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ROST Puts are a Keeper

Besides the fiscal cliff, there's a tug-of-war between austerity and corporate interests that's dragging down retail


Well, last week started pretty well–flat on the first day, up on the second and third day…but then it just collapsed on Thursday and Friday. Very unusual in December to see that sort of activity. Normally December is one of the best months of the year. Something is definitely strange.

I think the real problem here is that the fiscal cliff is not the only problem in the air. The reason there’s a fiscal cliff is that there’s a real disagreement in Washington and on Wall Street as to the amount of austerity that’s right for our country. This country was founded on Puritanism, so austerity isn’t a distant concept for us. There’s a sense that if we want to fix the budget crisis, we have to stop spending as much and raise more money. But the fact of the matter is that corporate earnings depend on people buying things. So there’s this real tug of war between wanting the country to alleviate its deficit and corporate interests encouraging people to go out and splurge and max out their credit cards and be patriotic Americans by hitting the malls.

Well, that tug of war ended in a tie this week with stocks being down, and we were able to take advantage of the decline by adding puts on Ross Stores (NASDAQ:ROST). It’s a very successful and very good discount apparel retailer, but people are just not hitting stores of any kind anymore. We see that Tiffany (NYSE:TIF) stock traffic is down, Nordstrom (NYSE:JWN) is down, American Eagle Outfitters (NYSE:AEO) is down, Urban Outfitters (NASDAQ:URBN) is down, and ROST—which tends to be the best of the bunch—is also down.

Recommendation: So if you own those ROST Jan. $57.50 puts I mentioned last week—keep on holding for a $5.30 target.

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