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Credit Spread – Ralph Lauren (RL)

We're banking on RL being above $165 at April expiration


Just a few days ago this market looked unstoppable. Granted, it had not been moving higher in the manner we saw earlier in the year, but it was still clawing its way higher. Here is a trade idea on a stock that had been climbing higher in the past and now looks like it might want to do it again in style.

Ralph Lauren Corp. (NYSE:RL): Put Credit Spread

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The trade:
 Sell the April 160/165 Put Credit Spread (selling the April 165 put and buying the April 160 put) for 0.60 or better.

The strategy: The maximum potential profit for this trade is $0.60 if RL is trading above $165 at April expiration. The maximum loss is $4.35 ($5 – 60 cents) if RL is trading below $160 at April expiration. Breakeven is $164.40 at expiration based on a 60-cent credit.

The rationale: Most people are familiar with Ralph Lauren whether it is his apparel, cologne or accessories. Whether you can afford his products is another story. But sales have been good based upon an upbeat earnings report in February. But this trade idea which has an expiration of just over two weeks is really based on the charts.

After earnings were reported in early February, the stock gapped dramatically higher and has drifted lower ever since. In the middle of March the stock bounced off $166 and has tested that area several more times, unable to move below it. The key for the success of this trade idea and the put options expiring worthless is the $170 area. Just has been the case of the stock unable to get below $166, the stock has not been able to break and hold the $170 are either. Traders should proceed with caution if RL closes below $166. With just over two weeks to go until expiration, Ralph Lauren might just make you look and feel good…especially in your portfolio!

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