Trade Summary: November 23, 2015

| November 23, 2015

November 23, 2015

 

 Trade Rationale

One of the interesting things about this year has been the lack of breadth in stock gains.  That is, gains in US stocks are not wide ranged, but rather concentrated in a few big names.  In some cases, certain sectors have missed the gains entirely (such as energy).

I read an interesting statistic that said the 3% gains in the S&P 500 (year-to-date) are entirely due to 10% of the index.  The other 90% is down something like 2-3% overall.  It’s really a few big winners driving the gains this year, while much of the rest of the group is underperforming.

However, for someone who likes to focus on undervalued names, this is a good market to trade in. I still think there are plenty of value opportunities across the board. As such, we’re going to buy calls in two undervalued companies and buy puts in an overvalued company as a hedge.

The first company we’ll buy calls in is Bed Bath & Beyond (BBBY).  Big retail has been getting killed recently, and BBBY is no exception.  However, the company still has very good fundamentals and looks really cheap right here.  Moreover, it should get a boost from holiday shopping.

Next, let’s purchase calls in Keurig Green Mountain (GMCR).  GMCR is one of those former high flyers that’s been hit hard this year.  However, the coffeemaker specialist has recently reported better than expected earnings, which could be prelude to a very lucrative fourth quarter.

Finally, we’re going to buy puts on GoDaddy (GDDY).  At another time, I may have recommended the cloud-based Internet company.  However, the stock has skyrocketed after good earnings and the current price looks unsustainable.  I think we’re due for a pullback in the next month or so.

 

Trade Details

#1) Buy Bed Bath & Beyond (BBBY) January 15th 55 Calls up to $2.25

For this trade, we’re looking BBBY to climb.  Our first profit point for conservative traders is at $57.50.  For aggressive traders, you can hold up to $60.  For risk control, the conservative exit level is $50.  $48 is the final exit level for aggressive traders.

Bed Bath & Beyond

#2) Keurig Green Mountain (GMCR) January 15th 47.50 Calls up to $2.65

With this trade, we’re also looking for a move higher.  Our first exit point for conservative traders is at $50.  For aggressive traders, you can hold to $52.50.  For risk control, the conservative exit level is $40.  And, $38 is the final exit level for aggressive traders.

Keurig Green Mountain

#3) Buy GoDaddy (GDDY) February 19th 30 Puts up to $2.25

Finally, we’re looking for a down move in GDDY.  Our first profit-taking exit point for conservative traders is at $29.  For aggressive traders, you can hold to $27.  For risk control, the conservative exit level is $35.  $37 is the final exit point for aggressive traders.

GoDaddy

 

Category: AOA Trade Summary

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