DailyPlay – Opening Trade (GM) – April 26, 2024
GM Bullish Opening Trade Signal Investment Rationale The...
Read MoreAs 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.
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
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.
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)
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.
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