Trade Summary: March 14, 2016

| March 14, 2016

March 14, 2016

 

 Trade Rationale

We’re kind of at an interesting spot here with no obvious signal on market direction.  We’ve made up almost all the lost ground from earlier this year.  And, we’re back to the point where the market was mostly moving sideways for much of last year.  Can we expect more of the same?

Given the macro environment, there is sufficient reason to believe we could see general sideways movement for the time being (unless the Fed does something funny).  I believe it’s a good time to pick stocks to buy calls in which don’t always move in tune with the market (and buy puts on riskier movers).

As such, we’re going to buy calls on low beta stocks that have shown growth and a put on a high beta stock which has declining growth.

The first company we’ll buy calls in is Apple (AAPL).  Yes, that same AAPL – the biggest public company in the world.  Despite the hype, AAPL is still very reasonably priced.  The company continues to show excellent growth while posting a slightly below average beta.  AAPL is also about to announce new products.

Another popular company we’ll buy calls in is Facebook (FB).  FB is more expensive (in relative terms) than AAPL, but you can’t argue with the company’s amazing growth.  The stock has an even lower beta than AAPL, if you can believe that.

Finally, we’re going to buy puts on Kate Spade (KATE).  KATE has been on a nice run lately, but I don’t believe the company’s fortunes will hold.  The stock is basically the exact opposite of AAPL and FB.  Sales are declining and beta is through the roof (making it a much riskier bet).

 

Trade Details

#1) Buy Apple (AAPL) June 17th 110 Calls up to $2.50

For this trade, we’re looking for AAPL to climb.  Our first profit point for conservative traders is at $110.  For aggressive traders, you can hold up to $115.  For risk control, the conservative exit level is $95.  $90 is the final exit level for aggressive traders.

Apple

#2) Buy Facebook (FB) June 17th 125 Calls up to $1.90

With this trade, we’re also looking for a move higher.  Our first exit point for conservative traders is at $118.  For aggressive traders, you can hold to $125.  Yes, I realize the first exit point is well below the strike – the idea is for the stock to get there well ahead of June expiration.  For risk control, the conservative exit level is $100.  And, $95 is the final exit level for aggressive traders.

Facebook

#3) Buy Kate Spade (KATE) July 15th 23 Puts up to $2.25

Finally, we’re looking for a down move in KATE.  Our first profit-taking exit point for conservative traders is at $21.  For aggressive traders, you can hold to $19.  For risk control, the conservative exit level is $27.  $29 is the final exit point for aggressive traders.

Kate Spade

 

Category: AOA Trade Summary

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