NEW DIRECTIONAL PUT PLAYS
Lumber Liquidators - LL - close: 86.30 change: -0.35
Stop Loss: 88.25
Current Option Gain/Loss: Unopened
Time Frame: exit PRIOR to earnings on July 24th
New Positions: Yes, see below
Why We Like It:
LL is a specialty retailer for hardwood flooring.
The recovery in the U.S. housing market has definitely been a blessing for LL. Yet the sudden rise in mortgage rates (now at two-year highs) could cool the hot housing market. At the same time the stock market's rally is getting a little long in the tooth. Shares of LL appeared to fail at a trend line of lower highs today.
We suspect that LL is poised for a correction lower. However, I want to point out that this is a higher-risk, more aggressive trade. Shares are up three weeks in a row (just like the market) and there is a high amount of short interest. The most recent data listed short interest at almost 25% of the small 26.2 million share float. That does pose a risk of a short squeeze.
Today's low was $85.89. I am suggesting a trigger to buy puts at $85.75. If triggered we will use a stop loss at $88.25, just above today's high. Our short-term target is $80.25 but more aggressive traders could aim for the 100-dma instead. Keep in mind this is short-term trade as well. We do not want to hold over the earnings report on July 24th.
Trigger @ 85.75 *use Small Positions*
- Suggested Positions -
Buy the Aug $80 PUT (LL1317T80) current ask $2.70
Entry on July -- at $---.--
Average Daily Volume = 840 thousand
Listed on July 15, 2013