Faddish footwear company Deckers Outdoor (DECK) is responsible for introducing UGGs to the world. Whether you love or hate its product offerings, Deckers’ chart shows the stock is setting up to take a big step forward.
Profit Scanner powered by Recognia identified at the Oct. 21 close that a bullish Symmetrical Continuation Triangle formed on Deckers’ chart. The pattern carries a short-term target of $104.00 to $107.00, or a good 15% higher from where DECK currently trades around $90.
A bullish Symmetrical Continuation Triangle is a short-term pattern and, if the one found on Deckers is valid, it is expected to resolve to the upside within 17 trading days. While Profit Scanner focuses entirely on technical analysis and cannot suggest catalysts for a stock’s potential move, Deckers does report earnings on Oct. 23, so any positive surprise could see the stock run.
Stock traders could certainly buy Deckers shares at current levels around $90. Profit Scanner has found significant support at the $78.20 level. However, resistance also resides at $93.59, so traders may wish to see DECK clear that level before initiating positions. Profit Scanner sets a tight stop at $85.55.
But given the short-term nature of the bullish Symmetrical Continuation Triangle pattern and the fact that Deckers reports earnings tomorrow, speculative traders may wish to trade a call option on the stock in lieu of buying the shares. Profit Scanner does not recommend options trades of any kind, but a quick look at Deckers options chain shows there are a couple of possibilities.
Because Deckers’ pattern is expected to resolve in 17 trading days, which is before November options expiration, there’s no real need to pay for extra time by going out with a longer-dated call. Truly speculative traders could try the November Week 1 or Week 2 series, but the more “conservative” trade is in the regular November monthly calls. (We use quotes because options are, by nature, a very risky trading strategy because they can expire completely worthless.)
But, if you have a little Vegas money to play with, the DECK Nov 97.50 calls are inexpensive because they’re currently out of the money, but they are well below Profit Scanner’s initial target for DECK at $104.00.
The calls are trading around $2.10, or $210 a contract plus your broker’s commissions. Remember, with options you can just buy 1 contract, so you can have a small risk-on trade in place for just a couple of hundred bucks. If Deckers does move up post-earnings, those calls could easily jump much higher. How much higher? It’s hard to say.
Options pricing and valuation is an area that still befuddles most experts. There’s a good primer here, but just be aware that it’s not as simple as saying that for every $1 DECK moves, the option will also move $1. Unfortunately, the relationship between an option’s price and underlying stock’s price is quite complex. But options are a relatively cheap way to trade and there could be a nice payday here if DECK moves up as the technical analysis indicates. Just keep your position small and have fun with it.
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