Building A Trade in Louisiana-Pacific

• Posted by Greg Harmon
• on February 2nd, 2015

Home selling and building season is moving into its peak timeframe. Yes, despite the blizzardy conditions this is it. It seems we get a view on home sales and starts at least once every week. It is volatile data and the home sales companies bounce around on it a lot. Lately all the moves have been to the down side. But there is a sector of stocks that is showing improvement. One of those is building materials supplier Louisiana-Pacific, $LPX.

Louisiana-Pacific cover both new home construction materials and the home improvement market. Perhaps that is why it is ticking higher. The chart above shows a clear bottoming that took place from May until November. Levitating from there it has paused and is creating a Handle to go along with the Cup. This is a bullish pattern as long as the handle does not dip below 15. And a the pattern triggers on a move over the red line at 16.75. From there it would target a move to 22.

The momentum indicators are mixed but positive at the moment, with the RSI holding over the mid line and trying to move higher, while the MACD has crossed up and given a bullish signal. You could buy into the stock on that move over 16.75, but there is a small wrinkle ahead. The company reports earnings February 11th before the market opens. This can create a large swing in the price. The problem is you don’t know which way it might swing. Do you run the risk that it is too the upside and wait until after the report to trade it? That is one option. but speaking of options, you could use them to protect your position through earnings.

one way to do this is to buy the stock now, at about 16.35, and then add a collar. Since you are looking for protection for the downside for earnings you could select the February 16 Put. This sells for about 50 cents. That adds a large cost to your basis, so to complete the collar look to sell a covered call as well. One choice would be to sell the May 19 Call for about 40 cents. This makes for a cost of 10 cents for the collar. Now if it goes down after earnings you sell the Puts for a gain. If it goes yup you still have 15% room to the upside before you are capped.

Get my book, Trading Options: Using Technical Analysis to Design Winning Options Trades.

Want to learn more about Dragonfly Capital Views?
Dragonfly Capital Views Performance Through January 2015 Expiry and sign up here

If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus