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Swing Trade - Short DV...

Continuing in the direction of adding short exposure given my personal market views (which have been strengthened by exponential trend projections), here is a short trade on DeVry Education Group.  DV is a for profit education company... the for profit education sector has been hit hard lately (APOL, STRA) due to increasing regulatory curiosity into the business practices of many of these companies.  Whether DV falls into that category or not is not yet fully known or even the impetus for the trade.

The stock went through a dramatic draw-down during the first half of the year, losing approximately 1/3 of its market value before consolidating at its current range of $30 - $35 a share.  From a technical standpoint, it looks to be breaking down through this level and this represents a breakout trade (or breakdown if you prefer).  The company reports earnings on August 18th which gives the trade a nice catalyst at that time.

Here's the trade:
  • Short -75 shares DV @ $30
  • Long 1 September $30 call for $1.75 each
  • Breakeven price is $27.66 (3 ATRs away) and $37 on the upside
  • Option leverage is 5.5x (admittedly low but it's an ATM call with a boat load of implied vol)
  • Max loss on the trade is -7.22%
I typically don't like using at-the-money options unless I'm selling vol but the next strike available is at $35... a little too far away.  I think it gets the job done, however, as it has good liquidity and keeps the downside on the trade very manageable.

 

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