Play It "Safe" In The Retail Sector - and Still Profit - with This Strategy

Brick and mortar retailers are feeling the pinch.

One of America’s most iconic retailers is struggling mightily amid the global pandemic.

What’s Happening?

On Thursday morning, Macy’s (M) announced that it will be cutting 3% of its total workforce – which amounts to roughly 3,900 jobs.

The move is being made in response to the continued pressure that the coronavirus is putting on Macy’s bottom line. The layoffs are expected to preserve around $365 million in fiscal 2020.

Many Macy’s locations have remained closed until just recently after the company decided to shutter all of its locations back in March when the outbreak scare was first spreading across the U.S. Even with the re-openings, sales have been sluggish at best.

But the pain doesn’t end there for Macy’s, which has also announced that it expects another $180 million hit in fiscal 2020 for restructuring moves – most of which will take place during the second quarter.

Macy’s shares are down approximately 60% so far this year, and expectations for their upcoming earnings report are equally bleak, with analyst anticipating a first quarter operating loss of up to $1.1 billion, compared to a net income of $203 million last year.

Where’s the money?

The brick and mortar retail industry, already struggling in recent years to compete with online retailers like Amazon, has been dragged even lower by the diminished foot traffic caused by Covid-19.

Right now, with coronavirus cases rising in many states, we shouldn’t expect droves of shoppers to come to the rescue of Macy’s and retailers like it anytime soon.

That time may yet come, but it’s not today.

Instead, the smart play is in retailers that have a focus on online sales. These businesses allow consumers to shop from the safety of their homes while the Covid-19 pandemic continues to necessitate staying away from public places.

And I have a great play to make on just such a retailer…

How can I get some?

Now, with such high volatility in the market, options premiums can get a little out of control. The heightened uncertainty is forcing the price traders pay for options up, making the risk to reward ratio of simply buying an option less appealing.

It’s times like these where the Spread trade strategy is particularly useful…

By buying one option and selling another (in the same transaction), we can help defray the cost of entering an option trade, while still maintaining a good risk to reward ratio.

Today, I’m looking at a Spread trade on Farfetch Limited (FTCH), an online luxury fashion retailer that sells products from over 700 boutiques and brands from around the world.

Now, if you like the idea of a spread, I really like the FTCH August 21, 2020 $21 Calls and FTCH August 21, 2020 $22 calls. You would buy-to-open the $21 and sell-to-open the $22 calls, creating a vertical debit spread. Especially if you can get in this setup for less than $0.25.

Our max profit on this trade tops out at the $0.75 mark, so we’re risking $0.25 ($25) to potentially make $0.75 ($75) per contract. That’s a pretty strong risk to reward ratio.

In the Spotlight: The jobs numbers…again

Many might be celebrating the slow of new applications for traditional job benefits – but I’m not going to join them yet.

The numbers have rolled in, and jobless benefits fell to 1.48 million for the week. This is a slight drop from the 1.54 million we saw in the prior week. Now, this is the 12th straight decline but when you step back and look at the numbers, new claims are still astronomically high. And personally, it has me raising at eyebrow at this so-called economic “rebound” that many are calling for.

On top of this, new claims are following the same painful decent. For the week, new claims totaled to 2.19 million – which is slightly down from the prior week of 2.2 million, but not down enough to get excited about.

if you look at the economists’ predictions, this decline is very behind schedule. Many expected the numbers to fall drastically as businesses began to open back and people began returning to work. But that’s not what we’re seeing. And it has to make you wonder, is an economic recovery anywhere in sight?

But regardless of where the economy goes, Project 303 has got your back

Now, if you’ve been following along in my new Project 303 room, you’d have already had the chance to see two solid sets of profits… In fact, had you been following along, you could have cashed in on a 50% profit on one recommendation, and a 209% profit on another.

That means if you’d seen this on Monday, you could have already transformed a $500 stake into a $1,522 cash pile.

Luckily, I have plenty more action queued up… and it all starts again on Monday.

All it takes is 3 days a week, for 30 minutes a day. Go here now to learn how to get started.