Today’s trade idea for option traders: Axalta Coating Systems (trade closed)
It’s not the best known stock held by Warren Buffett’s Berkshire Hathaway. Axalta Coating Systems operates in two segments – performance coatings and transportation coatings. The COVID-19 pandemic led to a dramatic slump in industrial activity. Hence, sales alone in Axalta’s performance coatings declined 36% in the second quarter. However, the good news is that its markets seem to be recovering. CEO Michael McGarry referred to “strengthening demand for our automotive original equipment manufacturer and general industrial coatings.”
The stock is up more than 55% in the last six months, and the recent Q3 2020 earnings showed a company in recovery mode. This gives us an opportunity for another trade idea to collect option premium which I will show you in this article, folks.
The information I am giving you in this article is for informative purposes only and should not be treated as investment advice. The information presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in trading activities related to the information in this article should do their own research and seek advice from a licensed financial adviser.
Type of a trade: Cash secured put (in the money)
Alternatively: Bull put spread
Expiration: 15th January (51 days)
Premium for 1 option: between $195 and $215 on the day this article was published
Margin: apprx. $656 on the day this article was published
Pros for this trade:
– A long signal (I’m using the ADX-Indicator) is giving a higher probability that the price will be pushed in direction of $30 and even crosses this strike in the next 51 days
– December provides a statistical probability of the year-end rally and higher prices to hit the strike
Cons for this trade:
– Low IV Rank of 6% and low IV Percentile of about 22% (Source: Trader Work Station)
– A narrower bid/ask spread would have been desirable. Therefore you should expect worse exits in case you don’t want to get the stock assigned
– The Fear & Greed-Index is approaching to its extreme greed values which could mean a short term risk of a stronger correction or even a crash in the stock markets
– Axalta does not pay dividends at this moment. If the option would land in the money, you’ll need to keep the stock and wait for prices of at least $30 in case you want to get out of the trade without a loss. In worst case you’ll need to wait months or even years. That’s why the bull put spread might be a better solution for some traders.
Result of this trade:
You could close the position on 12th January 2021 for about $20 – $25
Realized profit for 1 option: $175 – 180$
Days in the trade: 48 (of maximum 51 days)