Clean Up With Whirlpool Spreads

Often times, a trader will look at one sector that is doing really well or performing poorly and try to figure out how that might influence a particular company that’s not directly associated with it. This trade idea has the same thought behind it — we want to capitalize on the improving housing market through an indirect route:

Whirlpool (WHR — $132.77): Put Credit Spread

The trade: Sell the Sep 115/120 Put Credit Spread (selling the Sep 120 put and buying the Sep 115 put) for 50 cents or better.

The strategy: The maximum potential profit for this trade is 50 cents if WHR is trading above $120 at September expiration. The maximum loss is $4.50 ($5 – $0.50) if WHR is trading below $115 at September expiration. Breakeven is $119.50 at expiration based on a credit of 50 cents.

The rationale: Whirlpool is one of those companies that is indirectly enjoying the benefits of the resurgence in the U.S. housing market. Last month, WHR reported better-than-expected second-quarter earnings of $2.37 per share from $1.55 in the year-ago period. Whirlpool also said it expects shipments of appliances in North America will continue to increase above earlier predictions.

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This current choppy market has influenced this trade idea. WHR currently is in an uptrend and broke through a previous resistance level around $130 late last month. With the market pulling back, the stock has come back to its old resistance, which is now support.

A bullish directional play is another option for Whirlpool stock, but the unknown market has made a credit spread a potentially better choice, since it doesn’t require the stock to move higher for the trade to profit.

Besides support at $130, WHR also has the 50-simple moving average just below $125 and another pivot level at $120 that can act as support.

This might be the cleanest trade idea ever!

As of this writing, John Kmiecik did not hold a position in any of the aforementioned securities. Get a free trial of John’s live options trading room here.

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