Trade Alert: Sea Of Red
Two bullish bets on one of our top names from Friday.
The Risk Of Buying Here
Before we get to today’s trades, a brief note about the risk of buying here. Despite the market’s drop, volatility is relatively low, suggesting we aren’t close to capitulation here. And if the market keeps grinding down, that is going to be bad for most of our bullish trades.
That said, there are two points working in our favor here:
Markets don’t go down (or up) in a straight line. So we have the potential to make money buying on a dip and selling on a bounce (and vice versa).
Even in this market, stocks that beat earnings significantly have spiked after they reported.
Today’s Stock
Today’s stock was one of Portfolio Armor’s top ten names on Friday. Readers may recall we’ve had some success placing bullish short term bets on these during market drops.
In addition, this stock looks oversold, with an RSI of about 28, but as you may recall from our last Exits post, oversold stocks can still go lower. Chartmill gives it an overall technical rating of 8 and an overall fundamental rating of 6—better scores than any of our other top names from Friday.
S&P Global Market Intelligence seems to be slightly more bullish on it fundamentally,
As are the most accurate Wall Street analysts, with LSEG Starmine giving it an 8.7 out of 10 (S&P and Starmine data via Fidelity).
We’ve got two trades on it today, a short term, speculative trade betting on a bounce this week, and an earnings trade going out to late April. The maximum upside on the short term trade is uncapped, and the maximum upside on the earnings trade is about 300%. The maximum loss in both cases is 100%.
Details below.
Today’s Short Term, Speculative Trade
The stock is Spotify ( SPOT 0.00%↑ ), and our trade is buying the $530 strike calls expiring on March 14th for $2.40. The max gain on 2 contracts is uncapped, the max loss is $480, and the break even is with SPOT at $532.40. This trade filled at $2.40.
Today’s Earnings Trade
The stock is SPOT again, and our trade is a vertical spread expiring on April 25th, buying the $545 strike calls and selling the $550 strike calls, for a net debit of $1.15. The max gain on 3 contracts is $1,155, the max loss is $345, and the break even is with SPOT at $546.15. This trade hasn’t filled yet. I’m going to keep it open until it fills or until March 31st, whichever comes first.
Exiting These Trades
For the short term trade, I’m going to open a GTC order to get out of half of these calls at $5, but I may just sell both if we get an up day this week. In this market, we should aim to take profits quickly when we can. For the earnings trade, assuming it fills, I’m going to open a GTC order to exit at a net credit of about $4.75, and I’ll lower that price, if necessary, as we approach expiration.
Sold half of my March 14 calls today at $6, for a 150% gain.
Is there a way to get an alert of these actions? Posting a comment doesn't do that. Thanks.