Trade Summary: August 8, 2016

| August 8, 2016

August 8, 2016

 

Trade Rationale

August has been very quiet so far, which isn’t unusual for this time of year.  Stocks are sitting at all-time highs, which is good news for bulls, but day to day action is definitely on the slow side.  There isn’t much in the way of momentum plays right now.  However, there is one bit of very good news we can focus on… job growth.

The latest jobs report hit the ball out of the park in terms of results versus expectations.  Clearly, companies are hiring – a fact that generally means those same companies are seeing growth.  So, let’s find some high growth companies (with positive operating margins) to buy calls on!

We’re going to go long (buy calls) on two companies with high growth and positive margins, while buying a put on a high growth company which is still operating at a loss.

The first company to buy calls on is Broadcom Limited (AVGO).  The $66 billion semiconductor giant has had a strong year so far, with the price right at 52-week highs.  Still, the stock is trading at just 13x projected earnings and could still have plenty of room to run.

Next, we’ll buy calls in Salesforce.com (CRM).  CRM is a huge cloud computing company focused on customer relationship management software.  The stock has been nearly flat for the last couple months despite posting strong growth numbers.  The shares could be poised for another run.

Finally, we’re going to buy puts in Yelp (YELP).  Yelp’s online local business reviews are popular, but seem to be losing steam in terms of impact to businesses.  While the stock has done relatively well this year, the company is not making money.  In fact, the shares are trading at 5,380x projected earnings!

 

Trade Details

#1) Buy Broadcom Limited (AVGO) October 21st 190 Calls up to $2.50

For this trade, we’re looking for a move higher in AVGO.  We have to go a ways out of the money for these options to be affordable, but we can exit for profit out of the money as well.  Our first profit point for conservative traders is at $180.  For aggressive traders, you can hold up to $190.  For risk control, the conservative exit level is $160.  Lastly, $155 is the final exit level for aggressive traders.

Broadcom Limited

#2) Buy Salesforce.com (CRM) October 21st 85 Calls up to $2.50

With this trade, we’re also looking for the stock to climb.  Our first exit point for conservative traders is at $85.  For aggressive traders, you can hold to $87.50.  For risk control, the conservative exit level is $75.  And, $72.50 is the final exit level for aggressive traders.

Salesforce.com

#3) Buy Yelp (YELP) November 18th 27 Puts up to $2.30

Finally, we’re looking for a down move in Yelp.  Our first profit-taking exit point for conservative traders is at $28.  For aggressive traders, you can hold to $26.  For risk control, the conservative exit level is $35.  $37.50 is the final exit point for aggressive traders.

Yelp

 

Category: AOA Trade Summary

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