EOT Trade Alert – November 23, 2011

Corey Williams | November 23, 2011

November 23, 2011

Trade Alert:

Buy PLCE January 2012 $50 Puts at $2.10 or better

Company Background:

Children’s Place Retail Stores (PLCE) is a children’s specialty apparel retailer. They sell apparel, accessories, and shoes for babies and kids under age 10 at their retail stores and online.

Short-Term Catalyst:

Over the last week, we’ve seen market conditions deteriorating rapidly.

One thing bucking the trend is retail sales. Month in and month out they’ve been consistently better than expectations. And October was more of the same.

The launch of Apple’s (AAPL) iPhone 4S fueled a 3.7% surge in sales of electronics and appliances. It was the primary driver of a 0.5% increase in retail sales last month.

But beyond the iPhone, other retail subsectors didn’t fare as well. In fact, clothing sales actually fell 0.7% last month. And we’ve already seen a number of specialty apparel retailers, like Abercrombie and Fitch (ANF) and Buckle (BKE), disappoint investors this quarter.

I think the writing is on the wall… sales at specialty apparel retailers are slowing. And it’s only going to get worse as the economy continues to slow.

What’s more, PLCE is battling a huge demographic shift… fewer kids.

According to data from the National Center for Health Statistics, the number of births in the US has been declining steadily over the last three years. Last year there were around 4 million babies born. That’s the fewest since 1999.

No doubt about it, with fewer kids and less money being spent on clothes, it’s going to be tough for PLCE to keep up the rapid growth that’s fueled the stocks rise.

And last but not least is PLCE’s chart…

Right now PLCE is testing resistance around $55. This level has been the line in the sand for PLCE over the last year. The last four times PLCE reached $55 it was turned back.

As a result, PLCE is stuck in a trading range between $40 and $55. And I don’t see anything bullish enough to drive PLCE out of its range this time around.

Let’s grab put options on PLCE now to profit as the specialty retailer comes back down.

Trade Details:

Underlying Stock Symbol:	PLCE
Current Bid-Ask Price:	$1.80 – $2.00
Option “Buy Up To” Price:	$2.10
Break-Even On Stock At Expiration:	$47.90
Maximum Risk Per Contract:	$210

Exit Strategy:

PLCE is trading at $53.54 per share. Resistance levels will be at $58 and again at $60. Remember, we want this stock to move lower. Support levels will be at $45 and $40. Conservative investors should look to exit at the first support or resistance level. Aggressive investors may want to hold for a bigger move.

Chart: