Just because you don’t notice someone or something doesn’t mean it’s not there. This trade idea is partially based on that principle. When a fad is hot, you notice many people participating. But as we know, fads don’t last forever. Still, a company that reinvents itself and offers consumers more will stand a better chance of succeeding in the long run.
Deckers Outdoor (NASDAQ:DECK — $38.76) Long Calls
The trade: Buy the February 40 calls for $1.90 or less.
The strategy: Buying a call option is generally used for a bullish outlook on a stock. The trade can profit if the stock rises and the call premium increases to an amount more than was paid. Maximum profit is theoretically unlimited because DECK can continue to rise, and the maximum loss is $1.90, or whatever was paid, if DECK finishes below $40 at February expiration. Breakeven is $41.90 based on a cost of $1.90 at expiration.
The rationale: The majority of Decker’s sales come from the UGG boot. If you have looked around lately, you’ve probably noticed that not as many people are wearing them as they were just a few years back.
But if you look closer at the company, you’ll see it’s starting to enter new international markets and expanding in others like China and Japan. Decker also has new product lines and plans to increase its store count by five times into 2015.
Technically, the stock had been trailing lower for most of December until late last week, when volume and shares shot higher. Last Friday, the stock was able to maintain the top one-third of the previous day’s move, which is a bullish sign. It then continued to trade higher this week until some possible profit-taking moved the stock lower.
DECK now should be able to hold the $38 price area where it has some support. And it has room to run all the way up to $42, which is the next resistance area for the stock.
As of this writing, John Kmiecik didn’t own any securities mentioned here.