When you think of e-commerce and the internet, there’s a couple mega-cap stocks that dominate the headlines and investors’ attention. But investors are always on the lookout for the next, next big thing. With that said, mid-cap newcomers Stitch Fix (NASDAQ:SFIX) and Etsy (NASDAQ:ETSY) coupled with a pair of well-designed spreads on SFIX stock and ETSY stock may be worth your commitment today.
Let me explain.
Sometimes it seems that without Amazon (NASDAQ:AMZN), Facebook (NASDAQ:FB), Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) or maybe eBay (NASDAQ:EBAY), we could leave the internet at the doorstep. But the reality is up-and-comers like SFIX and ETSY are making their impact felt on businesses and individuals and building their own important niches in today’s e-commerce market.
Let’s take a look at both of these recent public offerings off and on the price chart and offer a limited and reduced risk strategy for SFIX and ETSY that’s aligned with my outlook.
E-commerce Buy No. 1: SFIX Stock
It has been a couple months since Stitch Fix, an online personal styling service, blew past Street views. And the price action in SFIX stock has been more fashionable than ever. Following an initial bullish thrust deep within a six-month base, shares of SFIX have continued to find investor support as a series of higher highs and lows and fresh all-time-highs has developed.
Currently SFIX stock is nearing its July high in a cup-like pattern. The base is a bit short based on the time spent building the cup, but a breakout to fresh highs looks like a foregone conclusion.
SFIX Stock Options Strategy
I like approaching SFIX stock with a slightly out-of-the-money bull call spread. One favored combination is the Nov $37 / $40 call vertical. With shares of SFIX at $33.75, the spread is priced for $1.
A vertical like this on SFIX reduces and defines the trader’s risk. It also doesn’t open up the trader to additional downside exposure beyond the 3% paid to enter the position. If SFIX stock begins to hit new highs, above $40, a profit of $2 or 200% can be captured. And with earnings in early October, the added time allowance looks made to order for Stitch Fix bulls.
E-commerce Buy No. 2: ETSY Stock
ETSY operates a commerce platform for businesses and individuals to make, sell and buy goods on and offline. And apparently it has been a good market to be in. Last week, the company issued upside guidance and increased its expectations for gross merchandise sales.
Investors took the information and tried to run with it, but quickly failed. Following the quarterly release, ETSY stock turned tail from an out-the-gate price spike of around 17% and new highs to a much less enthusiastic and bearish-looking gain of 3.7%.
But rather than go down, shares held a test of the earnings gap and are narrowly back above June’s former all-time-highs.
ETSY Stock Options Strategy
Regarding a strategy in ETSY stock, the Sept $45 / $50 / $55 call butterfly looks attractive. With shares at $46.14 and priced for $1.40, this spread is nearly paid for intrinsically at expiration. And if ETSY stock is able to rally to $50, a windfall $3.60 in profit can be captured.
The downside for this lower-cost spread is the trader has a profitable zone above the market, but outside of the butterfly’s wings, a loss of the debit at expiration would be incurred.
However, with this spread falling outside an earnings cycle and some sort of profit in-between $46 to $54, a butterfly is undoubtedly looking like a smart alternative to going long ETSY stock.
Disclosure: 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.
