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Today I am recommending a bullish trade on apparel maker V.F Corporation (NYSE:VFC).
VFC beat Wall Street expectations for the second quarter as demand for its Vans and North Face brands offset losses in other businesses like Timberland or Wrangler. Nonetheless, the stock tumbled after the numbers were released.
From a technical perspective, the stock took a 10% hit on Friday and dropped sharply toward the $77 level. Considering that the company beat estimates, I think the reaction was overdone.
Not only are the last two months of the year typically bullish for the market in general, but strong consumer confidence readings are likely to be reflected in retail sales this holiday season as well.
While the headline retail sales number crossed the tape showing only a 0.1% increase in September, when you exclude automobiles, gasoline, building materials and food services from the calculation, retails sales actually grew at a healthy pace of 0.5%.
And with the holiday shopping season approaching, I’m expecting sales of the products that VFC owns — brands like Vans and North Face — to start spiking, and that’s why I’m opening a put credit spread.
Looking at the longer-term chart below, you can see that VFC has a lot of support at this level, and shares should easily stay above $70 between now and expiration.
Using a spread order, sell to open the VFC Nov. 16th $70 put and buy to open the VFC Nov. 16th $60 put for a net credit of about $0.30.
A put credit spread is a bullish position that involves writing (selling to open) an option and simultaneously purchasing (buying to open) an option at a different strike price in the same underlying security. The position, or leg, of the spread trade that you sell gives you a cash credit to your trading account. The option you buy limits your risk and lowers your margin requirement for the trade.
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Ken Trester is editor of the popular Maximum Options program. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.