Trade Summary: July 13, 2015

| July 13, 2015

July 13, 2015

 

Trade Rationale

Well it’s certainly been an interesting period since our last trade.  During the last few weeks, we’ve seen a fair share of volatility.  The broad market has sold off sharply and then regained ground.  The headlines are coming in fast and furious.

Basically, the negotiations for a Greek bailout (or Euro exit) have been driving market volatility, along with what’s essentially a crash of Chinese stocks.  The scenario in Greece is creating overall market volatility due to the uncertainty of what may happen if the country exits the Euro.  Meanwhile, the equity selloff in China is taking its toll on commodities and raw material stocks.

However, as of today, a measure of stability has returned to the US financial markets.  Most importantly, Greece has agreed to a bailout plan, and appears to be avoiding a Euro exit.  What’s more, last week the Chinese government stepped in to stabilize the stock market, helping to ease the selling.

While volatility has calmed down, there are still several quality stocks which have yet to recover from the recent overselling.  We’re going to buy calls in two of those mispriced stocks.  Plus, we’re going to take the opposite position (a put) in an overpriced company.

First, we’re going to buy calls on Avnet (AVT).  AVT is an electronic components distributor that generates $28 billion a year in revenues.  The company looks strong in just about every metric but is just 15% from 52-week lows.  The stock looks like it has bottomed out and could be ready to breakout.

Another underpriced company we’re looking at is Corning (GLW).  The specialty glass and ceramics maker has been on the downturn lately and was just recently downgraded by analysts.  However, the company still has excellent fundamentals and looks to have reached well into oversold territory.

Finally, let’s buy puts on Kellogg (K).  The popular cereal/packaged goods company is in an opposite position relative to our first two trades.  The stock is trading at the top of its recent range and the fundamentals don’t look too hot right here.  By purchasing puts, we’re expecting a downward reversal in K.

 

Trade Details

#1) Buy Avnet (AVT) August 21st 41 Calls up to $1.50

For this call trade, we’re looking for an up move.  Our first profit point for conservative traders is at $44.  For aggressive traders, you can hold up to $46.  For risk control, the conservative exit level is $37.  $35 is the final exit level for aggressive traders.

Avnet

#2) Buy Corning (GLW) September 18th 20 Calls up to $0.75

With this trade, we’re also looking for a move higher.  Our first exit point for conservative traders is at $21.50.  For aggressive traders, you can hold to $24.  For risk control, the conservative exit level is $17.  And, $16 is the final exit level for aggressive traders.

Corning

#3) Buy Kellogg (K) September 18th 62.50 Puts up to $1.75

Finally, we’re looking for a down move in K.  Our first profit-taking exit point for conservative traders is at $61.  For aggressive traders, you can hold to $58.  For risk control, the conservative exit level is $67.  $69 is the final exit point for aggressive traders.

Kellogg

 

Category: AOA Trade Summary