There is still a debate whether the economy is really improving. Some retailers are still struggling and some are thriving regardless of how affluent their products may be. Here is another trade idea on a company that can possibly make you and your portfolio look and feel better.
Ralph Lauren (NYSE:RL) Put Credit Spread
The trade: Open the April 160/165 Put Credit Spread (sell to open the RL April 165 put and buy to open the RL April 160 put) for a net credit of 90 cents or more.
The strategy: The maximum potential profit for this trade is 90 cents if RL is trading above $165 at April expiration. The maximum loss is $4.10 (the $5 difference between the strike prices – 90 cents) if RL is trading below $160 at April expiration. Breakeven is $164.10 at expiration based on a 90-cent credit.
The rationale: Ralph Lauren released earnings early in February. The clothing, accessories and perfume company reported a 35% jump in earnings and total revenue rose 2.2%. Even though the price of cotton has increased, the company was able to cut costs in other areas like focusing on the profitable areas and eliminating others. Overall the company has done quite well in demanding economic times.
Taking a look at RL’s chart, the stock gapped up huge on its earnings announcement and has been drifting lower until this week. The stock pivoted just below $169 and has traded higher this week. That pivot area could be a valuable area of support if the stock does threaten to move lower once again as pivot areas will often act as areas of support or resistance.
Click to enlarge the chart.
There is another area of support (several previous highs) that is just below $166 and just above $165 where we need the stock to stay above in order for the puts to expire worthless. Just because you may not like Ralph Lauren as a designer doesn’t mean you shouldn’t consider this bull put spread as a profitable accessory to your portfolio.
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