Trade Alert: This Stock Is About to Fizzle
Earlier this year, I suggested a trade to play off of one of the most consistent trends I have ever seen — and it paid off.
We bought calls on National Beverage (Nasdaq: FIZZ), a soft drink and beverage maker, on May 21 to capitalize on its May to December rally. And in less than four months, we locked in gains of 109% and 200%.
Today, we’re going to try to benefit from National Beverage’s strong seasonality once again — this time with another trend … its winter slump.
The company’s sluggish winter trend is easily explained by the American consumer. See, National Beverage mainly operates in North America, and in the months of November, December and January, we tend to consume fewer soft drinks than in the spring and summer months. Whether it’s because the cooler temperatures inspire more consumption of hot beverages, or simply because there are fewer opportunities that would include soft drinks (such as tailgate parties, camping, going out to restaurants, summer vacations, etc.), winter has consistently been a weak time for National Beverage.
In fact, there are only two years in the past decade where the company bucks its downtrend. But that’s easily explained by the energy-drink craze of 2006 and 2007, when more than 500 new energy drinks launched worldwide. National Beverage had one of its own, Rip It Energy, which boosted its sales in those years during the company’s historically weak months. But in every other year going back to 2005, National Beverage’s stock has dropped anywhere from 15% to 20% during the winter.
I don’t see any reason for that to change this year, so today we’re going to buy puts.
It’s the perfect time to get into our trade because National Beverage’s shares have spiked more than 50% in the past three months. By buying puts today, we’ll be in the ideal position to benefit from the looming pullback.
Here’s what I want you to do:
Action to take: Set a Good ‘Til Canceled limit order to buy to open the FIZZ April 2016 $45 put option (FIZZ160415P00045000) at $4.90. At last glance, it was trading at $4.80. If your order is not filled by next Thursday, I will update you on the trade.
Please note: Do not place a market order. Make sure to set the limit order at $4.90. If you aren’t sure how to do that, just watch my video “How to Place an Options Trade” by clicking here.
The trade itself is an ordinary put option recommendation. However, there is a unique part in that we will be among the first traders to place an open order on this April option. Because of that, it may take a bit longer than usual to get our orders filled, even though we are using a fair price. So just be patient and allow your orders to remain in place until next week.
If your orders are not filled by next week, don’t worry. I’ll be sure to update you.
Once that order is filled, place the following order.
Action to take: Set a Good ‘Til Canceled limit order to sell to close half the FIZZ April 2016 $45 put option (FIZZ160415P00045000) at $9.80. Keep this order open until it’s filled.
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.
I’m sending this alert today because National Beverage may report earnings tomorrow. I say “may” because it’s hard to tell since the company doesn’t officially publicize its earnings date. If it does announce earnings tomorrow, we could see some movement. That movement could be up, as has happened a few times after a December report … or it could be down, as investors who rode these shares higher take their profits and move on. Either way, we will establish our position now for what should be a downtrend through the spring
I’ll be back tomorrow to share some weather updates from Chris Orr. We’ve had a lot of trading recently because of the way our options have moved, new opportunities and a couple of expirations … so we’ll take a breather in tomorrow’s weekly dispatch to hear what Chris has to say about what’s on the way weather-wise.
Until next time, good trading…
Editor, Precision Profits