Carefully Collecting More Income from Logitech

The market rallied yesterday as investors celebrated the COVID-19 vaccine launch and rumors of a Brexit deal started circulating. For now, we feel like this momentum is stable enough to take advantage of another bullish trade.

It’s been a long time since we actively discussed Brexit, but for those that don’t remember, the UK is leaving the European Union.

Once it does, a new set of trade deals need to be worked out. If the UK leaves without doing at least some of that work ahead of time, there could be serious damage to the global economy. Any news of a potential deal is, therefore, good for the stability of the market.

Despite the good news, rising infection and death rates in the U.S. will likely lead to another round of semi-lockdowns or travel restrictions after Christmas.

As frustrating as that is for all of us, it should also give investors another chance to capitalize on their favorite “stay-at-home” picks from this past year. In our case, we think we should bet on increased demand for video conferencing and PC audio equipment, which is where Logitech (NASDAQ:LOGI) earns much of its margins these days.

Plenty of Audio Brands

The last time we recommended a trade on Logitech, the market was excited about vaccine news from Pfizer (NYSE:PFE) and nervous about the end of the stay-at-home trend.

The assumption seemed to be that the (eventual) end of the pandemic would diminish the growth prospects for the companies that benefited the most from the pandemic.

That list included Logitech, and its shares dropped as a result. There may be something to that because Logitech did benefit from increased sales according to Reuters:

The maker of keyboards, mice webcams and headsets said it was benefiting from a shift to working from home during the Covid-19 pandemic.

It now expects annual sales to increase between 35% and 40% in constant currencies, up from its previous view for a 10% to 13% increase.

For the year to the end of March it expects non-GAAP operating income of between $700 million and $725 million, up from its previous forecast of $410 to $425 million.

So it is hardly surprising that when the market rises because the U.S. has started to vaccinate people, Logitech pulls back more than the broader market.

But the pandemic isn’t over yet. We were recently on a call using Microsoft’s (NASDAQ:MSFT) new release of its Teams product. It was obvious that there is a business arms race to get the best quality webcams and audio equipment out to staff so they can stand out, look good, and be heard as online collaboration becomes the standard for professionals and online working groups become larger.

Logitech, which owns brands like Jaybird, Ultimate Ears, Blue Microphones and Labtec, manufactures some of the most popular audio devices available, so for the time being, it can still participate in this “arms race.”

Even as the growth boost from the pandemic fades – which isn’t happening anytime soon – the company is hardly more vulnerable than any other stay-at-home stock.

If you are trading this stock, a short-term put write is the ideal way to take advantage. Before you start selling options though, we’ll need to take a look at Logitech’s chart.

Where to Place Your Strike…

From a technical perspective, Logitech has support above at around $85. Ideally, traders would open this position right after a large dip, giving support a chance to be retested and confirmed, but at this point, we think Logitech’s momentum will remain stable and keep the stock at its current level or higher.

Daily Chart of Logitech (LOGI) – Chart Source: TradingView

Logitech is a thinly traded stock, so its important to use a limit order when entering and exiting options trades on it. Traders can split the bid and ask prices to ensure they get the most money possible for the trade they are taking.

When picking a strike price and expiration, remember to take the risks outlined above into account. A lower strike price – something close to Logitech’s current support level – is ideal, and traders should avoid obligating themselves in this position for too long. A shorter-term expiration date is best. We would avoid anything that expires more than a month from now.

On the date of publication, John Jagerson & Wade Hansen did not hold (either directly or indirectly) any positions in the securities mentioned in this article.

John Jagerson & Wade Hansen are just two guys with a passion for helping investors gain confidence — and make bigger profits with options. In just 15 months, John & Wade achieved an amazing feat: 100 straight winners — making money on every single trade. If that sounds like a good strategy, go here to find out how they did it.

 


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