NEW DIRECTIONAL PUT PLAYS
Ralph Lauren Corp. - RL - close: 153.92 change: -0.46
Stop Loss: 156.60
Target(s): to be determined
Current Option Gain/Loss: Unopened
Time Frame: exit PRIOR to earnings on May 9th
New Positions: Yes, see below
Why We Like It:
RL is in the consumer goods sector. The company markets apparel, accessories, home products and more. The stock looks broken in spite of some recent earnings wins. RL reported earnings on November 6th that beat estimates and RL raised its 2014 guidance. The stock popped on this news but immediately sold off on November 7th. Shares produced a similar move in February. RL reported earnings on February 5th, beat estimates, and this time raised their 2014 revenue guidance and announced an additional $500 million to their stock buyback program. Sounds like a pretty good announcement. RL shares soared on February 5th, gapping higher +$10.00, only to immediately reverse and crash to new lows.
The problem might be profit margins. Profit margins at the company appear to be shrinking every so slightly. In RL's last report in February they did warn that margins in 2014 would retreat from 2013's highs. A couple of weeks ago the latest look at retail same-store sales came out. I didn't see an individual report for RL but nearly all the retailers who do still report monthly same-store sales data missed estimates for March. That does not bode well for the industry as a whole.
Technically the stock is broken with a bearish trend of lower highs and lower lows. RL failed multiple times to breakout past resistance near $165.00. Now it's underperforming the market again. If you are patient enough traders could aim for a drop toward $140. The Point & Figure chart is actually very bearish and forecasting at $112 target. We're not setting an exit target yet but plan on exiting positions prior to RL's next earnings report on May 9th.
Aggressive traders could buy puts now. I am suggesting readers use a trigger at $152.45 as our entry point to buy put options.
Trigger @ 152.45
- Suggested Positions -
Buy the May $150 PUT (RL1417Q150) current ask $3.40
Entry on April -- at $---.--
Average Daily Volume = 891 thousand
Listed on April 21, 2014