Back on December 17th I detailed a bullish trade idea on Autonation (AN), read here,
I suspect AN will continue to push further into online sales in 2021, reducing its store footprint, opening up new markets at a much lower cost. If I were inclined to play for a breakout to new highs in the new year I might consider a call spread in Feb expiration:
BULLISH TRADE IDEA: AN ($67) BUY FEB 70 – 80 CALL SPREAD FOR $2
-Buy to open 1 Feb 70 call for $3
-Sell to open 1 Feb 80 call at $1
Break-even on Feb expiration:
Profits of up to 8 between 72 and 80 with max gain of 8 ar 80 or higher
Losses of up to 2 between 70 and 72 with max loss of 2 below 70
Rationale: this trade idea risks 3% of the stock price, has a breakeven up 7.5%, and a max gain of up to 12% if the stock is up 19% in two months.
I also made the case on CNBC’s Fast Money for a “Power-Pitch”:
— CNBC’s Fast Money (@CNBCFastMoney) December 17, 2020
Well, the stock has broken out, rising about 13% in the last month, and the call spread detailed above that cost $3 when the stock was $67 is now worth about $6 with the stock just above $76. At this point, it the risk-reward of holding this exact spread is no longer that great. Put it this way, the $10 wide call spread can only be worth $10, it cost $3, so the max profit on Feb expiration is $7.
Trade Update, Close call spread for about a double, or roll the view up and or up and out, by selling the Feb call spread and using a portion or all of the gains to be buy a higher strike call in Feb or possibly the April 80 -100 call spread for about $4.