Checking Out Red Robin the First Day of Winter
- Posted by Greg Harmon
- on December 22nd, 2014
Yes winter starts today and most people in the Northern hemisphere are turning their attention to snow and cold weather. The migratory birds are well in their way south for the winter. So why am I talking about Robins, those early indicators of spring here in the Northeast?
I am not a bird watcher but I am a big fan of hamburgers. And Red Robin Gourmet Burgers, $RRGB, stock price is looking good to me.
The chart above shows a the stock breaking above a falling channel at the start of December. it consolidated that move and is mow moving up and to the right. The Measured Move takes it to 76 initially. That is right at the June high. And there is resistance above that at 77.60 and 80 before the prior top from November 2013.
The momentum indicators are supportive of more upward price action too. The RSI is holding firmly in the bullish zone and over 60 while the MACD has pulled back and is now looking to cross up. There is also a bullish Golden Cross setting up for a couple of days from now. This is when the 50 day SMA crosses up through the 200 day SMA. And the sharp angle of the cross tells me there is some upside.
I bought some stock today. Typically I would like to protect the downside with options but they have very wide spreads. So buying a Put Spread would be expensive and illiquid. Instead I got some protection by selling Covered Calls. I executed the calls with the stock, a Buy-Write, and used the February 80 Call. With stock trading at about 74 this gives $6 of upside potential until the February Expiry before the return is capped. And selling the Call for over $2.70, means the possible return is over 12% if it does get capped, plus it gives me some downside protection.
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Gregory W. Harmon CMT, CFA, has traded since 1986 and held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)