Trade Summary: April 27, 2015
April 27, 2015
Trade Rationale
For our last trade thesis two weeks ago, we went with the idea that it’s a stock picker’s market. That is, relying on overall market/sector moves isn’t going to really get you anywhere. Instead, we have to focus on micro scenarios for individual stocks.
The last time out, we focused on mega-cap stocks. This week, we’re going to choose small caps.
Overall, small caps have had a much better year than larger companies. However, there are also a lot more small caps to choose from. That means there’s plenty of potential winners and losers for us to trade options on. Small caps also can be more volatile than big stocks, which is generally a good thing for options traders.
We’ll stick with the same strategy as last time and pick two calls and one put to buy.
First off, we’ll go with calls on Cray (CRAY). Cray develops computer systems, but is mostly known for their supercomputers. Recently, the company’s next-generation supercomputer was chosen for a major national laboratory’s system. I believe the stock has significant upside potential.
Another small cap I like is FutureFuel (FF). FF develops chemical products, bio-based products, and bio-based specialty products like biodiesel. The company has been hurt by the drop in oil prices but otherwise has excellent fundamentals. I think it’s ripe for a rebound.
Finally, we’re going to take the opposite position in defense product company, TASER International (TASR). TASR has gotten a big bump lately due to the negative news surrounding police officers and gun deaths. While TASR products are a viable alternative to guns, the stock has gotten quite a bit overheated on the news. I believe it will come back to earth in the near future.
Trade Details
#1) Buy Cray (CRAY) June 19th 30 Calls up to $2.15
For this trade, we’re looking for an upward move in CRAY. Our first profit point for conservative traders is at $32.50. For aggressive traders, you can hold up to $35. For risk control, the conservative exit level is $27. $25 is the final exit level for aggressive traders.
#2) Buy FutureFuel (FF) August 21st 12.50 Calls up to $0.80
With this trade, we’re also looking for an upward move. Our first exit point for conservative traders is at $13.50. For aggressive traders, you can hold to $15.50. For risk control, the conservative exit level is $10. And, $9 is the final exit level for aggressive traders.
#3) Buy TASER International (TASR) June 19th 28 Puts up to $2.00
Finally, we’re looking for a down move in TASR. Our first profit-taking exit point for conservative traders is at $25. For aggressive traders, you can hold to $22.50. For risk control, the conservative exit level is $32.50. $34 is the final exit point for aggressive traders.
Category: AOA Trade Summary
