EOT Trade Alert – January 28, 2015

Trade Alert:

Buy STI April 17th 2015 $41.00 Calls at $0.70 or better

 

Company Background:

Sun Trust Banks (STI) is headquartered in Atlanta, Georgia. They operate 1,497 full-service banking offices through the United States.

 

Short-Term Catalyst:

Bank stocks have fallen out of favor with investors after some dismal earnings reports from the likes of Bank of America (BAC) and Citigroup (C).

But STI latest earnings didn’t fall victim to the same weakness as C and BAC. In fact, STI reported earnings that beat estimates by 10 cents per share a few weeks ago.

Nevertheless, shares of STI have been caught up in the wave of selling that has hit all banking stocks. I think STI is being unfairly punished by investors.

What’s more, a large part of STI’s profits are generated from their mortgage origination segment. And the recent drop in interest rates is sure to provide this unit with the opportunity to generate even more income.

These are compelling fundamental data points that should bring investors back into STI even if other banking stocks continue to languish.

To add fuel to the fire, there are several bullish technical indicators for STI.

There’s a bullish uptrend forming on the daily chart of STI over the last few months. It’s currently at support of the 200-day moving average. And volume on up days has been greater than the volume on down days.

It looks like STI will make a run back toward the recent highs around $42.50 and has the potential to break out to a new high within the developing upward trending price channel.

And to top it off, these options look downright cheap to me. Let’s grab call options on STI to profit from this bullish setup.

 

Trade Details:

Underlying Stock Symbol:	STI
Current Bid-Ask Price:	$0.55 – $0.60
Option “Buy Up To” Price:	$0.70
Break-Even On Stock At Expiration:	$41.70
Maximum Risk Per Contract:	$70

 

Exit Strategy:

STI is trading at $39.01 per share.  Resistance levels will be at $42.50 and again at $45.00. Remember, we want this stock to move higher.  Support levels will be at $37.50 and $35.00. Conservative investors should look to exit at the first support or resistance level. Aggressive investors may want to hold for a bigger move.

 

Chart:

Category: EOT Trade Alert