We are considering an income trade on this stock, as the move on recent news dissipates.
Add Sprouts to your shopping list
Shares of organic supermarket chain Sprouts Farmers Market have risen over 30% over speculation that it is an acquisition target. Albertsons may be in the running to purchase SFM. A Bloomberg report stated Albertsons held talks with Sprouts, prior to the move, regarding a potential merger. Analysts suggested the acquisition premium could be as high as $26 per share. With Sprouts closing Thursday at $22.79 per share, that could still mean a healthy premium if an agreement actually materializes.
In the meantime, we want to sell covered calls.
My thoughts are that the stock will stay below 24.00 by expiration, April 21, as we see Bollinger bands start to change direction. MACD histogram suggests the bullish momentum is slowing. Major support (VBP) and 200ma at 21.00 (+/-).
Are you bullish?
You could generate $450 by taking this position. You could sell 10 contracts of SFM 2017 21-APR 25.00 CALL. If the stock were to rise before expiration you could make a profit of $2,660. This trade will also get you 2.0% worth of downside protection for your stock.
- Premium received: $450
- Total gain if Stock is Above Strike: $2,660
- Downside Protection: 2.0% (This is your breakeven)
Are you neutral?
You could generate $1,250 by taking this position. You could sell 10 contracts of SFM 2017 21-APR 22.50 CALL. If assigned, you could make a profit of $960. This trade will also get you 5.5% worth of downside protection for your stock.
- Premium received::$1,250
- Total gain if Stock is Above Strike: $960
- Downside Protection: 5.5% (This is your breakeven)
Are you conservative?
You could generate $2,950 by taking this position. You could sell 10 contracts of SFM 2017 21-APR 20.00 CALL. If assigned, you could make a profit of $160. This trade will also get you 12.9% worth of downside protection for your stock.
- Premium received:$2,950
- Total gain if Stock is Above Strike: $160
- Downside Protection: 12.9%
Considering the above analysis, I am considering the 22.50 covered call. If for some reason the stock begins to rise, we could roll up to the 25.00 call in the next couple of weeks, thereby accumulating the gain in the underlying stock. We will experience some theta decay over the weekend.
Happy Trading – Vinny
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