DailyPlay – Opening Trade (LIN) – June 14, 2024

LIN Bearish Opening Trade Signal

Investment Rationale

Despite equities pushing to new all-time highs, one sector that is lagging further behind is Materials. Traditionally a growth sector that should rally along with a bull market, Materials is trending in the opposite direction and under-performing the S&P 500 by more than 7% over the last month and half. This risks further downside especially for the stocks in this sector that are trading at rich valuations such as LIN.

Technical Analysis

A provider of industrial gases, LIN isn’t a household brand, yet the charts are giving us a reason to pay attention. After turning bearish after reaching its $475 peak, it gapped lower last month and just managed to track back up to that gap fill level of $440. However the under-performance of LIN relative to both the market and its sector is suggesting that the gap fill will act as resistance and is likely to resume it’s bearish trend. 

LIN – Daily

Fundamental Analysis

And if we look at the business, this is where the risks lay. Trading at 28x forward earnings, LIN is expensive by all accounts, specifically within the materials sector. While LIN benefits from industry leading net margins of 19%, the company is not expected to grow much faster than the average S&P 500 stock (9% EPS and 4% Revenue). This flies in the face of a materials stocks trading at a valuation 40% higher than the average S&P 500 stock. The risk here is that multiple contraction alone could bring this stock materially lower. 

Trade Details

Strategy Details

Strategy: Short Call Vertical Spread

Direction: Bearish Credit Spread

Details: Sell to Open 2 Contracts July 19th $440/$455 Call Vertical Spreads @ $5.95 Credit per Contract.

Total Risk: This trade has a max risk of $1,810 (2 Contracts x $905) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $905 to select the # contracts for your portfolio.

Counter Trend Signal: This is a bearish trade on a stock that is expected to pull back from resistance.

1M/6M Trends: Bullish/Bullish

Relative Strength: 7/10

OptionsPlay Score: 99

Stop Loss: @ $11.90 Debit. (100% loss of premium received)

View LIN 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: Based on the pre-market prices, consider Selling the July $435/450 Call Vertical for around $5.85 Credit. We will update our DailyPlay Portfolio on the platform around 9:45 with an executable price. 

View LIN Trade

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Tony Zhang