This is the last week of August, so it’s time to start gearing up for the upcoming fall season. Summer has been typically slow for traders, but there still are profits to be made.
Here is a trade idea that can be implemented toward the end of summer and potentially profit at the beginning of fall.
Raytheon (RTN — $77.65): Call Debit Spread
The trade: Buy the Sep 77.5/80 Bull Call Spread (buying the Sep 77.5 call and selling the Sep 80 call) for $1 or less.
The strategy: The maximum potential profit for this trade is $1.50 ($2.50 – $1) if RTN is trading above $80 at September expiration. The maximum loss is $1 (or what was paid for the spread) if RTN is trading below $77.50 at September expiration. Breakeven is $78.50 at expiration based on a cost of $1.
The rationale: Raytheon designs and manufactures products and services for government and commercial customers worldwide. In other words, it’s basically a defense contractor. The industry as a whole has been moving higher for quite some time now, and Raytheon is no exception. The company has made payouts to its investors since 1954, and its current dividend yields 2.8%. RTN announced earnings last month, and it raised its full-year forecast despite looming Pentagon budget cuts.
Click to Enlarge If we dig deeper and look at the chart, the stock has been in an uptrend since fall of 2011. It hasn’t been a perfect uptrend — meaning it hasn’t always been setting higher pivot highs and lows — but it still has performed in a bullish manner.
For most of August, Raytheon stock has been basing around $76 and trying to move past some resistance from prior pivot highs just over $77. On Friday, it surged and closed above that level on increasing volume from the previous session. It is now trading at its all-time high and has nothing but blue skies above it, but all we need for the stock to do is finish above $80 by expiration for maximum profit.
They say your best offense is a good defense … so let’s hope so.
As of this writing, John Kmiecik did not hold a position in any of the aforementioned securities. Get a free trial of John’s live options trading room here.