A trade idea in Restoration Hardware

I have a trade idea in Restoration Hardware ($RH) that I have received some inquiries about today so I thought I would add some detail here for those not familiar with Ratio trades. Here is the idea:

RH_B

Here is the breakdown:

  • Go long the June 70 Calls
  • Go short the June 75 Calls (2x)
  • Go short the June 60 Puts
  • This trade can be done for a small credit
  • This trade takes margin
  • You must be comfortable owing the stock at $60 (+/- credit received)

Here is a Daily chart of the stock with some levels noted pertinent to this trade idea:

RH

Another way to look at this trade is in 2 pieces:

  • Long the June 70/75 Call Spread
  • Short the June 75/60 Strangle

A potential step to use stock as a hedge (long or short) is part of every trade since this is the only step that you can take outside of market hours. For reference, I note my current Earnings trades each week on my Blog. Here was the most recent post from the weekend: Earnings Trades ($ULTA is new this week so obviously not in this post).