Use January Options to Play Lackluster Tiffany Ahead of Earnings
Aside from jewelry, it looks like consumers are stocking up on high-end electronics, including Apple and Harman products, for the holidays.
For a long-term buy and hold investor, the prudent move might be to reduce risk by simply moving more into cash (and we know what that is worth), or to hedge by buying some downside protection via put options, which come with a cost and drag down performance even in a flat to slightly higher market.
But for more active traders brimming with confidence and a healthy ego (but not stubbornness or hubris, mind you), adding a few bearish positions to gain downside exposure is a good way to diversify portfolios and potentially outperform the market. In the coming days, I'll identify three companies that I think warrant a bearish position.
To keep it diversified, they are in three different industries -- and to keep the ego and hubris out, I'm using option strategies that will limit losses should the bearish thesis prove wrong. Here I submit the first of the three little bears.
Too Little Value
Tiffany (NYSE:TIF) is known for its little blue box, which is supposed to provide givers and receivers with mutual satisfaction and appreciation for both the thought and expense that went into the gift. The problem: Several trends indicate that not only will sales this holiday season be poor, but sales in general have lost their luster. The company reports earnings this Thursday, but I'll be playing it for a decline after the holiday season, which I'll describe below.
While analysts and the media are hyping the blow-out black, blue, and green Thanksgiving weekend sales, the fact is that value has been the driver. Best Buy (NYSE:BBY) would not have had anyone waiting outside its door if not for the possibility of scoring a 40" flat screen for under $200. Tiffany is not in the habit of discounting to drive traffic. Most surveys show that people plan to spend around $740, which is the same or fractionally less than last year.
Plus, the most popular gifts by far are electronics. With some high-end devices from Apple (NASDAQ:APPL), or even whole integrated systems from Harman (NYSE:HAR) commanding triple-digit prices, both wealthy and younger consumers can give a "cool" gift without seeming to scrimp.
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