New Trade $WHR – Back to the Well, Take 3

by Enis February 22, 2013 11:31 am • Commentary

I’ve traded in and out of WHR 2 times (here and here) in the past month.  My original thesis was related to stretched valuation, poor technicals, and my view that the market had become too optimistic about the American housing market’s impact on housing-related stocks.

I have nothing new to add to that discussion today.  But I want to re-enter a trade on WHR’s bounce, this time with a different structure than my prior two trades.  

TRADE: WHR ($108.95) Bought the Apr 105 / 95 Put Spread for $2.40

-Bought 1 Apr 105 Put for $3.40

-Sold 1 Apr 95 Put at $1.00

Break-Even on Apr Expiration:

-Profits between 102.60 and 95, max profit of 7.60 at 95 or below

-Losses up to 2.40 between 102.60 and 105, max loss of  at 105 or above

Trade Rationale: First off, implied vol in WHR continues to be priced too low in my view.  The stock has made several 5 dollar moves up and down in the past couple weeks.  In addition, WHR breached its 50 day moving average for the first time since July 2012 yesterday.  It did bounce from there, but the fact that it finally breached that level makes it more likely to break on the next test of 105.  Finally, WHR has traced out a nice topping pattern in 2013, and I think a break of the 50 day could bring some rapid selling.  I want to give myself more time on this trade, so I’m going out to April expiry.