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An optimistic options trade that profits from continued spending by affluent consumers on dining out and travel



As consumer spending becomes more selective, restaurants and travel are two areas that continue to see strong growth. American Express (AXP) is capitalizing on this trend by focusing on premium customers who are continuing to spend in these categories. The company is also targeting a younger customer base and expanding its presence in international markets, which has led to an increase in new customers. Despite a recent 8% pullback from its peak, AXP has had an impressive run over the past year, rallying nearly 60% from the October 2023 lows.

Looking at the business side, AXP is expected to grow EPS at a rate of 15% and revenue at 9%, yet it trades at a 12% discount to the average S&P 500 stock. With net interest income and card fees expected to increase, there is potential for AXP to trade back towards its 52-week highs and beyond. In terms of options trading, implied volatility is neither cheap nor expensive at the moment. Given the lack of a catalyst in the near future, a strategy involving selling options and going out to July 26 (weekly options) could be a prudent move.

One potential trade idea involves selling the $225/$215 Put Vertical at a $3.90 Credit. This entails selling the July 26 $225 Puts at $7.45 and buying the July 26 $215 Puts at $3.55. This strategy would risk $610 per contract if AXP is below $215 at expiration, while potentially profiting $390 per contract if AXP stays above $225 at expiration. This trade offers a 57% probability of profit and could be an attractive opportunity within the strong bullish trend of AXP.

In conclusion, American Express is well-positioned to outperform its industry, especially with its focus on premium customers and its expansion into international markets. Despite a recent pullback, the stock has shown significant growth over the past year, making it an appealing option for investors. The trade idea presented offers a compelling risk/reward scenario within the current market environment. It’s always important to consider individual circumstances and seek advice from a financial or investment advisor before making any decisions.

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