Trade Summary: August 10, 2015

| August 10, 2015

August 10, 2015

 

 Trade Rationale

The S&P 500 has been range bound for the last six months.  It’s the very definition of sideways trading.  We haven’t seen a prolonged period of trading like this in quite some time.  As I’ve written before, we call this a stock picker’s market.

We’ve done a couple themes this year based on stock picker’s markets.  Basically, I pick a general category and find a few stocks I really like in that category.  So far, we’ve done large caps (Dow) and small caps themes.

This time, we’re going to do another large cap theme, except we’ll broaden the range to the S&P 500.  One difference for this theme, I’m going to pick two stocks I like and one I think is overvalued.  It makes more sense in a choppy market to be able to make money in either direction.

So without further ado, let’s get to the picks.

The first company we’ll buy calls in is QUALCOMM (QCOM).  QCOM is a digital communications company that hasn’t made a lot of headlines lately.  The company has strong fundamentals but has been hurt in the growth department due to slower demand in China.  It’s gotten to the point where the valuation looks very attractive.

Another good opportunity is buying calls in Discover Financial Services (DFS).  Discover also has had a fairly rough year so far, at least in part due to disruptive changes in the industry.  However, the company looks extremely cheap at the current price and is a good bet for a rebound.

Finally, let’s take the opposite position on Caterpillar (CAT).  The construction equipment company is still the biggest player in its field and not a bad business overall.  However, given the current state of the Chinese economy and falling grain prices, I believe the company will struggle with growth for the time being.

 

Trade Details

#1) Buy QUALCOMM (QCOM) October 16th 65 Calls up to $1.50

For this trade, we’re looking for an up move in QCOM.  Our first profit point for conservative traders is at $66.50.  For aggressive traders, you can hold up to $68.50.  For risk control, the conservative exit level is $61.50.  $60 is the final exit level for aggressive traders.

QUALCOMM

#2) Buy Discover Financial Services (DFS) October 16th 57.50 Calls up to $1.50

With this trade, we’re also looking for a move higher.  Our first exit point for conservative traders is at $59.  For aggressive traders, you can hold to $61.  For risk control, the conservative exit level is $53.50.  And, $52 is the final exit level for aggressive traders.

Discover Financial Services

#3) Buy Caterpillar (CAT) September 18th 80 Puts up to $2.65

Finally, we’re looking for a down move in CAT.  Our first profit-taking exit point for conservative traders is at $77.  For aggressive traders, you can hold to $75.  For risk control, the conservative exit level is $83.50.  $86 is the final exit point for aggressive traders.

Caterpillar

 

Category: AOA Trade Summary