Trade Alert: Grab This Next Uptrend
Last week was a short one with the Thanksgiving holiday, but it was still a busy one for us.
We locked in a 65% gain on half of our Vail Resorts (NYSE: MTN) position, secured profits of 85% and 105% on Tyson Foods, and we placed a stop-loss in Toro (NYSE: TTC) to protect our 150% return. And just yesterday, our Carnival (NYSE: CCL) order got filled above our limit price of $3.75. So if your order was filled to sell half your position, that’s great — you locked in more than a 50% gain. If your order wasn’t filled, continue to keep it open.
Today, we’re going to keep that pace going by getting into a new trade — Polaris Industries (NYSE: PII).
Polaris is known for its off-road vehicles, but it also has two other significant products: motorcycles and snowmobiles. At first glance, this mix of products makes a seasonal pattern a bit tough to see. But after I analyzed the company’s operations, I saw two very clear trends (and an interesting subtrend) in all the stock-price noise — and we’re taking advantage of one of those trends today.
From just about now through March/April, Polaris’s stock has seen a consistent uptrend, generating gains anywhere from 9% to 45%. And this year I expect more of the same.
To capture this trend, we’re going with the March call options. So here’s the action to take.
Action to take: Set a Good ‘Til Canceled limit order to buy to open the PII March 2016 $105 call option (PII160318C00105000) at $7.70. At last glance, it was trading at $7.30. Keep this order open until it’s filled.
Please note: Do not place a market order. Make sure to set the limit order at $7.70. If you aren’t sure how to do that, just watch my video “How to Place an Options Trade” by clicking here.
Once your order is filled, set this order with your brokerage firm:
Action to take: Set a Good ‘Til Canceled limit order to sell to close half the PII March 2016 $105 call option (PII160318C00105000) at $15.40. Keep this order open until it’s filled, or until you hear from me to alter the order.
This second order will allow us to collect a 100% gain in the event that a quick and unexpected spike happens before I can get a trade alert to you.
Polaris’s strong seasonal trend lasts through March or April, when the stock rises on expectations of strong fourth-quarter results. However, April options are not available for Polaris, and going out to the June expiration is too expensive. So we’re grabbing the March calls, which will still allow us to capture Polaris’s uptrend at a cheaper cost.
As for the trend, it’s played out nicely since at least 2009, save for one year — last year. That’s the only instance the trend wasn’t quite as strong. We can thank currency headwinds and light demand from its European and Canadian operations for that. Those factors are still at play, to a certain degree, but are not as damning this year because they’re no longer a surprise. And already, the company’s third-quarter results have shown double-digit sales and earnings growth, and I expect — as does the company, for that matter — that its fourth-quarter earnings will remain strong, right in line with its seasonal stock pattern.
As you might have guessed, weather will play a huge part in that. Chris Orr tells me meteorological conditions will only help the uptrend in the coming months.
For one, this winter has provided ideal weather for heading outside in certain regions. So far, temperatures have been mild in parts of the country where off-roading is popular — the Midwest and the West. It’s created the perfect environment for Polaris’s off-road vehicles, which comprise the majority of its retail sales. Soon, though, the severe winter Chris has forecast will pick up steam, and more customers will start turning to its snowmobiles. So, this winter is actually going to benefit sales no matter how you look at it.
Not to mention the other tailwinds…
Recently, Polaris announced a new affordable rec-utility vehicle called the General. It’s already winning praise from news outlets such as Bloomberg, which are calling it the “Escalade of off-road vehicles.” The company believes this game-changing product will mostly attract first-time buyers, meaning it won’t cannibalize sales of its existing off-road vehicles.
Its other two segments, motorcycles and snowmobiles, remain solid as well. The company is following the success of the General with new motorcycles that are also aimed at bringing in new customers at a lower price point.
All of this means Polaris’s stock is about to climb, and we’ll be in the perfect position to benefit.
Something else to keep in mind: There’s the subtrend I mentioned that occurs within this bigger trend we’re playing. That subtrend runs from February to March/April, when the stock experiences a quick jump in anticipation of the pending release of quarterly earnings in April. So when February rolls around, we may double down on this trade to collect even greater gains. (Or, as I think will happen, we will pick up a big gain going into January, sell half our position and then use the profits to play the quick subtrend.) As always, of course, I will be sure to let you know if this opportunity presents itself in February.
For now, place the current orders and be sure to follow our limit price to ensure you’re not overpaying for the option.
This will be our main dispatch for the week. I just wanted to send it earlier than normal so we get into this trade at the ideal time.
Quick Portfolio Update
Before I leave you for the week, a quick update…
As you know, we closed out half of Vail for 65% last week. Well, Vail has continued climbing since then, perfectly underscoring our Precision Profits trading methodology. Last Friday, Vail’s stock hit its 52-week high after some snowstorms allowed the company to open its Park City Mountain Resort early, and our position is currently up 85%. This is exactly why we got into this trade. Chris said snow would come early and often to the Rockies, creating an ideal environment for an early ski season, and that’s just what happened.
As we mentioned in another update: “[Vail’s] Park City Mountain Resort is the largest ski resort in the United States — with over 7,300 acres, 300-plus trails and 41 lifts. So it’s set up to benefit nicely as skiers rush to the slopes.”
I’ll keep an eye on this position as the stock climbs. We may have a chance to close out another triple-digit winner.
Until next time, good trading…
Editor, Precision Profits