EOT Trade Alert – June 26, 2008

Corey Williams | June 26, 2008

June 26, 2008

Trade Alert:

Bullish Call Buy ROST November 2008 $42.50 Calls at $2.25 or better (REQKT)

Brief Company Background:

Ross Stores (ROST) operates discount retail apparel and home accessories stores throughout the United States. The company offers discount clothes, shoes, linens, household merchandise, small furniture, toys & games, luggage, cookware, and jewelry. Ross has more than 890 stores in operation today.

Short-Term Catalyst:

Ross Stores. I’m sure you’ve heard of them or even shopped there recently. I was on a shopping expedition this weekend and I stopped in both Target and Ross. What I found was surprising.

In my opinion, there were more people shopping at Ross than at Target.

Now my observation is only a small slice in time. And I might be wrong. But I think fundamentally, with the weakening economy consumers are looking for deals.

With high gas prices and consumer credit being cut shoppers are looking to stretch their hard earned dollar. That means more people using coupons, looking for sales, and a resistance to paying full retail. All of this bodes well for the discount retailers.

In May, the company updated their guidance. In addition to projecting higher revenue and earnings for 2008, they also announced a surprising increase in first quarter sales. Management also announced that half of the $600 million stock repurchase program would be completed in 2008.

All this news points to improving fundamentals for the company.

We also have three important news milestones quickly approaching. First is the July 10th same store sales announcement. Second is the August 7th same store sales announcement. And third is the Q2 2008 earnings announcement on August 20. These three events are going to be important drivers of the stock price. If the company announces in-line, or better than expected numbers we could see the stock pop.

On a technical basis, the stock is making new highs. The stock crossed above the 50 day moving average in January and has yet to test the level. With the stock at new highs resistance levels will be at the psychological points of 40 and 45. Today the stock is retracing to the 20 day moving average level. This gives us a great position to get in and take a position.

Trade Details:

Option Ticker Symbol:	REQKT
Underlying Stock Symbol:	ROST
Current Bid-Ask Price:	$1.75 – $1.90
Option “Buy Up To” Price:	$2.25
Break-Even On Stock At Expiration:	$44.75
Maximum Risk Per Contract:	$225

Exit Strategy:

ROST is trading at 36.72. The stock is reaching new 52-week highs. Resistance levels will be at the psychological points of 40 and 45. Support levels are 34 and 31.50. Now, before you start sending me angry e-mails keep reading. Yes, I realize the strike price ($42.50) for the option is above the first resistance level ($40). Remember, the price of the option can increase even if the option is out of the money. I picked this option because I see some value in it. Lower strike price options were too pricy to recommend. Just remember to watch the option price closely.

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