This morning in the Options Hawk Trading Hub I was looking at a few names that have been beaten down, mostly on earnings, and many with large gaps, that are starting to show signs of basing. Although the stocks are unlikely to make sharp moves higher without any near term catalysts, we could see these names start a slow grind higher, rebounding off lows and seeing some money put to work at these levels, especially if the market gets back to 1,250. These names are some of the most oversold, and many are former momentum/growth names that are looking to establish a base to work higher. With volatility elevated across stocks, and seeing limited upside, the butterfly call spread is a strategy to take for a slow grind type of rebound. June is historically a low volatility period for stocks, and it is a short expiration month this year, so the OTM calls will decay faster, although this year we are awaiting the Greece elections in June. The butterfly spread is preferred for those unable to trade margin accounts, while 1X2 and even 1X3 ratio call spreads are even better trades for a smaller debit.
I discussed these this morning so some of the pricing may have changed. As always, if you see an idea you like feel free to try it out, and I will try and update this post after June expiration. These are just a few I came across and as always with options, you can define your risk and catch some solid reward/risk trades with these spreads.
1) Herbalife (HLF) – $45 – The $5.26B former momentum name that had been reporting consistently strong earnings, but now faces allegations, is trading down nearly 40% off its April highs. At 10.5X earnings, 0.85 PEG, 1.45X sales and 16X cash flow it is cheap. Shares put in lows right at the 61.8% Fibonacci Level, $42.25, of the range from the key breakout level in 2010 to the recent highs.
The Trade: HLF: June 47.5/52.5/57.5 Call Fly Trades at $0.80
2) Mercadolibre (MELI) – $76.35 – The $3.37B Latin America online commerce Co. trades 25.8X earnings, 1.45 PEG, and 10.5X sales, which is fairly rich, but considered a top emerging growth name. Shares recently were hit on earnings after establishing a major top at $102.50, and now trying to base above 72.50 and moving out of oversold territory. The $70 level would be a better support area as the 61.8% Fibonacci and a re-test of the prior breakout.
The Trade: MELI: June $80/$85/$90 Call Fly Trades at $0.65
3) Fossil (FOSL) - $72.15 – The $4.47B apparel Co. trades 11.6X earnings, 0.79 PEG, 1.7X sales and 3.97X book after the recent sharp sell-off on earnings, shares off nearly 50% from May highs. Shares have been holding above $70 though which happens to have been the August 2011 lows on a large sell-off and also its 200 week EMA.
The Trade: FOSL: June 70/75/80 Call Fly Trades at $1.10
4) Deckers Outdoor (DECK) – $56.30 – Deckers shares have been under pressure for awhile now, off more than 50% from October 2011 highs. The $2.17B footwear Co. now trades at a level that makes it an attractive acquisition target. Shares trade 10.3X earnings, 0.65 PEG, 1.53X sales and 2.6X book value. On the chart shares have found some support above the $50 psychological level, also near a re-test of the key October 2010 breakout and the 61.8% peak to trough Fibonacci is at $53.
The Trade: DECK: June $55/$60/$65 Call Fly Trades at $1.30
5) Weight Watchers (WTW) - $57.10 – Weight Watchers was another earnings wash-out and is trading about 30% off April highs. The $3.17B leading brand in weight loss trades 10.37X earnings, 0.99 PEG, 1.74X sales and short interest has been coming down the last few months. WTW is basing at a familiar level it found support at the past year and developing a horizontal trading channel.
The Trade: WTW: June 55/60/65 Call Fly Trades at $1.35
6) Cognizant Tech (CTSH) – $60.93 – Cognizant shares are nearly 20% off April highs, another name hit hard on earnings, but often considered one of the top large cap growth plays. The $18.55B Tech Co. trades 15.3X earnings, 1.08 PEG, 2.87X sales and 4.25X book. The recent lows in shares around $55 touched not only the 200 week EMA, but the August 2011 lows as support and re-testing a key breakout from 2010 and RSI/MACD in uptrends from 2011 lows.
The Trade: CTSH June 60/65/70 Call Fly Trades at $1.50
JCP June 27/29/31 Call Fly Trades at $0.39
ADSK June $32/$35/$38 Call Fly Trades at $0.75
AKAM June $30/$33/$36 Call Fly Trades at $0.57
SNDK June $32/$35/$38 Call Fly Trades at $0.84
MCD June $92.5/$95/$97.5 Call Fly Trades at $0.38
NFLX June $70/$75/$80 Call Fly Trades at $0.79
NTAP June $34/$38/$42 Call Fly Trades $0.67