How to Make 300% Gains on Christmas Stocks This Season

This was no ordinary year. And that means traders can't rely on ordinary strategies to make money.

In a typical year, traders could count on certain stocks to perform well during the holiday season. Call them Christmas stocks or what you like, but some companies make their year during the holiday shopping season.

For traders, that would mean buying a few call options or even flipping a few holiday stocks like these. No matter how you play it, stock prices - and their call options - had a good chance of making you a nice profit.

That may be the case from a revenue point of view, but this year it seems that retailers are making Black Friday a long affair. They're trying to grab whatever sales they can as soon as they can, and that will leave revenue later in the shopping season a little dry.

You can bet that's already priced into the market too. After all, Wall Street is forward-looking.

That means stock bulls are likely to be disappointed this holiday season. This year, shoppers are not going to be flooding the stores to grab bargains. Online shopping doesn't pack the same punch. After trekking to a crowded store, shoppers are more likely to find something to buy to make their trip worthwhile, while you can close your browser with no sunk costs. Plus, even with next-day delivery, you still have to wait for the prize to arrive. There is little entertainment value in sitting at your computer and making a few clicks.

All that adds up to a disappointing winter for some of the most popular Christmas and holiday stocks.

But there is still money to be made here. You just have to dig a little deeper.

Let's break it down...

How to Profit from Holiday Stocks This Season

Andrew Keene, Money Morning's options trading whiz, forecasts that even with online shopping and curbside pickup, people are going to spread out their purchases over the coming season.

The problem is that the days in the season are pretty much the same, and that means the density of money being spent goes down. Lower sales mean lower revenue and a good chance that retailer stock prices are going to struggle.

The good news is that options traders can still profit from what happens next. Andrew recommends a bearish trade using puts, but with a special strategy designed to reduce risk. It's called a bearish put spread, and it profits when the underlying stock falls. The "catch," if you can call it that, is that in return for lower risk, there is a profit cap, but since he is not looking for a major sell-off, this is not really a problem.

Here's how a bearish put spread works. You buy a put option with a strike price near the money. That means a strike close to where the underlying stock is trading at the time. At the same time, you sell a put with a lower strike price. The money you get for the second put partially offsets the cost of the first option.

Your net cost is lower, so your risk is lower. But you still make money if the underlying stock falls in price.

Andrew recommended a bearish put spread on the SPDR S&P 500 Retail ETF (NYSEArca: XRT), as follows:

  • Buy (long) XRT Jan. 15, 2021 $58 put and at the same time.
  • Sell (short) XRT Jan. 15, 2021 $54 put for a $1 debit (or $100 for 100 contracts).

This move means you're risking $100 for a shot at $400 when retail likely turns out to be a disappointment this holiday season. If the XRT falls below $54, you make the maximum profit of $400. If it stays between $54 and $58, you will make less but most likely will make something.

Still, it's good risk to make 300% in just over a month.

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