Trade Summary: June 6, 2016

| June 6, 2016

June 6, 2016

 

Trade Rationale

The overall market still appears to be somewhat directionless, but at least there’s been a bullish undertone lately.  It’s always easier to trade (and make money) in a bull market.  It’s not that you can’t make money in a bear market, but it’s harder to compete with fear than success – at least in my experience.

With interest rates set to remain low for at least 2016, dividend stocks are still the way to go if you’re searching for yield.  That being said, there are some good options for our style of investing (using options) in undervalued companies with high yield dividends.

We’re going to buy calls in two cheap, high yield stocks.  We’ll also buy a put in a low dividend stock which appears to be overvalued.

The first company to buy calls in is General Motors (GM).  GM tends to fluctuate with demand for automobiles in general, but the price has been mostly range bound this year.  However, the price dropped enough recently to push the dividend yield above 5%.  At this level, that’s a definite buy.

Next, we’ll buy calls in Gamestop (GME).  GME has struggled in recent months as video game sales have gone increasingly to an online model.  However, the company is taking interesting steps with its reward programs and trade-ins and could be primed for a better year.  Also, the dividend yield is sitting at 5.2%.

Finally, we’re going to buy puts on Franco-Nevada (FNV).  FNV is a big gold company based in Canada.  Gold has lost favor with investors as the global economy has improved.  What’s more, the company looks really expensive here and only offers a dividend of 1.3%.

 

Trade Details

#1) Buy General Motors (GM) September 16th 30 Calls up to $1.55

For this trade, we’re looking for a move higher in GM.  Our first profit point for conservative traders is at $32.  For aggressive traders, you can hold up to $34.  For risk control, the conservative exit level is $28.  $26 is the final exit level for aggressive traders.

gm060616

#2) Buy Gamestop (GME) October 21st 31 Calls up to $1.70

With this trade, we’re also looking for the stock to climb.  Our first exit point for conservative traders is at $32.50.  For aggressive traders, you can hold to $35.  For risk control, the conservative exit level is $26.  And, $24 is the final exit level for aggressive traders.

Gamestop

#3) Buy Franco-Nevada (FNV) October 21st 55 Puts up to $2.40

Finally, we’re looking for a move down in the stock price.  Our first profit-taking exit point for conservative traders is at $65.  For aggressive traders, you can hold to $60.  For risk control, the conservative exit level is $72.50.  $75 is the final exit point for aggressive traders.

Franco-Nevada

 

Category: AOA Trade Summary

Comments are closed.