Trade Recommendation: Aphria (APH.TO)

Technical Overview

  • Since its high on January 9, 2018, Aphria has slid over 59%, closing at $10.09 on Wednesday, April 11. Furthermore, the stock declined by over 31% over the last 16 trading sessions. As a result, IV is high and traders should look for opportunities to sell options.
  • In January 2018, the stock completed a large Head-and-Shoulders (H&S) pattern (yellow circles in Figure 1), with a price target of $8.50 (yellow vertical line). Target of this well-defined pattern has not been met yet.
  • An inverse H&S (violet circles) failed and gave a sell signal with a price target of $8.40 (alternative projection from an inverse H&S pattern – violet vertical line). This target has also not been met yet.
  • The prior major top (i.e. April 2017’s high) sits at $8.77. Likely to serve as support if retested.
  • The 2017 support (trendline formed by connecting the June 2017 and October 2017 lows) is currently at approximately $8.65 (bright blue line)
  • The resistance-turned-support (trendline formed by connecting the April 2017 and October 2017 highs – red-turned-green line) is currently at $7.50, falling by roughly 10 cents/month. Expected to serve as support if retested.

Implications

  • Downside targets yet to be met.
  • Major support levels within the $7.50 – $8.77 range.
  • First major overhead resistance at $12 (March 2018’s low).

Outlook

  • Short-term – The stock is likely to move lower and meet the two targets from the H&S patterns.
  • Intermediate-term – Once bearish momentum subsides, the stock is expected to bounce to at least $12.

Trading Recommendation

  • Sell the October strike 8 put for a $1.20 credit.
  • If at expiry the stock is trading above the $8 strike price (i.e. option is worthless), keep the premium and no further action.
  • If at expiry the stock is trading below the $8 strike price, take ownership of the stock at an average cost of $6.80 ($8 for the stock minus the $1.20 collected from the put sale) with a $12 price target.

Benefits of Recommended Trade

  • Take advantage of hefty options premiums by selling puts with a strike within major support levels.
  • Possible purchase of the stock with a 76% profit target.

Figure 1. APH.TO Daily Chart

Disclosure: I do not hold any stock/option position in APH.TO.

Tags:
Author:
http://www.linkedin.com/in/konstantindimov