Tag Archives: KMX
Option Trade of the Week – Stuck in Neutral
April 18, 2023
Here is your Option Trade of the Week, as included in this past weekend’s Saturday Report for our Terry’s Tips Insider Members. This stock hasn’t done much this week, so you can enter this trade at about the same price as my Insiders. Good luck with the trade!
But first, it’s time for my usual pitch for our premium Terry’s Tips service. We’re solidly in the black this year, led by our Honey Badger portfolio (it trades QQQ options), which is up an impressive 23%. Don’t forget that our portfolios beat their underlying stock performance by an average of 22% in 2022.
Don’t get left behind. For our loyal newsletter subscribers, I’m keeping the sale going that saves you more than 50% on a monthly subscription to Terry’s Tips.
You’ll get …
- A month of all trade alerts in our four portfolios, giving detailed instructions for entering and exiting positions.
- Four to five (depending on the month) weekly issues of our Saturday Report, which shows all the trades and positions for our four portfolios, a discussion of the week’s trading activity and early access to our Option Trade of the Week.
- Instructions on how to execute the 10K Strategy on your own.
- A 14-day options tutorial on the opportunities and risks of trading options.
- Our updated 10K Strategy white paper, a thorough discussion of the strategy basics and tactics.
- Full-member access to all our premium special reports that can make you a wiser and more profitable options trader.
To become a Terry’s Tips Insider Member, just Click Here, select Sign Up Now and use Coupon Code D21M to start a monthly subscription to Terry’s Tips for half off. You can cancel after a month but, of course, still keep all the valuable reports.
We look forward to having you join us! Now on to the trade …
Stuck in Neutral
Used-car retailer CarMax (KMX) is a stock that attracts a wide range of opinions. This week, KMX reported earnings that had something for both bulls and bears. On the bullish side, earnings per share (EPS) more than doubled the consensus estimate. But the bears will point out that net income fell 57% from a year earlier. Revenue declined 25% and fell far short of expectations. And the company pointed out that “headwinds remained due to widespread inflationary pressures, climbing interest rates, tightening lending standards, and prolonged low consumer confidence.” Even so, KMX affirmed its long-term financial targets.
Analysts were all over the road with their reactions. Some pointed to the success of KMX’s cost management strategy. Others reiterated the headwinds the company itself discussed. If there is a consensus, it appears that the short to neutral term will be challenging, while the longer-term outlook is encouraging.
KMX’s chart also has some headwinds in the form of the 200-day moving average. The stock hasn’t closed a day above this declining trendline since December 2021. Rally attempts in August and February were stopped in their tracks by the 200-day. And so was the post-earnings pop this week.
This trade is a bet that the short-term road will be bumpy for KMX and that the 200-day will continue to keep the stock in a six-month trading range bounded on the upside by the 75 level. This is also where the 200-day currently resides.
If you agree that KMX will struggle under the weight of its 200-day moving average (blue line) for the next few weeks, consider the following trade that relies on the stock staying below $75 (red line) through expiration in 7 weeks:
Buy to Open the KMX 2 Jun 78 call (KMX230602C78)
Sell to Open the KMX 2 Jun 75 call (KMX230602C75) for a credit of $0.70 (selling a vertical)
This credit is $0.05 less than the mid-point price of the spread at Friday’s $69.46 close. Unless KMX plunges at the open on Monday, you should be able to get close to that price.
The commission on this trade should be no more than $1.30 per spread. Each spread would then yield $68.70. This trade reduces your buying power by $300, making your net investment $231.30 per spread ($300 – $68.70). If KMX closes below $75 on June 2, both options will expire worthless and your return on the spread would be 30% ($683.70/$231.30).
Testimonial of the Week
Thanks so much for detail explanation of each trade. I simply love your report and eagerly waiting for your report every Saturday. I am glad I found you guys. I am super happy to learn how your make a trade and invest with so much dedication, active management and vast array of knowledge, otherwise it’s simply not possible to see such wonderful returns.
Any questions? Email Terry@terrystips.com. Thank you again for being a part of the Terry’s Tips newsletter.
Making 36% – A Duffer's Guide to Breaking Par in the Market Every Year in Good Years and Bad
This book may not improve your golf game, but it might change your financial situation so that you will have more time for the greens and fairways (and sometimes the woods).
Learn why Dr. Allen believes that the 10K Strategy is less risky than owning stocks or mutual funds, and why it is especially appropriate for your IRA.
I have been trading the equity markets with many different strategies for over 40 years. Terry Allen's strategies have been the most consistent money makers for me. I used them during the 2008 melt-down, to earn over 50% annualized return, while all my neighbors were crying about their losses.
~ John Collins
Follow Terry's Tips on Twitter
Like Terry's Tips on Facebook
Watch Terry's Tips on YouTube