Trade Summary: January 4, 2016

| January 4, 2016

January 4, 2016

 

 Trade Rationale

Happy New Year!  Hope you all had a nice, relaxing holiday, because we’re getting 2016 started off with a bang.  As I write this, the S&P 500 is down over 2% to start the year.  The selling is coming after a huge drop in Chinese stocks overnight.  Basically, it’s the same old concern about slow economic growth in China.

Once again, I’m not all that concerned about China. For one, the country is headed in the right direction in regard to implementing more capitalism-friendly laws.  The government has also shown no hesitation in doing monetary/fiscal stimulus in order to help out as much as possible.  Finally, China’s imports from the US make up a much smaller percentage of US GDP than many realize.  In other words, it’s just not that big of a deal.

I think we’re going to see some select buying in undervalued stocks over the next couple weeks.  So, we’re going to start out the year with three call trades in attractive value opportunities.

The first company we’ll buy calls in is Brocade Communications (BRCD).  The company provides network storage solutions for businesses.  As more and more companies outsource their storage needs to third parties, companies like BRCD should continue to see revenues increase over time.  The stock is also trading at just 9x projected earnings.

One of my favorite companies to buy calls on, Cisco Systems (CSCO), is also in the networking space.  It’s also undervalued now that it has gapped down today.  However, CSCO’s drop is due to broad market selling and is not company specific.  That’s a good reason to buy in at these levels.

Finally, we’re going to buy calls on Alcoa (AA).  We had some success on our last Alcoa trade, and I believe we have another good opportunity here.  AA is down on concerns over China’s demand for base metals, but the company has moved beyond any such singular reliance.  2016 could end up being a record year for the well-run aluminum producer.

 

Trade Details

#1) Buy Brocade Communications (BRCD) April 15th 9 Calls up to $0.95

For this trade, we’re looking for BRCD to climb.  Our first profit point for conservative traders is at $10.50.  For aggressive traders, you can hold up to $11.50.  For risk control, the conservative exit level is $8.50.  $8 is the final exit level for aggressive traders.

brcd010416

#2) Cisco Systems (CSCO) March 18th 27 Calls up to $1.00

With this trade, we’re also looking for a move higher.  Our first exit point for conservative traders is at $28.  For aggressive traders, you can hold to $29.50.  For risk control, the conservative exit level is $25.  And, $24 is the final exit level for aggressive traders.

Cisco Systems

#3) Buy Alcoa (AA) March 18th 10 Calls up to $0.75

Finally, we’re looking for a higher move in AA.  Our first profit-taking exit point for conservative traders is at $10.50.  For aggressive traders, you can hold to $11.  For risk control, the conservative exit level is $9.  $8 is the final exit point for aggressive traders.

Alcoa

 

Category: AOA Trade Summary

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