A bullish options trade that wins if the high-end consumer keeps spending on restaurants and travel
As consumers become more selective in their spending, restaurants and travel remain bright spots in consumer spending. American Express (AXP) is positioned to outperform its industry with a focus on premium customers who are continuing to spend in these categories. I’ll review a bullish options trade that wins if this trends continues. And with its targeting of a younger customer base and growing its presence in international markets, AXP has acquired new customers at an accelerated pace. If we look at chart of AXP, it’s had an incredible run over the past year, rallying nearly 60% from the Oct 2023 lows, and recently, it has pulled back 8% from its peak a few weeks ago. This presents a more attractive risk/reward for adding long exposure within this strong bullish trend. Shifting over to the business, AXP is expected to grow EPS at an above average clip of 15% and revenue at 9%, yet it trades at a 12% discount to the average S & P 500 stock. With net interest income and card fees expected to grow, this discount reflects the upside opportunity for AXP to trade back towards its 52-week highs and beyond. The trade Looking at implied volatility, options are not cheap but also not expensive. In this scenario, because there isn’t a catalyst over the next few weeks, my preference would be to sell options and go out to July 26 (weekly options) and sell the $225/$215 Put Vertical at a $3.90 Credit. This entails: Selling the July 26 $225 Puts @ $7.45 Buying the July 26 $215 Puts @ $3.55 This strategy would risk $610 per contract if AXP is below $215 at expiration while potentially profiting $390 per contract if AXP stays above $225 at expiration, providing a 57% probability of profit on this trade. DISCLOSURES: (None) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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