Options Trades for Back-to-School Shopping Season

Top Option Trading Picks from Our Pros

Source: iStock

#1 – Broadcom Corp. (BRCM)

Today’s students need more than just pencils and books to meet the challenges of tomorrow. Students now require computers, cell phones and lots of other electronic gadgets in order to stay on top of their schoolwork. And many of those items will contain Broadcom Corporation’s (NASDAQ: BRCM) system-on-a-chip (SOC) solutions for broadband access products and mobile devices.

With an anticipated revenue increase of 47% in 2010 and 12% in 2011, and margins in the 52% area, this tech favorite should shine. Technically the stock has retreated to around $33 from a high of $38 where it finds support at the 200-day moving average. Our target by year-end is $40. S&P has a “four-star buy” rating with 12-month target of $42 for the stock.

Buy the BRCM Jan 33 Call for $1.70 or less.

#2 – Abercrombie & Fitch (ANF)

Abercrombie & Fitch Company’s (NYSE: ANF) bread and butter is teens, teens who value brand names and overpriced clothing. For some lucky (or spoiled, depending on how you want to look at it) kids, mom and dad will fork over the dough for these trendy threads. But most families are spending money on core items, not expensive jeans and T-shirts. And for those teenagers who work for those extras they want, summer jobs were not so easy to come by.

July same-store sales were robust, but only because the previous July was so terrible. Back-to-school sales should disappoint. Holiday shopping too.

Look at early 2011 ANF puts.

#3 – TJX Companies (TJX)

The TJX Companies, Inc. (NYSE: TJX) is the parent of apparel and home fashion discount retailers T.J.Maxx and Marshalls, the destination of many students looking for name brands at bargain prices.

The company is due to report Q2 earnings on Tuesday, Aug. 17. TJX hasn’t missed an earnings estimate in more than two years. What’s more, the stock has performed well after recent reports. The shares are currently riding their ascending 200-day moving average, a trendline that has served as crucial support for the past month. Look for the stock to use that support after earnings. Also helping is pessimistic sentiment among analysts and options traders, which represents pent-up buying pressure.

Buy TJX September calls.

#4 – McDonald’s Corp. (MCD)

McDonald’s Corporation (NYSE: MCD), the most famous of all fast food chains, operates restaurants in more than 100 countries worldwide. Students love the cheap food and quick service that McDonald’s provides.

S&P estimates that earnings will increase to $4.30 in 2010, up from $2.09. The stock just completed a reverse head-and-shoulders breakout with a target of $78.

Buy the MCD Jan 72.50 Call for $3.50 or less.

#5 – Apollo Group (APOL)

Being the biggest name in the for-profit education and training sector may not be the most enviable spot at the moment. Apollo Group, Inc. (NASDAQ: APOL), the parent of online mainstay University of Phoenix, is under heavy scrutiny (along with most for-profit universities) from the Government Accountability Office for irregularities regarding student aid. Without the aid pipeline feeding students of these schools, enrollments will decline.

APOL’s stock price is already suffering under the cloud of uncertainty regarding the outcome of this investigation. The shares are sitting at a two-year low with little in the way of chart support. Yet more than half the covering analysts rate the stock a “buy,” while short interest is low. With too much optimism surrounding this weak stock, look for more downside.

Buy APOL September puts.

#6 – Stanley Black & Decker (SWK)

Students will be using the many Stanley Black & Decker, Inc. (NYSE: SWK) products this fall. From hand and power tools in workshop classes to storage facilities and electronic security devices and locks, the brand will be familiar to them.

In March 2010, the Stanley Company announced that it has completed its merger with the Black & Decker Corporation. In July 2010, Stanley Black & Decker, Inc., announced that it has acquired CRC-Evans International, a global supplier of specialized tools, equipment and services for the construction of oil and natural gas transmission pipelines.

Earnings have increased from $2.68 to $3.69 over the past five quarters, and analysts’ forecasts have been raised. Ford Equity Research has a “buy” on SWK. The stock pulled back recently from a high of over $65 to under $56, but is still above its 200-day moving average and in an uptrend.

Buy SWK Jan 57 Calls at $4 or less.

#7 – Bed Bath and Beyond (BBBY)

Bed Bath & Beyond Inc. (NASDAQ: BBBY) is a great chain, but it’s in the wrong place at the wrong time. This chain has been the darling of the Street since its main competitor went out of business, but the stock (and others like it) is going to take a hit as we double dip. They sell a lot of necessary items, but that toaster my son absolutely had to have for college only cost $10.

Look at BBBY puts a few months out.

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