Trade of the Day: Avon (AVP)

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Today, we’re recommending a bearish trade on Avon Products, Inc. (AVP). Avon spiked Thursday on rumors that the company was an acquisition target by a private equity firm. The rally has faded since then, and we think this is an interesting opportunity to jump in when the stock is likely to fall further.

AVP has had its share of issues over the past few years. CEO turnover and a massive $135 million settlement with regulators for bribing Chinese officials have contributed to its problems, but, like many multi-level marketing (MLM) firms, international expansion is becoming a problem in the face of a stronger dollar. Avon has very concentrated exposure to Brazil, Mexico, Russia and Eastern Europe — all of which have been hit particularly hard by currencies that are devaluing in the face of a stronger dollar and a weak oil market. We think this is going to erase the gains from Thursday and drive prices through support before earnings next month.

This is a relatively risky position, but the upside is attractive. If the takeover rumors are reality (this isn’t the first time AVP rumors turned into a bust), then the stock may jump. However, we think it is more likely that there won’t be a deal (which we think is more likely), and then traders will still want to get out of the following Avon trade before the earnings report on Feb. 12.

Buy to open the AVP March 8 Puts (AVP150320P00008000) for a maximum price of $1.10.

InvestorPlace advisors John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next trade and get 1 free month today by clicking here.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/01/trade-day-avon-avp/.

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