Trade Alert: Two Winter Trades and a New Strategy
Earlier this week, I introduced you to a new strategy that I’ll cover in more depth today. But before I do, we have an opportunity to ensure a nice triple-digit gain, and I have a new trade for Kohl’s (NYSE: KSS).
So let’s start with those trades…
First, the Kohl’s position: Yesterday, we set a 25% stop-loss order on our Kohl’s puts in case the company surprised investors and beat third-quarter expectations. That’s exactly what happened, and now the stock is up more than 9% as I write this. As a result, our stops allowed us to walk away with a 5% gain — because the options gapped down this morning, we collected 5% instead of 25%. But it’s better than a loss.
If you were unable to set your order yesterday, simply sell your position at the market. We’ll no longer be following these puts.
However, although this move capsized Kohl’s seasonally weak trend for the moment, we know it’s temporary. Kohl’s has beaten third-quarter expectations in the past and seen its shares rise, only to see the stock resume its typical seasonal decline. I am confident this will happen again — and we’re going to take advantage of it by using our small profits and reinitiating a position in Kohl’s at a lower strike price, and at a lower cost to us.
Action to take: Set a Good ‘Til Canceled limit order to buy to open the January 2016 $45 put option (KSS160115P00045000) at $2.35. At last glance, it was trading at $2.15. If your order is not filled by my next dispatch, I will update you on the trade.
Once your order is filled, set this order with your brokerage firm:
Set a Good ‘Til Canceled limit order to sell to close half of your position in the KSS January 2016 $45 put option (KSS160115P00045000) at $4.70 (or whatever price equates to a 100% gain, based on your cost).
This will allow us to collect a 100% gain in the event a quick and unexpected spike happens before I can get a trade alert to you.
This is a slight tweak to the two-step strategy I laid out earlier this week with the Briggs and Stratton (NYSE: BGG) alert. I heard from some readers that certain options-trading firms would not let them set the trades I recommended. So, to make sure everyone has the same opportunities, I am altering the strategy. I want you to set an order to lock in a triple-digit gain on an unexpected spike. Then, my team and I will manage the downside for you and let you know what to do.
We will do this for all new trades going forward.
If you were able to set the 80% stop-loss on Briggs and Stratton, great. If not, we will manage that and alert you, if necessary, to sell.
Set a 125% Stop-Loss in Toro
About two months ago, we closed half of our March $70 calls in Toro (NYSE: TTC) for a 100% gain.
Now the rest of our position is up 178%. However, I don’t want to exit this trade just yet because we have an abundance of time remaining — out to March — to allow this winter trade to continue playing out.
Toro was one of our first winter trades of the season. The company is a leading maker of snowblowers and lawn-maintenance equipment, and for the past decade, investors have pushed Toro’s share price higher ahead of its two prime operating seasons: winter and spring. Already, we’re seeing that rally, and I think it still has room to climb.
With our March calls, we have plenty of time for our position to hand us substantially larger gains. So, instead of closing this trade, I want us to set a stop-loss at 125%. That will give us a good amount of leeway in a volatile market, and it’ll ensure that we keep another nice, triple-digit gain in the event of a sell-off.
More importantly, it will allow us to continue riding Toro for potentially larger gains over the coming months, while at the same time preserving a large gain in the event of a sell-off. Basically, we’re going to let the trend be our friend, yet protect the downside just in case.
So here’s what I want you to do:
Action to take: Set a Good ‘Til Canceled stop-loss order on the TTC March 2016 $70 call option (TTC160318C00070000) at $6.20, or the price that secures you a 125% gain. At last glance, it was trading at $8.25.
As the option continues climbing, I’ll adjust the stop-loss higher to make sure we keep the bulk of our gains going forward. So keep an eye out for my alerts.
Until next time, good trading…
Editor, Precision Profits