Trading can be very stressful at times, so it’s often recommended that traders work out and try to eat healthy to relieve some of that stress. Of course, this trade idea might just make you cheat on your diet … but it’ll probably pad your portfolio, too:
Krispy Kreme Doughnuts (KKD — $19.01): Long Calls
The trade: Buy the Aug 19 calls for $1.10 or less.
The strategy: The long call is probably the most basic strategy in options. Generally it is used for a bullish outlook on the underlying. For this trade to profit, Krispy Kreme’s stock needs to move higher and the call premium needs to increase to an amount more than was paid. Maximum profit is theoretically unlimited because KKD can continue to rise, and the maximum loss is $1.10 or whatever was paid for the option if KKD finishes below $19 at August expiration. Breakeven is $20.10 at expiration based on a cost of $1.10.
The rationale: It’s probably safe to say that either you’ve had a Krispy Kreme doughnut, or you’ve heard of them. In some parts of the world, they’re still all the rage. In fact, KKD is opening its 100th Mexican location in Cancun this weekend, and its 500th international store opened last December.
At the end of May, the company posted better-than-expected first-quarter numbers, beating on earnings and revenue. Krispy Kreme has had 18 consecutive increases in same-store sales at company-owned stores, so it looks like there is still room to grow.
Click to Enlarge Looking at the chart, KKD just recently broke out from a bullish base in which it rallied from a pivot area just above $16. On Tuesday, the stock was able to blast though a resistance level (previous highs and closes) right around $18.
KKD might pull back and retest prior resistance — which is now support — before trying to move higher. If it does move higher, there is no immediate resistance to slow it down.
I can smell those warm doughnuts now!
As of this writing, John Kmiecik did not hold a position in any of the aforementioned securities.