Trade Summary: July 11, 2016

| July 11, 2016

July 11, 2016

 

Trade Rationale

So the turmoil from Brexit left the markets about as quickly as it showed up… at least in stocks.  US stocks are basically acting like nothing has happened, with the S&P 500 just reaching new highs.

On the other hand, interest rates were definitely impacted by the uncertainty in Europe and elsewhere.  Treasury rates are at all time lows.  The biggest hit has been to the financial sector, which is definitely underperforming other areas of the market.

We’re going to do a contrarian strategy this week, going long (through calls) a couple financial companies.  We’re also going to take a short position on another financial company which could still have downside risk in the weeks ahead.

The first company to buy calls on is American Express (AXP).  The credit services giant hasn’t had the best year, never really breaking through its 200-day moving average.  Still, the company is cheap and credit has been slowly expanding in the US.

Next, we’ll buy calls in Bank of America (BAC).  Banks have been the hardest hit by low interest rates, as it tends to compress earnings.  However, BAC is due for a rebound as it’s simply trading for too cheap a value right now.

Finally, we’re going to buy puts in PayPal (PYPL).  PYPL is more of an out of the box credit services company and as such, it hasn’t been impacted by lower rates like other financial companies.  However, there is a lot of competition in the space and the stock looks a bit expensive here.

 

Trade Details

#1) Buy American Express (AXP) October 21st 65 Calls up to $2.10

For this trade, we’re looking for a move higher in AXP.  Our first profit point for conservative traders is at $67.  For aggressive traders, you can hold up to $70.  For risk control, the conservative exit level is $57.  Lastly, $54 is the final exit level for aggressive traders.

American Express

#2) Buy Bank of America (BAC) September 16th 13 Calls up to $1.25

With this trade, we’re also looking for the stock to climb.  Our first exit point for conservative traders is at $14.50.  For aggressive traders, you can hold to $16.  For risk control, the conservative exit level is $12.  And, $11 is the final exit level for aggressive traders.

Bank of America

#3) Buy PayPal (PYPL) October 21st 15 Puts up to $1.75

Finally, we’re looking for a move lower in PYPL.  Our first profit-taking exit point for conservative traders is at $35.  For aggressive traders, you can hold to $32.  For risk control, the conservative exit level is $41.  $43 is the final exit point for aggressive traders.

PayPal

 

Category: AOA Trade Summary

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