New Trade – $AXP: I Wish My Wife Would Leave Home Without It

by Dan November 9, 2012 2:09 pm • Commentary

Here is a preview of what I will be discussing tonight on Options Action on CNBC at 5pm:  

Financials stocks were one of the hardest hit sectors over the last couple of days since the results of the Presidential election, as investors shifted their focus from the WHO, to the WHAT, meaning now that they know WHO, we have better chance of understanding WHAT the potential outcomes of a few pressing issues, namely the resolution or compromise on the impending “fiscal cliff”.

Bank stocks were hit fairly hard as fear of, believe it or not – increased regulation, under a second Obama administration, might make it increasingly hard to demonstrate revenue and earnings growth. There were other stocks in the financial sector that have showed better relative strength this week, like AXP, that I feel may be in for a bit of weakness as it becomes clear that the wealthy may bear a bit more of the tax burden as our lawmakers attempt a compromise on the “cliff”.

AXP is interesting as it is often used as a proxy for mid to high end consumers, the very people who may spend less in the coming months/quarters during this time period of tax uncertainty. Even if the consumer isn’t even paying attention to the details of the Fiscal Cliff, the perception is all that matters for these stocks.

Defined risk short exposure looks attractive into the new year.  From a Volatility perspective, the stock has moved more than 1% six times in the last ten trading days, an obvious indication that realized vol is picking up a bit.  At the Money vol in Jan is only about 22.5 vs the 30 and 90 day realized vol of about 20.5.  It won’t take much for this trade to be a winner.

TRADE: AXP ($55.90) Bought Jan13 55/50 Put Spread for 1.25

-Bought 1 Jan13 55 Put for 1.80

-Sold 1 Jan13 50 Put at .55

Break-Even on Jan13 Expiration:

-Profits of up to 3.75 btwn 53.75 and 50, max gain of 3.75 at 50 or below.

-Losses of up to 1.25 btwn 53.75 and 55, with max loss of 1.25 at 55 or higher.