A Pair Out to Prove Themselves

There are two names out to prove themselves tonight. Herbalife (HLF) is looking for redemption while Coach (COH) is trying to prove China isn't an issue. My wife loves COH. I have to say I like its products, but I can't get behind the stock into earnings. The chart looks like a perfect setup for a huge push higher right now. When you factor in a 5% short interest on a big name like this, it looks easy --  a little too easy. COH can push all the way to $68 on solid numbers, but I suspect it will see $55 even on in-line earnings. Unless guidance is awful, this isn't an expensive stock from a fundamental perspective, so $52 looks like the floor to me.

Coach (COH) Source: StockCharts.com View Chart » View in New Window »

I do like the volatility potential on COH, so using long August $60 straddles while shorting August $52.5 puts and August $67.5 calls for a net of $4.90 is attractive. On the flip side, I would add to that play, a long September $52.50 put and short August $50 put for $1.10. My other consideration would be to short another August $67.5 call and buy a September $70 call around $0.10. Overall, the play would cost $6.10 and should be profitable on both sides unless there is a gigantic move higher before August expiration, something in the $75 to $80 area, which I don't see happening....312 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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