As one of the market’s more hotly contested stocks, it’s okay to pay some mind to the bears in Shopify Inc (NYSE:SHOP). But if you’re also optimistic the company’s secular trends can continue, shopping smartly for a drop while staying positioned for a pop in Shopify stock sounds like a winning options strategy to us. Let me explain.
Bottom line, in today’s market and maybe stealing a page from Amazon.com, Inc. (NASDAQ:AMZN) and its infamous playbook of racking up massive sales before seeing eventual profits, Shopify’s future looks bright. Let today’s bears worry about the lack of green ink on the income statement and the red in their trading accounts by shorting SHOP stock way too soon.
The other bottom line is that the e-commerce platform continues to grow its brand to become an ever-more dominant player in the way we buy things from customers like Amazon, Facebook Inc (NASDAQ:FB) and eBay Inc (NASDAQ:EBAY).
So, if you’re like me and enjoy the narrative off the price chart, you’ll fully appreciate any opportunities to shop for a drop, but also want to stay positioned long Shopify stock and its very friendly looking price trend.
Shopify Stock Weekly Price Chart
Looking at the technical weekly picture of Shopify stock and this is one of those situations where I’m more concerned about extraneous or market risk impacting shares near-term, than an otherwise very bullish-looking SHOP price chart.
Despite a standout 2017 and SHOP off to a rousing good start in 2018, shares have established a couple seriously healthy and constructive weekly bases along the way that’s generally good for weeding out any excessive behavior and clearing the way for higher prices.
Bottom line, corrections like the one in Shopify stock are an eternal lesson in the marketplace. Look at bitcoin and other cryptocurrencies earlier this year as a hard-hitting illustration of this concept—and to a lesser extent, the recent pullback activity in the broader U.S market.
Again, I’m not fully convinced U.S. equities are finished correcting. But if another wave of selling pressure does overtake the market and SHOP goes along for the ride south, I see that as an opportunity to shop on the drop in Shopify stock.
Shopify Stock Bullish Modified Fence Strategy
Given a willingness to buy SHOP shares if a correction was to occur, but not wanting to be left out of a rally should a solid-looking chart trump potential bearish price action, a modified bullish fence is a viable strategy in lieu of buying shares right now.
The chief benefits of owning a modified fence is the net position limits and reduces risk by purchasing a bullish call spread while selling a put spread to finance some portion of the call vertical. The primary objective would be for Shopify stock to rally enough to put the call spread entirely in-the-money.
Secondarily, with downside risk limited and generally not an issue until shares move aggressively lower; this trader can buy Shopify stock on weakness with full control and possibly at an even larger and substantial discount to the put vertical if SHOP took a strong enough hit below the spread.
Reviewing Shopify’s options and shares at $139.28, selling the April $125/$115 put spread and simultaneously purchasing the April $145/$150 call vertical for even money is a favored combination. This particular combination allows the trader to position through April expiration with the potential to capture $5.00 in profit above $150.
Between the two inside strikes from $125 to $145 the position is a push with the trader seeing no gains or losses at expiration as both spreads expire worthless. Below $125 the position opens itself up to a bit more than 8% of Shopify stock risk, but it is limited and first shares must drop 10% before any intrinsic losses occur. Net, net this modified fence looks like a smart way to shop for a potential drop in Shopify stock while also shopping for an anticipated pop in shares.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
