Trade Summary: September 8, 2015

| September 8, 2015

September 8, 2015

 

 Trade Rationale

With the market being closed for Labor Day, I’m released our new trades today.  And for something of a change, we’re actually starting the week with the major stock indices up about 2%.  Not a bad way to start things off on this short week.  Just a quick administrative note – the office will be closed next week for holiday, so I’ll send out the portfolio update on the following Monday.

Volatility has certainly come off to some extent, but there’s plenty of fear and uncertainty left in the market.  The major US stock indices have regained about half the ground they’ve lost from the correction, and seemed to have settled in to a range around current levels.  The biggest concern remains China, but what the Fed plans to do with interest rates is also weighing on investors.

While China will likely be a touch and go situation for the time being, I wouldn’t be overly concerned around interest rates.  The Fed shouldn’t raise rates in September, given emerging market risk.  However, even if they do, it’s only going to be a small increase, and isn’t likely to make much of a difference to most companies.

In other words, there are still plenty of value opportunities in this market.  And, we’re going to continue to pick oversold stocks (that shouldn’t be overly reliant on demand from China).  This time around, we’ll add a put to the mix in case we get another scare and investors run for the hills.

The first company we’ll buy calls in is SunEdison (SUNE).  SUNE is a semiconductor company focused on the solar power industry.  The stock has had a rough year but has major institutional backing behind it.  The company has also released several positive news items lately.

Another opportunity I like a lot is in CIT Group (CIT).  CIT is a bank that focuses on providing commercial financing and leasing products.  The company is basically more of a credit business than a traditional bank.  As such, it should be in good shape with the improving US economy.  It’s also dirt cheap at current levels.

Finally, let’s take the opposite position in AMC Entertainment Holdings (AMC).  The movie theater chain didn’t get hit too hard during the correction and looks a bit overpriced at current levels.  The late summer/autumn movie season has been mostly a bust so far, with not much on the horizon until Star Wars comes out in December.

 

Trade Details

#1) Buy SunEdison (SUNE) November 20th 13 Calls up to $2.75

For this trade, we’re looking for a rebound in SUNE.  Our first profit point for conservative traders is at $16.  For aggressive traders, you can hold up to $19.  For risk control, the conservative exit level is $10.  $8 is the final exit level for aggressive traders.

SunEdison

#2) Buy CIT Group (CIT) October 16th 43 Calls up to $1.45

With this trade, we’re also looking for a move higher.  Our first exit point for conservative traders is at $45.  For aggressive traders, you can hold to $47.  For risk control, the conservative exit level is $40.  And, $38 is the final exit level for aggressive traders.

CIT Group

#3) Buy AMC Entertainment Holdings (AMC) October 16th 27 Puts up to $1.65

Finally, we’re looking a downward move in AMC.  Our first profit-taking exit point for conservative traders is at $25.  For aggressive traders, you can hold to $22.  For risk control, the conservative exit level is $30.  $33 is the final exit point for aggressive traders.

AMC Entertainment Holdings

 

Category: AOA Trade Summary