DailyPlay – Opening Trade (RACE) – May 21, 2024

RACE Bearish Opening Trade Signal

Investment Rationale

The popularity of Formula 1 can’t be overstated these days, but my favorite racing team Ferrari is expensive and I’m concerned that it’s due for a pullback in this environment. Ferrari has rallied over 25% this year after posting better-than-expected earnings, but this rally is starting to look overdone and I think it’s at risk of trading lower. 

Technical Analysis

The stock has rallied 25% this year so far, more than double what the S&P 500 has returned. However, there are classic signs of a potential bullish to bearish reversal. Firstly we have what looks like a head and shoulders reversal pattern that has completed with a neckline at $410. This would indicate a potential reversal to fill the gap at $355 (a 13.6% decline). This is coupled with relative underperformance to the market, a signal for potential weakness ahead, and MACD remains negative for RACE.  

RACE – Daily

Fundamental Analysis

What’s interesting about Ferrari’s business is how resilient the ultra-luxury market has been to recent downturns. This is part of why RACE has continued to command a premium valuation relative to its peers. However, 48x forward earnings are simply detached from reality when EPS is expected to grow at 15% over the next few years. That’s a valuation that is nearly 140% higher than the average S&P 500 stock.

Trade Details

Strategy Details

Strategy: Long Put Vertical Spread

Direction: Bearish Debit Spread

Details: Buy to Open 2 July 19th $420/$390 Put Vertical Spreads @ $9.55 Debit per Contract.

Total Risk: This trade has a max risk of $1,910 (2 Contracts x $955) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $955 to select the # contracts for your portfolio.

Counter Trend Signal: This is a bearish trade on a stock that is over-bought and expected to pull back from recent highs.

1M/6M Trends: Mildly Bullish /Neutral

Relative Strength: 6/10

OptionsPlay Score: 130

Stop Loss: @ $4.78 Credit. (50% loss of premium paid)

View RACE Trade

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

Please note that these prices are based on Monday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

View RACE Trade