“Retailers and other bottom-feeder groups were Wednesday’s big winners, buoyed by the 15% post-earnings spike by home furnishings chain RH (RH), formerly Restoration Hardware. Macy’s rose 2.5%, Dillards (DDS) 7%” – source IBD
It’s unclear if the retail optimism will continue Thursday, with Lululemon Athletica (LULU) reporting weaker-than-expected earnings and giving weak guidance for the current quarter and fiscal year. Lululemon fell 18% in late trading Wednesday. LULU is off $12.50 (-18.85%) as we go to print this morning.
With these recent gains, several retailers look prime for income trades. Sears Holding is on our radar as a result.
Potential Trades worth considering:
For traders Bullish on Sears Holdings (SHLD)
Generate $610 by trading covered calls. Buy 1000 shares of SHLD 11.50 (+/-) and immediately sell 10 contracts of SHLD 2017 21-APR 12.00 CALL. If assigned, you could make a profit of $1,110. This trade will provide 5.3% worth of downside protection for your position.
- Premium received: $610
- Potential Profit if SHLD is Above Strike: $1,110
- Downside Protection: (5.3%)
For traders Neutral on Sears Holdings (SHLD)
Generate $770 by trading covered calls.Buy 1000 shares of SHLD 11.50 (+/-) and immediately sell 10 contracts of SHLD 2017 21-APR 11.50 CALL. If assigned, you could make a profit of $770. This trade will provide 6.7% worth of downside protection for your position.
- Premium received: $770
- Potential Profit if SHLD is Above Strike: $770
- Downside Protection: Your break-even (6.7%)
Look for more income opportunities in the retail industry group, as beaten down sectors turn higher.
Happy Thursday,
Vinny
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