Trade of the Day: RadioShack (RSH)

We're expecting RSH to drop, possibly as low as $2.50

   

RadioShack (NYSE:RSH), thanks to its growing irrelevance in the retail landscape, has been a dog for years. In fact, it’s recently made the ZeroHedge Most Hated Stocks of Q1 list based on the percentage of short interest in its float.

It has lost nearly 80% of its value during the past two years and has been one of our favorite bearish candidates for quite some time. During the past month, however, RSH has seen its stock price jump up from lows around $2 to its current trading position just below resistance at $3.50.

Resistance established itself at $3.50 when the stock gapped down from this point in late-July when RSH thoroughly disappointed everyone with a terrible earnings release, and we anticipate this level is going to hold again as RSH prepares to release its quarterly earnings numbers on Tuesday, Feb. 26, before the market opens. We are anticipating a drop in the stock price below $3 — potentially even moving as low as support at $2.50.

RSH has hired a new CEO, Joseph Magnacca — who oversaw marketing and merchandising for Walgreen’s and the Duane Reade retail chain before that — but managing retail food and pharmacy chains that sell products everybody wants is much different than managing a retail electronics store that sells virtually nothing anybody wants. The stock shot higher in late-January when Deutsche Bank made positive comments about the company’s plans to expand into emerging Asian markets, but we expect the bloom to come off that rose next week.

Recommendation: Buy to open the RSH Mar 3.50 puts

John Jagerson and S. Wade Hansen 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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