A Hedge Against Tariffs

Call the trade war what you will, but tariffs aren’t good for U.S. retailers and, ultimately, American consumers, analysts and other experts say.  Naturally, the biggest winners from a Trump trade war are likely to include some of the very same industries the president’s tariffs aim to protect.  The U.S. steel, robotics and energy industries should be winners.  One such way to play the tariff/robotics angle is in the stock iRobot Corporation (IRBT).

Earnings will be reported on July 24th so we are looking well past (at least in a traders eyes) and keying in on the August 17th expiration options.  The reward to risk on the August 85/90 call spread is 3:1 if we are able to pay $1.25 for the spread.

The reason why this could be the ideal setup is because the option market is pricing in a move out to August expiration of about $10, which would target approximately $90 to the upside.  As always, I know my risk, which in this case is defined by the amount I pay, or my debit on the spread, $1.25 per spread.