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Options Plays for the Second Quarter

Speculate on Q2 macro economic developments with options


There are plenty of opportunities in many different sectors as we move into the second quarter. I like to use various strategies to play broader economic developments when looking at options that stretch out three months or longer.

One area of concern I’ve been having lately is consumer spending. Rich folks have been spending money, and we saw that trend throughout 2011 and even stretching back a bit into 2010. Recent earnings reports, however, have revealed some bumps in the road. Tiffany and Co. (NYSE:TIF), for example, reported earnings that were okay but not great.

Beyond the question of upscale expenditures, however, is the simple fact that upscale retail stocks are vastly overpriced. DSW (NYSE:DSW) insiders sold off $100 million worth of stock earlier this month. I think this sector is overpriced, and all the good news is baked in.

If you hold the stocks and want to hedge, or if you want to bet on a downturn into the next quarter, I’d buy June puts that are just out-of-the-money on Tiffany, Michael Kors (NASDAQ:KORS), Coach (NYSE:COH), Phillip Van Heusen (NYSE:PVH),  and Ralph Lauren (NYSE:RL).

The constitutionality of the Obamacare mandate is being argued at the Supreme Court this week. It all depends on how you see things playing out in the judge’s chambers to place your bets here. My own opinion, which I make with absolutely no formal education or training in the law or health care, is that Congress can’t force people to buy something.

If you think that’s how the SCOTUS will rule, then you want to buy the July puts like crazy on health insurance companies. These include Wellpoint (NYSE:WLP)  UnitedHealth Group (NYSE:UNH), Aetna (NYSE:AET) and  Humana (NYSE:HUM). You can also buy puts on the entire sector via the iShares Dow Jones U.S. Health Care Provider ETF (NYSE:IHF). If you think the mandate will survive, you can buy calls.

There are three stocks that I believe will continue their amazing growth in the second quarter, and I suggest buying the June calls on any of them. First Cash Financial Services (NASDAQ:FCFS) is on fire with its highly profitable, rapidly expanding pawnship business in Mexico. The same goes for competitors EZCorp (NASDAQ:EZPW) and Cash America (NYSE:CSH). All of these stocks are undervalued, and I expect at least one of them to surprise to the upside.

As of this writing, Lawrence Meyers holds shares in FCFS and EZPW. He is president of PDL Capital, Inc., which brokers secure high-yield investments to the general public and private equity. You can read his stock market commentary at He also has written two books and blogs about public policy, journalistic integrity, popular culture and world affairs.


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