Trade Summary: October 3, 2016

| October 3, 2016

October 3, 2016

 

Trade Rationale

The US election is a month away, which of course is going to dominate the news for all of October and beyond.  Like most major events, there are also trading opportunities that can be found due to the election.  Rather than try to pick a winner, which carries risks, we’re going to find three trades which make sense regardless who wins.

For instance, both candidates are interested in increasing infrastructure spending.  US roads, highways, and schools need lots of work.  There’s a good chance government spending in these areas is going to go up no matter who becomes the next president.

We’re going to buy calls on two companies which could see a boost after November’s election.  We’re also going to buy a put on an ETF in a sector which could suffer after the election is all said and done.

We’ll start with calls on Caterpillar (CAT).  As I mentioned before, both candidates are likely to push infrastructure spending once in office.  Infrastructure work requires copious amounts of heavy machinery, and no company better represents that industry than CAT.

The next company to buy a call in is Barrick Gold (ABX).  Whether you believe in higher spending, lower taxes, or both, chances are prices are going to start going up in the next presidential cycle… in other words, inflation.  Investors like to buy gold when they are concerned about inflation, and ABX is about as big as they come in terms of gold companies.

Finally, let’s buy puts on Health Care Select Sector SPDR ETF (XLV). Regardless of who the next president is, there are going to be changes in the health care sector.  There are still many issues which need to be resolved, and you can be sure the next administration will take a crack at them.  Uncertainty could very well cause investors to leave the sector until more concrete resolutions are known.

 

Trade Details

#1) Buy Caterpillar (CAT) December 16th 92.50 Calls up to $2.00

For this trade, we’re looking for a move higher in CAT.  Our first profit point for conservative traders is at $94.  For aggressive traders, you can hold up to $97.  For risk control, the conservative exit level is $80.  Lastly, $78 is the final exit level for aggressive traders.

Caterpillar

#2) Buy Barrick Gold (ABX) December 16th 18 Calls up to $1.45

With this trade, we’re also looking for the stock to climb.  Our first exit point for conservative traders is at $20.  For aggressive traders, you can hold to $22.  For risk control, the conservative exit level is $16.  And, $15 is the final exit level for aggressive traders.

Barrick Gold

#3) Health Care Select SPDR ETF (XLV) December 16th 71 Puts up to $1.95

Finally, we’re looking for a down move in XLV.  Our first profit-taking exit point for conservative traders is at $69.  For aggressive traders, you can hold to $67.  For risk control, the conservative exit level is $74, while $76 is the final exit point for aggressive traders.

Health Care Select SPDR ETF

 

Category: AOA Trade Summary

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