Trade of the Day: Etsy Inc (NASDAQ:ETSY)

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We’ve opened a bullish trade on Etsy (ETSY). ETSY has been on an interesting ride since its initial public offering (IPO). The stock started trading just below $30 and has been falling ever since. However, it seems to have put in a bottom just above $6 by forming a double-bottom bullish reversal pattern. This pattern was confirmed after the company’s last earnings announcement in late February when it did something many companies have failed to do during the past few quarters: it beat revenue estimates.

ETSY has been slowly shifting away from generating the bulk of its revenues from marketplace transactions — the cut the company takes every time someone sells something on its site — to generating the majority of its revenues from seller services — like Direct Checkout (payment processing), Promoted Listings (search advertising), discounted postage and labels (shipping) and its new Pattern (web design) platform.

With the number of active sellers on the ETSY platform growing to 1.56 million and the number of active buyers growing to 24 million, we think the company is going to continue to see revenue growth that should make its way down to strong earnings growth.

We expect the stock  to challenge the $10 price level that served as resistance last December in the run up to, or the aftermath of, its next quarterly earnings announcement on May 3, after the market closes. Here’s our recommendation in ETSY:

Use a limit order to ‘buy to open’ the ETSY June 10 Calls (ETSY160617C00010000) for a maximum price of $0.75.

As you enter this trade, make sure to use a limit order. There is plenty of open interest on the June 10 calls, but the volume is a bit lower, which makes the bid/ask spread a bit wider. Using a limit order can help you narrow the spread.

InvestorPlace advisers 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.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/04/trade-day-etsy-inc-nasdaq-etsy/.

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