Name That Trade – $AXP: Costco Schmostco?

by CC March 20, 2015 3:21 pm • Commentary

American Express has had a rough couple of months as it’s been under pressure since the first day of the year and had salt added to its wounds with a big drop in Early Feb after it was announced that their exclusive deal with Costco would end in April. In the past few weeks it’s found some footing and is now back towards its declining 50 day moving average:

Screen Shot 2015-03-20 at 1.00.12 PM
1 yr AXP from LiveVol Pro

That’s a nasty and steep downtrend line and if the stock can’t overtake it it could be dead money for a while. The company’s next earnings should fall around April 15th and April expiration should catch them.Their most recent news is trying to make up for the Costco loss by launching a rewards program (Plenti) across different major brands. This is a first for them in the U.S. and it sounds like a pretty good idea I guess.

I wouldn’t be bullish here until the move above the 50 day is confirmed but for those looking, the options market has some stock alternative set-ups that are much better than taking a shot in the shares here.

One that caught my eye was the April 82.5/87.5/92.5 fly for about 1.40. I wouldn’t buy that today with the stock up 1.50 on the day but if it pulled back a little getting that for closer to 1.00-1.20 would make for a pretty good risk/reward set-up in lieu of stock. The breakeven would be just over 83.50 (depending on price at entry) and selling 2 of the 87.5s seems to be a good move considering that the stock would see pretty heavy resistance up near that level, so a move through your x2 strike on earnings seems unlikely.