Consulting the Stars for a Trade in Constellation Brands

• Posted by Greg Harmon
• on September 12th, 2016

People have been looking to the stars to find the meaning of life for thousands of years. We invented constellations and then stories to support them and how they would influence us. Interestingly, this practice remains in use today. And perhaps more interesting, I am now a believer. I am convinced that it makes sense to look to the constellations. Well, Constellation Brands ($STZ) stock at least.

This stock has done nothing but go up. The chart below shows the last 3 years of price action on a weekly timeframe. Yes it has had some periods where it has gone up fast and others where it has consolidated, and even other periods where it has pulled back. But in general the price has moved from the lower left to the upper right portion of the chart.

This is the type of stock you want to have in your portfolio. You could just go out and buy it and sit back and watch. But I have noticed that the stock does go through retrenchments that might give a better entry point. The charts shows that the price has pulled back to the rising 50 week SMA a few times where it has then bounced and started higher. It may or may not do that again. There is a potential catalyst for a move when it reports earnings on October 5th.

To take advantage of this you can use a options strategy known as a 1×2 Put Spread. In this trade you buy a Put and then sell two of a lower strike Put. For Constellation Brands look at the October 160/155-150 1×2 Put Spread. This is buying the October 160 Put for about $3.50 and then sell both the October 155 Put for $2 and the October 150 Put for $1.15. The total cost is 35 cents.

This trade would participate in any pullback to 155 and then give an entry to the stock should it fall under 150, but with a basis of 145. Would you like to own Constellation Brands at $145?

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