Trade Summary: June 16, 2014
June 16, 2014
Trade Rationale
Today’s theme is all about turnarounds. You see, we’ve been dealing with a lot of sideways action in the financial markets for the last several weeks. And, slowly but surely, I believe some major trends are going to start to shift.
On the surface, it doesn’t look like much is going to cause a major shift in investor sentiment or asset allocation. Yes, the Iraq conflict is sparking a bit of international concern. However, the domestic economic news has been as strong as ever.
That being said, here are three trends I believe are changing and three trades to take advantage of the change:
Crude oil has climbed to new highs on news of the conflict in Iraq, however, after spiking last week, the price of oil has not followed through. While the Iraqi situation may continue for some time, it doesn’t look like the oil markets are overly concerned about supply at this point. What’s more, oil services companies have been on a real tear lately – too much of a tear in my opinion.
I believe the oil services industry is peaking for the short-term. As such, we’re going to buy puts on one of the biggest oil services companies out there, Schlumberger (SLB).
The oil services industry is an example of an industry that’s been on a tear lately. But there’s an entire asset class which has done nothing but gone up this year? That asset class is junk bonds. High yield corporate bonds have been in an unstoppable up trend for quite some time. I believe that’s going to change – or at least take a break – at some point this summer. That’s why we’re purchasing puts on iShares iBoxx High Yield Corporate Bond Fund, (HYG), a very popular junk bond ETF.
Finally, on the flip side, gold has had a tough go for most of the year, although it’s finally turned around lately. I believe that momentum is going to continue. Oil may not spike much higher, but that doesn’t mean investors won’t become more concerned over the summer. Gold should definitely catch a bid as investors decide to go the safe route. To that end, we’ll be purchasing calls on a large cap gold miner, Barrick Gold (ABX).
Keep reading for the details of each trade.
Trade Details
#1) Buy Schlumberger (SLB) August 16th $105 Puts up to $2.50
We’re looking for SLB to move lower. Our first profit point for conservative traders is at $103. For aggressive traders, you can hold down to $98. For risk control, the conservative exit level is $12. $115 is the final exit level for aggressive traders.
#2) Buy iShares iBoxx High Yield Corporate Bond Fund (HYG) August $95 Puts up to $2.00
Like SLB, we’re looking for HYG to move lower. Our first exit point for conservative traders is at $93. For aggressive traders, you can hold to $91. For risk control, the conservative exit level is $97.50. And, $100 is the final exit level for aggressive traders.
#3) Buy Barrick Gold (ABX) August $17 Calls up to $1.00
In this case, we want ABX to go higher. Our first profit-taking exit point for conservative traders is at $18. For aggressive traders, you can hold up to $20. For risk control, the conservative exit level is $15.50. $13 is the final exit point for aggressive traders.
Category: AOA Trade Summary
