Shopping Smarter in Shopify Inc for 500%

Advertisement

SHOP stock - Shopping Smarter in Shopify Inc for 500%

Source: Shopify via Flickr

By some measures Shopify Inc (NYSE:SHOP) continues to look stronger and stronger off and on the price chart. But for investors who appreciate limited gains in the near-term, a moderately bullish butterfly looks like a smart purchase. Let me explain.

Last week’s upside earnings surprise in SHOP stock got the better of some bulls who are too quick to jump on Wall Street’s “sell the news” playbook. Shares finished lower in the immediate aftermath of the company’s Q1 report, but have subsequently swung higher by 20% from last Tuesday’s low. “Doink!”

Bottom line, profits at Shopify are still on hold. Nevertheless, an earnings beat, stronger-than-forecast revenues and a bullish sales outlook are strong supports looking forward for the e-commerce solutions platform. And given investors’ quick change of heart on the price chart, SHOP stock is looking equally supportive for a bullish trend to continue.

SHOP Stock Weekly Price Chart

Source: Charts by TradingView

Since laying out how to shop the drop in Shopify with a limited-risk options strategy, shares have gone on to rally a full 20% over the past four weeks. At the same time, our bull call spread has moved from $4 to $8.80 to produce a profit of $4.80 and return of 120%.

What’s next for SHOP stock? Following the successful corrective reset and shares moving back towards its all-time-highs in a cup-shaped base, the path of least resistance is anticipated to be up, helping SHOP to break out to fresh highs.

 SHOP Stock Moderately Bullish Butterfly

For investors agreeable with our bullish outlook for SHOP stock but who realize burly gains in the short-term should prove more difficult to come by given the rally and with earnings out of the picture, a moderately bullish long call butterfly spread is favored.

Reviewing the SHOP options board, one combination which looks attractive is the July $150/$165/$180 call butterfly for up to $2.50 per spread. The pricing allows for bullish traders to participate and profit from a continued rally if shares finish between $152.50 and $177.50 on an expiration basis. The maximum profit capture is $12.50 if SHOP stock manages to land squarely at $165. The return of 500% would require a move of 15% in shares.

Some may see a rally of 15% by July expiration as overly optimistic. However, if you’re bullish on SHOP, the spread’s low-cost breakeven point just 6% above the current price and dollar-for-dollar profit match all the way up to $165 should make this spread an interesting strategy to consider.

Bottom line, the real risks with this bullishly positioned play are if Shopify fails to rally and hold onto new highs, or moves too strongly and finishes above the butterfly. In either scenario, if shares are below $150 or above $180, the butterfly will shrink to $0 in price and the small debit paid would be forfeited. But if your expectations are similar to this strategist’s, those are risks which don’t appear to be huge compromises.

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.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2018/05/shopify-inc-shop-stock-shopping-smarter/.

©2024 InvestorPlace Media, LLC