Trade Alert: Top Names

A rare, underlying stock trade alert. Plus, an options trade on a former high-flyer.

Our Core Strategy

As regular readers know, our core strategy is to buy equal dollar amounts of the Portfolio Armor web app’s top ten names, put trailing stops of 15%-20% on them, and replace them with names from the current week’s top ten when we get stopped out of a position.

Normally, I don’t post a trade alert when I buy one of our top ten names in our core strategy; instead, I just leave a comment on the current top names post indicating what I bought and how much I paid for it. I did that for one top name I bought last Friday, but I also got stopped out of another top name that day, so I decided to wait to see what Friday’s top names were before replacing it (the Portfolio Armor web app generates a new top ten every day the market is open, but I just do a weekly top names post on this Substack).

The stock I bought today was our #2 name on Friday. It may be the best-executing retail brand right now.

An Options Trade On A Former High-Flyer

Most of the stocks we place bullish options bets on here are ones with bullish charts, but occasionally, we take flyers on ones with strong fundamentals that have been beaten down. Today’s options trade is on a beaten down stock.

This one was a high-flying growth stock a few years ago, and while the hype around it has long since faded, its fundamentals have gotten stronger. When it released earnings in May, it beat on both top and bottom lines; nevertheless, the stock has dropped about 10% since then. After that drop, it now has a Chartmill Valuation Rating of 7 (on a scale of 0 to 10). It also has a Piotroski F-Score of 8 (on a scale of 0 to 9), indicating strong financial health and a lack of dilution.

Our bet on this one is that it bounces after it posts its earnings in August. One caution on this one: when I placed this trade, the stock had a Chartmill Set-Up Rating indicating that its price movement had started to consolidate. That’s no longer the case, so it’s possible this one will decline further in the near term. Update: As of Monday’s close, the Set-Up Rating had swung from a 4 to a 6, indicating that the price movement was consolidating again.

Details below.

Today’s Top Name Purchase

The company is Abercrombie & Fitch (ANF 0.00%↑), and I bought it today for $171.54.

Today’s Options Trade

The underlying stock is Zoom Video Communications (ZM 0.00%↑), and the trade is a vertical spread expiring on September 20th, buying the $60 strike calls and selling the $65 strike calls for a net debit of $1.60. The max gain on 2 contracts is $680, the max loss is $320, and the break even is with ZM at $61.60. This trade filled at $1.60, but it looks like you may be able to get it for less now.

Exiting These Trades

I’m going to place a trailing stop of 18% on ANF, and for the ZM trade, I’m going to open a GTC order to exit at a net credit of $4.