earnings season starting today, so time for the action to pick up in the stock market.  At least we hope… it’s been pretty boring lately, which also means less opportunity when you’re buying options.  However, quarterly earnings releases tend to help alleviate the lack of movement.

Right out of the gate, we’re going to get a flurry of earnings from the financial sector, especially banks.  It’s my opinion that banks are trading at a pretty big discount to fair value right now.  While, a sustained lower level of interest rates isn’t good for banks, it’s not going to have as big as a negative impact as many investors think.

We’re going to buy calls in two big banks that are very cheap right now.  On the other hand, we’ll purchase a put on a potentially expensive property management company.

The first bank we’ll buy calls in is Citigroup (C).  C is a bank most are familiar with… $120 billion market cap with over $16 billion in annual profits.  The company is not only trading at a very low valuation, it’s also sitting at major support from a technical standpoint.

Next, we’ll buy calls in JP Morgan Chase (JPM).  JPM is even bigger than Citigroup, with a market cap over $210 billion and annual profits over $22 billion.  The second largest US bank is trading at a P/E under 10 and could have significant upside potential ahead.

Finally, we’re going to buy puts on Zillow (Z).  Zillow isn’t a traditional property management company, as it’s more of an online information source in the property management industry.  Regardless, the company has a market cap of $3.5 billion with very little reason to justify such a high valuation.

 

Trade Details

#1) Buy Citigroup (C) June 17th 42.50 Calls up to $1.75

For this trade, we’re looking for C to climb.  Our first profit point for conservative traders is at $44.  For aggressive traders, you can hold up to $47.  For risk control, the conservative exit level is $37.  $35 is the final exit level for aggressive traders.

Citigroup

#2) Buy JP Morgan Chase (JPM) June 17th 60 Calls up to $1.75

With this trade, we’re also looking for a move higher.  Our first exit point for conservative traders is at $62.50.  For aggressive traders, you can hold to $65.  For risk control, the conservative exit level is $55.  And, $53 is the final exit level for aggressive traders.

JP Morgan Chase

#3) Buy Zillow (Z) August 19th 17.50 Puts up to $1.85

Finally, we’re looking for a move down in Z.  Our first profit-taking exit point for conservative traders is at $17.  For aggressive traders, you can hold to $15.  For risk control, the conservative exit level is $23.  $26 is the final exit point for aggressive traders.

Zillow

 

Category: AOA Trade Summary

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