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Option Writer Update

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Coach, Inc (COH) is one of those consumer stocks that has the ability to maintain its business even though the economy is slowing a bit. I covered this stock in the Market Monitor a week ago citing that the wealthy women I know are still buying Coach purses while those that only buy knock offs will continue to do so. I think the stock is going to make another stab at breaking the 200 DMA (currently at 36.13).

The above chart shows that the price is bouncing today (see the stochastics and RSI). I like that the Stochastics is above 20 (currently at 23.86) and also above the 3 day moving average of the Stochastics (21.49). The support level is at 33.87 from Thursday's low and early April's highs (old resistance is new support). The 50 DMA holds another support level at 31.75. The cost basis is also at the 31.75 level so that should provide some serious support for us. This trade represents about $9,500 of our $100,000 hypothetical buying power. We should be getting about a 17% max return on the initial cash required to open this trade. The MMG (max marginers) could sell 7 total contracts and not get over exposed to the stock and/pr sector. But with all trades, risk management is very important and we should be very diligent with our stops.

Risk Management for COH
Strike Stop = $ 32.50
Cost Basis Stop = $ 31.75
Technical Stop = $ 31.75
Premium Stop = $ 32.70

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