Express Inc.: Midweek Contrarian on EXPR Options

Today is contrarian Wednesday and I am ready to provide you with an interesting options trade that goes against my natural bullish bias. However, I will give an update on an earlier contrarian trade before I intimate you with this new trade.

Update on YHOO Contrarian Trade

About 5 weeks ago, I recommended a contrarian trade on options of Yahoo, Inc. in a post titled “Why you should Go Contrarian on YHOO options.” In that post, I recommended the YHOO Mar 2015 32.000 put (YHOO150320P00032000) at an asking price of $0.85. When I wrote that piece, shares of Yahoo were trading up around $41.80 per share. However, as at 12:43PM EDT today, Yahoo is down 1.87% to $37.26 and the put contract I recommended is up 68.23% to a new asking price of $1.43 per contract.

If you had bought into that trade on my recommendation, I am sure that every glance at your portfolio will be making you happy. Interestingly, we don’t need to rush out of the trade prematurely and run the risk of cutting our profits short. Hence, I recommend adjusting the trade with a new stop loss at $1.35 to lock in profits of 58.82% while we open ourselves up to further upside potential on the contract.

Today’s Contrarian Trade

Today’s contrarian trade comes from Express, Inc. (NYSE:EXPR), a fashion retailer with a market capitalization of $1.18B. Express, Inc., together with its subsidiaries (Express), is a specialty apparel and accessories retailer of women’s and men’s merchandise, targeting the 20 to 30 year old customer. Express merchandise is sold through retail and factory outlet stores and the Company’s Website, www.express.com.

Why We Are Going Contrarian on EXPR

EXPR Options

The chart above shows how the shares of Express, Inc. have traded within the last one year. You will observe that the stock has channeled in the $15 to $16 range in June – July and September before dropping down to the $14 support in both instances. You will also observe that $14 has been a key support level for the stock within the last six months.

Hence, when EXPR breaks out above the support, it usually heads back toward the $17 resistance. However, you will also notice that a breakdown below the support as seen in June will send see the stock crashing to touch $12.

The support has been breached

Shares of Express breached the $14 support today as the stocks made an intraday low of $13.65. As at 12:43PM EDT, the stock was trading down 0.71% to $13.93 and it appears that the stock might close under $14 today.

How to Trade EXPR Options

The key that will determine how to trade EXPR options profitably is the stock’s closing price at the end of today’s session. If the stock closes above $14, we might see the buy-on-the-dip momentum spurring a kneejerk reaction. If the stock closes below $14, we can expect the decline to continue until the stock reaches $12 or $11.80.

However, the fact that practically all of Express’ industry peers are trading down today suggests that it might be futile to expect the stock to close above $14. I recommend buying the EXPR Jan 2015 15.000 put (EXPR150117P00015000) at an asking price of $2.10.

 

— Daily Option Alerts

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