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Thursday, June 29, 2017

OPTION PLAY: YUM CHINA HOLDINGS ($YUMC) NYSE

YUM CHINA HOLDINGS Options Play

Yum China Holdings, Inc. operates as a restaurant company in China. The company operates primarily through KFC and Pizza Hut Casual Dining segments. It operates approximately 7,500 restaurants in approximately 1,100 cities. YUMC reports earnings on July 5th, 2017 let us look at a strategy to capitalize on the earnings report.


YUMC Technicals

Technically, the chart looks phenomenal! From the Dynamic Trend Indicator  YUMC meets all the criteria for a long or if already long stay with the trend. The multiple time frame analysis confirms positive momentum with price above the wave. Overhead resistance is at 42.12 which YUMC is currently on the path to new highs. Usually when a stock is approaching new highs weak hands will try to short it leading to a breakout on volume to new highs as the shorts will have to cover. Remember, we want to be strong hands as smart traders and not fight the trend!
As of June 29th, 2017, YUMC is trading at 38.70 with the expected move for July option expiration is $3.00 I can find the expected move by adding the ATM straddle for the week of expiration.  Therefore, if I add 38.70 + 3.00= 41.70 as an upside target for an options play expiring on July expiration.

YUMC Options Trade idea:

I am bullish on YUMC using the Dynamic Trend Indicator with a price target of 41.70 Therefore, I can develop a trade that will take advantage of my expected move with limited capital requirements. The July 40 calls are trading at .90 debit, I am looking to buy these and sell the July 42.5 calls at .30. This strategy is a bull call spread for a .60 debit (.90-30 =.60) My max loss on the trade is $60 per contract with my max gain being $1.90. This trade offers limited risk with 3-1 risk vs reward set up if YUMC trades at or above 42.5 by July option expiration. 
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