From our associates at TraderMinute
3M Corp, MMM, is a multinational company out of Saint Paul, Minnesota. Many traders shy away from MMM as it can be old and boring compared to some of the relatively new stocks like FIT or NFLX. While the stock action can be boring at times, the options provide great opportunity and fantastic gains for relatively small moves.
In 2015, MMM really struggled to keep some of its 2014 momentum. Rising raw material costs, rising US dollar, and global economic concerns kept investors sidelined and waiting for an opportunity. Hit with falling revenues for much of the year MMM implemented some minor restructuring and recently offered some clarity about 2016 business operations. All indications show that MMM will resume its revenue growth and therefore add to its bottom line earnings. Strong gross profit margins are nothing to scoff at either and the stock is quickly becoming of the favorites of the bulls looking for an uptick in global economic growth.
Below is a chart on MMM with a few basic technical indicators.
I am showing the 50,100, and 200 day moving averages to show how the dip in 2015 created a rather bearish trend for the stock. When a longer term downtrend is broken on improving fundamentals, generally the uptrend can be fast and furious and take the stock to new highs. So far the uptrend has been just that, fast and furious. I bought some calls on MMM today as it finally took a small pause in its fantastic new uptrend. Many times with stocks like this I prefer to wait for a short term pullback and jump back on the bandwagon when the stock begins to trade back above a simple 7 day moving average. There is nothing magic about the 7 day moving average but it does give me a guideline to go with. The resumed move higher combined with the strong out-performance of the broader indexes prompted me to go after a handful of call options.
The trade is simple. I bought DEC 160 Call options on MMM looking for a move into the 163-164 level. I am a bit concerned with some of the broader market action and I know regardless of how good my stock or trade setup is, the broader indexes could still prompt selling in MMM. If MMM breaks below the 157.70-158.00 level that will be my queue to back out of the trade and await another opportunity. I typically try to find option setups that leave me with about 30% of my capital at risk while having 100% reward potential. The DEC 160 calls give me this setup that I am looking for.
–Jeff @ TraderMinute
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