Trade Summary: June 27, 2016

| June 27, 2016

June 27, 2016

 

 Trade Rationale

Well unless you’ve been living in a cave this past week, then you know the big news these days is Brexit and its impact on the financial markets.  Not only did the UK vote to leave the EU come as a pretty huge surprise, but the markets also have plunged in the aftermath. It’s not a crash-like scenario, but there definitely is some heavy selling going on.

There are two big reasons for the global selloff in equities.  First off, Brexit means a whole ton of uncertainty in the coming months, and markets hate uncertainty. Trade deals need to be renegotiated, new rules need to be put in place, and a whole lot of stuff has to happen which will change the current business dynamics across the Europe and the rest of the world.

Secondly, the UK is basically flushing 2% of its GDP down the toilet and is likely guaranteeing central bank intervention.  The loss of income and the potential impact of inflation are just another reason why markets hate the Brexit vote.

That being said, Brexit is really not a big deal to US investors.  Uncertainty isn’t good, but it will go away in the near-term.  Additionally, US businesses really shouldn’t be hit that much, if at all, due to this decision.  As such, I think it’s time to buy calls in three cheap stocks which have fallen in recent days.

The first company to buy calls on is Cisco Systems (CSCO).  The largest networking company in the world is trading at a pretty big discount after the Brexit vote.  What happens between the UK and the EU should also have little effect on networking equipment.

Next, we’ll buy calls in First Solar (FSLR).  America’s largest solar company really should have no business going down due to Brexit.  I’m generally a big fan of solar power and its future, and FSLR is super cheap these days, especially after this past week.

Finally, we’re going to buy calls in Gentex (GNTX).  GNTX is a $4 billion auto parts company which crossed my radar because it’s trading for cheap.  The stock plunged on the Brexit news but should see little to no impact from the results.

 

Trade Details

#1) Buy Cisco Systems (CSCO) September 16th 28 Calls up to $1.10

For this trade, we’re looking for a move higher in CSCO. Our first profit point for conservative traders is at $29.  For aggressive traders, you can hold up to $31.  For risk control, the conservative exit level is $25.50.  $24 is the final exit level for aggressive traders.

Cisco Systems

#2) Buy First Solar (FSLR) September 16th 50 Calls up to $2.25

With this trade, we’re also looking for the stock to climb.  Our first exit point for conservative traders is at $52.  For aggressive traders, you can hold to $55.  For risk control, the conservative exit level is $42.  And, $40 is the final exit level for aggressive traders.

First Solar

#3) Buy Gentex (GNTX) September 16th 15 Calls up to $1.75

Finally, we’re looking for a move up in GNTX.  Our first profit-taking exit point for conservative traders is at $15.50.  For aggressive traders, you can hold to $16.50.  For risk control, the conservative exit level is $13.50.  $12.50 is the final exit point for aggressive traders.

Gentex

 

Category: AOA Trade Summary

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