Trade Summary: April 7, 2014
April 7, 2014
Trade Rationale
If you’ve been following the financial news lately, you’ve likely seen the news about sector rotation in US equities. The word is, investors are dumping Internet stocks and biotechs and heading for safer territory. Momentum stocks from 2013 are no longer en vogue.
Instead, investors are looking for real profits and real growth. Goodbye social media, hello General Electric (GE). Apparently, investors are looking for less risk… or maybe they’re just happy with the huge returns from last year.
Regardless, it’s certainly true that sector rotation has been in full force. In some ways, it’s a self-fulfilling prophecy. Once the financial media starts making a big deal about it, mainstream investors jump on board with the latest strategy.
Here’s the thing…
Once everyone knows about the latest trend, it’s usually time to move on. The average stock buyer gets in at the top and sells at the bottom. As such, I believe it’s a perfect time to scoop up some of those technology stocks that have gotten crushed over the last month.
In fact, we’re buying calls on three Nasdaq tech stocks that have gone down at least 20% over the last 30 days.
To start with, we’re going to grab calls in FireEye (FEYE). The software company provides real-time protection software to clients. The shares have gotten pummeled of late and are down over 20% in just one week. The stock has plunged below the 50-day moving average, basically on news of insider selling.
However, once fears of insider selling have run their course, the stock looks like an excellent buy. The company has already received several stock upgrades and looks to be in position for a rebound.
Another high flyer to take it on the chin recently is Splunk (SPLK). The cloud-computing, data-analysis company is off 12% in the last week and down 31% over the last month. The shares have also recently dropped below the 200-day moving average. Not only has the stock received upgrades recently, but it could also be an attractive buyout target.
Finally, we’re going to grab up calls in Criteo (CRTO). Criteo is an ad tech company using algorithmic ad buying to increase the effectiveness of online ad campaigns. For basically no reason whatsoever, the stock has plunged over 30% in a month. It’s a relatively new stock with a bright future – and likely to bounce from the current levels.
We’re going to buy May calls on FEYE and SPLK because of the high cost of option premium. CRTO options are cheaper, so we’ll go all the way out to July for the calls.
Trade Details
#1) Buy FireEye (FEYE) May 17th $65 Calls up to $2.25
In this case, we’re looking for FEYE to move higher. Our first profit point for conservative traders is at $65. For aggressive traders, you can hold up to $72.50. Regarding risk control, the conservative exit level is $45. $40 is the final exit level for aggressive traders.
#2) Buy Splunk (SPLK) May 17th $67.50 Calls up to $2.75
We’re also looking for SPLK to move higher. Our first exit point for conservative traders is at $70. For aggressive traders, you can hold up to $80. For risk control, the conservative exit level is $52.50. And, $48 is the final downside exit level for aggressive traders.
#3) Buy Criteo (CRTO) July $45 Calls up to $2.25
As with the trades above, we want CRTO to go higher. Our first profit-taking exit point for conservative traders is at $45. For aggressive traders, you can hold to $50. For risk control, the conservative exit level is $30. $25 is the final exit point for aggressive traders.
Category: AOA Trade Summary
