If only traders could predict the future — it certainly would be a whole lot easier to make money. But naturally, we can’t, which is why many traders need to count on charts to put the odds in their favor. This options trade idea on Whirlpool (WHR) can profit if we get confirmation from our trusty charts:
Whirlpool (WHR — $139.66): Call Debit Spread
The trade: Buy the WHR Oct 140/145 Bull Call Spread (buying the Oct 140 call and selling the Oct 145 call) for $2.05 or less.
The strategy: The maximum potential profit for this trade is $2.95 ($5 – $2.05) if WHR is trading above $145 at October expiration. The maximum loss is $2.05 (or what was paid for the spread) if WHR is trading below $140 at October expiration. Breakeven is $142.05 at expiration based on a cost of $2.05.
The rationale: Whirlpool is looking to expand its presence in the world. Whirlpool not only sells its own brand, but also sells Maytag, KitchenAid and others. The company currently is taking its products into Latin America, India and China. Whirlpool has a high-end presence in China, but now it is looking to target the middle-income consumer. Besides expanding its presence globally, the company has been partnering with companies like Chesapeake Energy (CHK) and SodaStream (SODA) to hopefully increase revenue in the future.
Click to Enlarge But really, this trade idea boils down to what the chart is telling us.
Whirlpool stock has been drifting lower since the middle of September. Now, WHR has dropped all the way down to a potential support area caused by previous pivot highs that acted as resistance. In addition, the 50-day simple moving average is just below the potential support, which would give Whirlpool stock two possible reversal areas.
The key for this trade idea having a chance to profit is what happens next. A bullish sign for WHR is if it moves past Friday’s high, which was $141.05. If the stock doesn’t move past that point, it might have difficult moving higher at all, especially in this uncertain market.
Whirlpool is expected to announce earnings Oct. 21, which is right after October expiration.
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.