Trade of the Day: Credit Suisse Group AG (ADR) (NYSE:CS)

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Credit Suisse Group AG (ADR) (CS) has been in rough shape for a while. The European banking sector as a whole has been struggling for quite some time due to low economic growth rates in the eurozone — even with the additional steps the European Central Bank (ECB) has taken to try and stimulate growth — and Credit Suisse is making additional mistakes. For instance, the bank recently reported it had suffered $1 billion in trading losses due to traders taking positions without their superiors knowing about them.

Before we dive into the particulars of our CS trade, we need to talk about the unique strike price we are dealing with on this trade, because it’s not every day you see a strike price of $14.54.

IMPORTANT NOTE: The strike prices for the June options were changed back on Dec. 10, 2015 due to a corporate action taken by CS. On Dec. 2, 2015, the company announced a distribution of rights to holders of Credit Suisse Group AG ordinary shares. However, since CS trades as an American Depository Share (ADS) on U.S. exchanges, those rights were not distributed to U.S. shareholders. Instead, those rights were sold, and the proceeds from the sale were distributed to U.S. shareholders as a special distribution (amounting to $0.4561 per share) to those who owned CS as of the record date of Dec. 14, 2015.

The strike prices were then adjusted to reflect this $0.4561 distribution. This means the $15 strike became the $14.54 strike ($15 – $0.4561 = $14.54). (NOTE: This change only applied to strike prices that were available to be traded last December. That’s why the $13 strike price is still $13, for instance. It wasn’t available to be traded last December. It was only after the adjustment had been made that the $13 strike started trading.)

Here is a link to the official statement from the Options Clearing Corporation (OCC).

‘Buy to open’ the CS June 14.54 Puts (CS160617P00014540) for a maximum price of $1.30.

CS has been stuck in a consolidation range between $13 and $16 since the company’s last earnings announcement in February, and we believe the company’s upcoming earnings announcement on May 10 is going to apply more downside pressure to the stock.

We are looking for the stock to drop back down to the up-trending support level that marks the bottom of the current consolidation range, which should take the stock below $14. In SlingShot Trader, we took a bearish trade on CS in late March that worked well for us (a 140%+ gain), and we anticipate this one will as well.

You can learn more about identifying price patterns and using them to project how far you think a stock is going to move in our Advanced Technical Analysis Program.

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. Get in on the next SlingShot Trader trade and get 1 free month today by clicking here.


Article printed from InvestorPlace Media, https://investorplace.com/2016/05/trade-day-credit-suisse-group-ag-adr-nysecs/.

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