Aiming For the Stars With Constellation Brands

Is it Europe’s turn for tariffs?  Washington does not want a trade war with the EU, but whether there is an escalation or not will depend on the bloc, U.S. Commerce Secretary Wilbur Ross told Le Figaro. The U.S. today will likely announce import tariffs on steel and aluminum originating from the EU, as well as issue a decision on Mexico and Canada, either before markets open or after the markets close.

*Source:  Seeking Alpha

The market continues to shrug off “less-than-good” news.  That indicates to me that we are still looking for strong indicators to the upside.

Let’s consider Constellation Brands, Inc. (ticker: STZ)

 

The VantagePoint platform recently indicated a potential continuation of upside momentum.

Using the predictive indicators embedded within the VantagePoint platform and its predictive AI technology, we will point out three significant things. We have a bullish crossover indicated by the blue predictive indicator line crossing above the black simple moving average between 5/25/18 and 5/29/18.  We can combine that with the VantagePoint propriety neural index indicator moving from the RED to the GREEN position on 5/24/18.  This indicator measures strength and weakness for a 48-hour period, in this case strength.  The move to the GREEN position further makes the case for a potential bullish scenario. Additionally, we see that the predicted high and low for today’s range is above the actual high and low from yesterday’s session.  I want to play the VP bullish indication.

Strategy Discussion

For active traders with a shorter investment time horizon, you can consider a setup utilizing options. Given the market conditions outlined above, taking an active, premium debit approach may be the best path to success.

Because of the reasons given above, the purchase of a debit call spread may be one way to approach this situation.  You want first calculate your target strike.  In order to do this, you need three pieces of information:  last trade price, expiration date and implied volatility for that expiration date.  This calculation for STZ yields a target strike of approximately $230.00.  You may want to consider the June 227.5/230 call spread, paying $0.55.  The maximum risk is the amount of premium you pay and the maximum reward is the width of the spread less any premium paid.  In this case, maximum risk is $0.55 and maximum risk is $1.95.  This gives you a reward to risk ratio of 3.55:1.

Given the trading and market environment outlined above, a trader must evaluate whether this reward/risk ratio is appropriate for his/her risk tolerance.