Today’s trade idea for option traders: Sprout Farmers Market (trade closed)
(Last Updated On: 2. July 2022)
Sprouts Farmers Market (SFM) had a solid Q4 and performed better than the S&P500. This could for sure be achieved by strong growth in annual earnings. In 2022, the company is planning to open 25 – 30 new stores, and for 2023 SFM is confident to push unit growth to double-digit levels. In total, this company is generating revenues and expects to do so also in the year 2022. These news seem to push the stock’s price higher and to cross the resistance level of around $29.38. Good fundamentals or not – the point is, there is a long signal for SFM which is calling us to action. So check it out, folks.
Disclaimer:
The information I am giving you in this article is for informative purposes only and should not be treated as investment advice. It’s an options trade example, and 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
Alternatively: Bull put spread
Expiration: 18th March 2022 (79 days)
Strike: $30
Premium for 1 option: between $170 and $190 on the day this article was published
Margin: apprx. $350 on the day this article was published (Please keep in mind: the margin size depends on your account size. The smaller your account size the higher the margin requirements. The margin I’m publishing here is the margin based on my account size. Therefore, it could also happen that with a small account, you would see a margin of more than $2000)
Pros for this trade:
– Based on the signal I get (ADX-Indicator), the price should continue to move at least sideways and to stay above the strike so we can get rid of the put option when the time is right
– Good fundamentals could support the price of this stock and keep it above the strike
Cons for this trade:
– A relative high Fear & Greed Index of 65 which increases the risk of a stronger correction in markets in the near future
– An IV Rank of around 19 and an IV Percentile of around 33% are not ideal
– SFM does not pay any dividend so in case you get the stock assigned, you would have to wait (maybe for a longer time) without any benefits until you can offload it with a profit
– As trading with options is also a dealing with probabilities, every of my assumptions could turn out as a wrong estimation so at the end the stock would land in the money and you would close the position with a loss in case you don’t want to keep the stock
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Result of this trade: You could close the position on 4th March for around $20
Realized profit for 1 option: around $160
Days in the trade: 65 (of maximum 79 days)
Summary: In total, this trade was far beyond of what I call a perfect one: in spite of a long signal and a strong supportive line, the selling pressure after I opened the position was stronger and it seemed that the put will land pretty deep in the money so the stock would be assigned. But then, after the announcement of share repurchase on 3rd March, the bulls took over the helm and lifted the price of SFM over the strike level before the expiration date.
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