Posted on November 26, 2020
Today’s trade is based on textile manufacturer, Kontoor Brands (NYSE:KTB), makers of Lee and Wrangler denim apparel.
We like the product.
But even dungarees have their limits, no?
For starters, it’s jeans we’re talking about here, and they have nothing to do with the Batflu.
So there’s very little reason for the incredibly steep rise in price we’ve seen over the last two months.
That is, it’s not ZOOM.
In fact, as you’ll see on the chart below, the move from $13 TO $45 in half a year – while sales and earnings were dumping – makes little sense at all…
Particularly today, when…
Take a look now at the daily chart –
Technically, she lines up like this…
All told, the daily chart is a short-sellers dream, but it’s worthwhile looking at the weekly, too, where you’ll see an even more thunderous alarm – an overbought weekly RSI reading (below, in green).
Pay attention, too, to the striking tailing action on the volume chart (in black), which indicates very little commitment behind the last four weeks’ buying.
See here –
Come to think of it, we wouldn’t even take these guys to the change room.
We’re playing it with a long PUT spread, paid for with a short CALL spread.
Like this –
A Jew and His Gold recommends you consider the sale of the KTB January 15th 40/45 CALL spread for $2.15 (4.80/2.65), and using those funds to purchase the KTB January 45/35 PUT spread for $3.95 (4.60/0.65). Total debit on the trade is $1.80.
We want a piece of the KTB decline, but we don’t want to pay for it.
The sale of the CALL spread offers us a large chunk of cash toward that end.
Maximum gain on the trade is $8.20 (difference between long PUT strikes less the initial debit).
Maximum loss is $6.80 (difference between short CALL strikes plus the initial debit).
Because the spreads are overlapping, gains and losses between 40 and 45 are muted.
Breakeven arrives at $40.70 [current price is $43.40].
Many happy returns!
P.S. come back tomorrow for news on IBP, CROX and EXPE.