Trade Summary: March 30, 2015
March 30, 2015
Trade Rationale
The US economy continues to improve. While we may not have experienced a fast recovery, at the very least, we’re recovering. No where can this be seen more predominantly than in the job market.
While many other economic indicators have shown mixed results over the past several months, the same cannot be said for jobs. For the most part, all the jobs news has been trending in the right direction. In particular, the amount of people getting new jobs is as high as it’s been in years.
As more people gain employment, more money is going to be spent on retail items. This holds true whether we’re talking about basic necessities or high-end goods. Several underperforming retail goods companies should get a boost in the coming months.
As such, we’re going to buy calls on two consumer goods companies, which are due for a rally. Plus, we’ll buy a put on a major retailer that’s been running a little too hot.
First off, we’ll go with calls on Michael Kors Holdings (KORS). KORS is a high-end clothing and accessories retailer. Despite excellent fundamentals, the stock has been in a long downtrend. I believe that trend will reverse once people up their spending (in the near future).
Another retailer I like for a turnaround is Keurig Green Mountain (GMCR). Most people are familiar with Keurig’s home coffee makers. It’s a very mainstream product, appealing to a wide demographic. The stock has sold off fairly sharply after reaching highs at the end of 2014. The shares look to be oversold at this juncture, with the fundamentals supporting a higher price as well.
Finally, we’re going to take the opposite position on performance apparel giant, Under Armour (UA). Yes, UA is a good company having a strong year. However, the stock’s popularity has gotten to the point where the shares are way overbought. I like UA as a long-term investment. However, in the short to medium-term, it’s a good regression candidate.
Trade Details
#1) Buy Michael Kors Holdings (KORS) May 16th 67.50 Calls up to $2.10
For this trade, we’re looking for an upward move in KORS. Our first profit point for conservative traders is at $70. For aggressive traders, you can hold up to $75. For risk control, the conservative exit level is $62.50. $60 is the final exit level for aggressive traders.
#2) Buy Keurig Green Mountain (GMCR) May 16th 130 Calls up to $3.00
With this trade, we’re also looking for an upward move. Our first exit point for conservative traders is at $125. Yes, I realize it’s under the strike we own. But, due to volatility, the calls should easily be winners on an up move despite not being in-the-money (as long as it happens before expiration week). For aggressive traders, you can hold to $130. For risk control, the conservative exit level is $105. And, $100 is the final exit level for aggressive traders.
#3) Buy Under Armour (UA) May 16th 75 Puts up to $2.00
Finally, we’re looking for a down move in UA. Our first profit-taking exit point for conservative traders is at $75. For aggressive traders, you can hold to $70. For risk control, the conservative exit level is $83. $85 is the final exit point for aggressive traders.
Category: AOA Trade Summary
