This morning, I’m recommending a bullish trade on the Whirlpool Corporation (NYSE:WHR), the home appliances company.
Last Friday, I recommended a bullish trade on a real estate stock. We’re entering the fourth quarter, and that means it’s time for fund managers to start selling off their losing investments and start buying more of the stocks that have acted as winners.
Real estate stocks have been one of a few winning sectors, which is why I recommended the call option on Duke Realty Corporation (NYSE:DRE) last week. But homebuilder stocks are a related area seeing some bullishness, and WHR stands to benefit.
New Home Sales up in August
Last Wendesday, the U.S. Census Bureau and the U.S. Department of Housing and Urban Development released a report on new residential sales for the month of August, and it showed that new home sales were up by 7.1%.
Lower mortgage rates may have contributed to increased sales, as August housing starts, or the number of new residential projects begun in a month, and building permits were at 12-year highs. Home resales rose to their highest level in 17-months.
All these new homes are going to need appliances — washers, dryers, ovens, refrigerators — and WHR owns Maytag and Whirlpool, two of the most recognizable brands around. The company also owns the popular small-appliance brand KitchenAid, which may see more sales during the holiday season.
Breaking Above Moving Averages
If you look at the daily chart of WHR, you can see that since finding a bottom in June, the stock had been rising. But in August, the stock dropped, and it traded between its 50- and 200-day moving averages (MA) for most of the month.
Daily Chart of Whirlpool Corporation (WHR) — Chart Source: TradingView
Once August ended, WHR started to rise again. It broke above its 50-day MA. The stock encountered some resistance at the $150 level, and it consolidated in a “wedge” pattern before gapping above resistance last week.
It’s possible that the new home sales data renewed optimism around WHR, but it may encounter some resistance now that it is breaking higher. Rather than recommend a bullish trade that bets on higher prices, I want to recommend a trade that bets on WHR staying above its mid-August support level around $130.
Using a spread order, sell to open the WHR Oct. 25th $130 put and buy to open the WHR Oct. 25th $100 put for a net credit of about $0.60.
Note: There are several October expirations available for WHR options. Be sure you are opening the weekly options that expire on Friday, Oct. 25, 2019.
About Put Credit Spreads
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.
This is a bullish trade in which you want the underlying share price to stay above the upper strike price of the spread. In this case, we want WHR to stay above $130 through the Oct. 25 expiration.
To receive further updates on this trade, as well as an alert when it’s time to take profits, sign up for a risk-free trial of Maximum Options today.