DailyPlay – Opening Trade (CSX) – March 26, 2024

Closing Trade

• FDX – 122.26% Gain: Sell to Close 3 Contracts (or 100% of your Contracts) April 19th $260/$275 Call Vertical Spreads @ $13.18 Credit. DailyPlay Portfolio: By Closing all 3 Contracts, we will receive $3,954. We initially opened 3 Contracts on March 21 @ $5.93 Debit. The average gain, therefore, is $725 per contract with a total gain of $2,175 on our Portfolio; or just over 2% gain on our Portfolio.

CSX Bearish Opening Trade Signal

Investment Rationale

As the economy starts to show signs of slowing with elevated interest rates, railroad stocks are starting to show cracks. We’ve seen multiple railroad stocks slip last week, breaking below support and underperforming the market. This is a signal of potentially further weakness ahead and I’m taking a small bearish position to protect our long portfolio’s downside. In my opinion, any of the major rail stocks can be utilized for this thesis, but I will use CSX due to its better liquidity. 

Technical Analysis

After rallying nearly 35% over the past 6 months, CSX has pulled back from its overbought conditions to test its $37.50 support level and starting to break lower. Combined with underperformance relative to the market and its sector, momentum turning negative, I see risks that CSX continues to pull back further. 

CSX – Daily

Fundamental Analysis

CSX trades at over 19x forward earnings which is above its historical average. Given the macro environment of a slowing economy and rising fuel costs, there are risks to these higher valuations. Even if CSX were to trade at the top end of its historical valuation, puts the stock closer to $35, which would be my downside target. 

Trade Details

Strategy Details

Strategy: Long Put Vertical Spread

Direction: Bearish Debit Spread

Details: Buy to Open 31 Contracts April 26th $37/$35 Put Vertical Spreads @ $0.63 Debit.

Total Risk: This trade has a max risk of $1,953(31 Contracts x $63) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $63 to select the # contracts for your portfolio.

Counter Trend Signal: This is a bearish trade on a stock that is pulling back from recent highs.

1M/6M Trends: Mildly Bearish/ Bullish

Relative Strength: 7/10

OptionsPlay Score: 132

Stop Loss: @ $0.32 Credit. (50% loss of premium paid)

View CSX Trade

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

Please note that these prices are based on Mondayy’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

View CSX Trade