On Tuesday in my In The Money series with Fidelity Investments, we quickly discussed the impact of Apple’s revenue warning on other U.S. multinationals and offered trade ideas on FedEx (FDX) and Deere (DE) that are likely to see near term revenue impact from the response to the coronavirus. Click below to watch:
Trade Idea #1: FedEx (FDX):
The first Idea was in FedEx (FDX) which has been struggling over the last couple of years with competitive issues, weak global growth, trade wars and now the shock of the quarantines and what will certainly be depressed business activity as a response to the global spread of the coronavirus.
FDX will report its fiscal Q3 results on March 17th, and given AAPL’s guidance cut today, there is a chance the company could pre-announce before that. The last two-quarters FDX has disappointed, with the stock trading down 10% the day after their Q2 print in Dec and closing down 13% the day after their Q1 print in Sept.
Bearish Trade Idea: FDX ($160) Buy March 155 put for $4
— CNBC’s Fast Money (@CNBCFastMoney) February 19, 2020
Trade Idea #2: Deere (DE)
The next idea we discussed was in Deere (DE) a company that might also see some short-term weakness from the coronavirus but might also be the sort of company whose business can bounce back sort of quickly if the virus’s adverse effects were to slow materially in the next few weeks.
DE is scheduled to report its FQ1 results Friday before the open. The options market is implying about a 5% one-day move in either direction which is a tad rich to its 4.5% average one-day post-earnings move over the last four quarters.
Shares of DE are down 4% on the year, already showing some investor trepidation about the fear of slower global growth weighing on their sales. The stock has held the uptrend that has been in place since last spring but has some overhead technical resistance between $170 and $180:
If earnings and guidance are not as bad as feared, and the stock’s recent weakness discounts any more bad news, then the stock could set up for a decent retest of the prior highs near $180 if the coronavirus fears were to abate during the coming months. One way to help finance the purchase of longer-dated out of the money calls could be through a call calendar, selling an out of the money short-dated call and using the proceeds to help finance the purchase of a longer-dated call of the same strike, for instance:
Bullish Trade Idea: DE ($166.50) Buy Feb 21st weekly – June 170 call calendar for $6.50
-Sell to open 1 Feb 21st weekly 170 call at $2
-Buy to open 1 June 170 put for $8.50
Break-even on March expiration:
Max risk $6.50, below 170, Friday, Feb 21 weekly short call expires worthless. left long June 170 call for $6.50. The ideal scenario is that the stock is just below $170 on Friday’s close and the short Feb call expires worthless or can be covered for a small amount, leaving long the June 170 call.
Review #1: Trade idea from Jan 21st ITM (read here):
TLT $139 – 20 yr US Treasury bond ETF
Bullish Trade Idea: Buy April 140 call for $2.50
-Break-Even at $142.50
-Max Gain: Unlimited Profits above 142.50
-Max loss of 2.50 if the stock goes below 140 less than 2%
Review #2: Bearish CSCO put spread from Feb 11, 2020 ITM (read here):
Bearish CSCO ($49.50) Buy Feb 49.50 – 46.50 put spread for $1