Trade Summary: March 2, 2015
March 2, 2015
Trade Rationale
Today, for the first time since 2000, the NASDAQ crossed the 5,000 mark. If you think about it, that’s quite an achievement. On one hand, it’s always nice to see stocks reach new highs. On the other hand, it took 15 years to reach the market levels of the Dot.com bubble.
So should we be worried about another tech bubble?
Well let’s put it this way. Back in 2000, the NASDAQ was trading at something like a 120x P/E. These days, it’s closer to 20x. While you may consider some high flying tech stocks to be overvalued, it’s certainly not a universal case like we saw 15 years ago.
Moreover, many Internet stocks haven’t enjoyed the fruits of the recent NASDAQ success. There are several names which could still experience substantial moves higher. We’re going to make call trades on two names primed for an upward move, and one put trade on a stock which may be overvalued.
First off, we’ll go with a call on Yahoo (YHOO). Investors tend to focus on YHOO’s quarterly results, and not on the big picture. In general, YHOO is still an Internet giant with a lot going for it. It has plenty of cash, and plenty of lucrative revenue opportunities. Plus, it’s trading at attractive levels these days.
Another frequently undervalued Internet company is Travelzoo (TZOO). Now, TZOO doesn’t have anywhere near the upside of YHOO. However, the company has a nice amount of cash and a low valuation. I believe TZOO is an attractive buyout candidate – which provides an excellent call buying opportunity.
Finally, we’re going to take the opposite position in Groupon (GRPN). Yes, GRPN’s issues have been well documented. However, the stock has shown signs of life based on one better than expected quarter. The company still has significant headwinds to fight through before it’s in the clear. The stock is also trading near the 52-week high, and is set for a pullback.
Keep reading for the details of each trade.
Trade Details
#1) Buy Yahoo (YHOO) July 18th 46 Calls up to $2.55
For this trade, we’re looking for an upward move in YHOO. Our first profit point for conservative traders is at $48.50. For aggressive traders, you can hold up to $51. For risk control, the conservative exit level is $40. $38 is the final exit level for aggressive traders.
#2) Buy Travelzoo (TZOO) June 20th 10 Calls up to $1.35
With this trade, we’re also looking for an upward move. Our first exit point for conservative traders is at $12. For aggressive traders, you can hold to $14. For risk control, the conservative exit level is $8.50. And, $7.50 is the final exit level for aggressive traders.
#3) Buy Groupon (GRPN) May 16th 8 Puts up to $1.00
Finally, we’re looking for GRPN to move lower. Our first profit-taking exit point for conservative traders is at $7. For aggressive traders, you can hold down to $6. For risk control, the conservative exit level is $9.50. $10.50 is the final exit point for aggressive traders.
Category: AOA Trade Summary
