Weekend Trader Series
August 7, 2022
Open Positions Update
- The Clorox (CLX) October 21, 2022, 150-strike put reaches its time-stop this Monday, August 8. Close the position at a limit price within range of the current market price when you place the order.
The following is this week's recommendation:
Cal-Maine Foods (CALM)Place a limit order to buy the Cal-Maine Foods (CALM) November 18, 2022 50-strike call at a limit price within range of the current market asked price when you place your order. At the close on Friday, August 5, this option was offered at $5.40. CALM closed at $51.86 on Friday, August 5.Do not attempt to enter this position after Monday's close.Please use the following guidelines to manage the position:- Exit the position if the option is at a 100% gain from your entry price.
- If the option has not reached its target profit by 3:00 p.m. Eastern time on Tuesday, September 6, close the position.
- If there is a change to the above closeout parameters, we will notify you in your regular Sunday evening communication.
In February, the shares of Cal-Maine Foods (CALM) staged a breakout above a trendline connecting multiple lower highs since 2015. Then in late June, the stock broke out above a trendline connecting lower highs since its April 2022 peak. Plus, CALM saw a recent pullback to the 80-day moving average. This is also in the vicinity of its recent post-earnings close, which preceded a March bull gap, and could provide an attractive entry point for call buyers, as it represents roughly 50% above its 2020 and 2021 monthly closing lows.
Short interest, meanwhile, is high. And though shorts started covering in late May, there's still room for a short squeeze. The 4.52 million shares sold short make up 12% of the stock's available float, and would take over six days to buy back, at CALM's average daily pace of trading.
Analyst coverage is limited, but that doesn't mean there isn't additional room for bull notes. Of the four in coverage, just two call CALM a "buy" or better.
Finally, our recommended November 50 call options has a leverage ratio of 6.8 and will double in a 17.2% rise in the underlying equity.
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