We’re exiting Cabela’s (NYSE: CAB) today.
I gave the Nebraska-based chain of outdoor recreation stores a couple of extra weeks to see how the stock reacted after the company reported an earnings miss because crazy competition over the holidays forced Cabela’s to increase its ad spending, which cut into profits.
The shares have done nothing, so we’re leaving this position with a rare loss.
Fortunately, however, the timing works well for us.
This is the moment historically when Cabela’s moves into its seasonally weak period. As I noted in the original recommendation, Cabela’s stock runs up during the winter hunting season and then peters out in March/April, at which point the shares drift lower into the early summer.
So we’re going to reverse our trade this week by exiting the call options we own and buying put options in anticipation of a continued downtrend from here.
Action to take: Sell to close the CAB March 2015 $55 call (CAB150320C00055000) at the market. At last glance, it was trading at $0.60.
Action to take: Buy to open the CAB June 2015 $50 put (CAB150619P00050000) for less than $2.70. At last glance, it was trading at $2.25.
We’re preserving about 26% of our original cost in the call options, and we will use that in our aim of recouping our losses by buying the puts that should increase in value as Cabela’s share price declines.
I’ll be back next week with a unique weather update from Chris Orr that you won’t want to miss … hint: he already has a bead on next winter, and anyone on the East Coast might want to start saving now for a mid-winter getaway to the Caribbean.
Until next time, good trading…
Editor, Precision Profits