[Options] Heading South From KC
First off, here's what JC had to say:
The first one that stands out is Kansas City Southern. You guys who have been receiving our work for a long time know how I always point to this one as an underperformer. Well, time heals all doesn’t it? If we’re above the 2013-2014 highs (127), we want to be long $KSU with a target near 197.
One look at this chart and it is hard to be bearish:
Breaking out above major resistance that has stood for nearly six years? That's a train I'm not willing to step in front of. I love buying breakouts like these.
And our good fortune is that volatility is priced in a reasonable range, affording us the chance to buy straight long calls without getting gouged for the opportunity. Yesterday's mild selloff just sweetens the pot.
Here's the Play:
We're buying $KSU March 150 calls for $3.00 or cheaper. This gives us six months for the breakout to build momentum. And if we get anywhere near JC's 197 price target, the profits on this trade will pay for a lot of freight.
As we typically do, we'll close half of our long calls if we get a double. So, if we pay $3.00 for them, we'll be looking to sell half at $6.00 or above, removing all of our original risk capital from the trade. Then we'll hold the rest all the way into March, at which point we'll make a decision whether to close or hold as we approach expiration. In short, if $KSU is trading below 150 in March, leaving our long call strike out-of-the-money, we'll close our remaining position for whatever we can get. If we've above $150, then we'll close our remaining position at the first break of near-term support.
If, however, at any time $KSU closes below $127, our thesis is busted and we'll close our entire position for whatever we can salvage.
If you'd like to leverage best-in-class technical analysis research into advantageous options trades, try All Star Options Risk Free by clicking here!