Today I’d like to discuss a great trade that worked out for me in Bullseye Trades in AIRBNB INC (ABNB). I love the company, I use it in my travels, and they have been hitting revenues out of the park recently. As Legendary trader Peter Lynch describes, ordinary people can invest in things they use in their daily lives.
They can even have an advantage over professional investors in their knowledge of the product.
This knowledge helped me trade a great setup in ABNB.
ABNB reported its corporate earnings after the close on August 12, 2021. They beat on the top line. Its Q2 EPS was -.11, beating the – 0.48 estimate, and they had sales of $1.33B, beating the $1.23B Estimate. Surprisingly the stock sold off on the release and gapped down the following day, opening down 3% after being down about 5% at some point after hours.
I really liked the earnings beat, and I also love how the stock responded post the open. There was not much panic selling or much supply coming in from investors wanting to get out of the stock. Instead, buyers were in control for most of the day, with the stock closing on its highs at 152.76. After being down, 5% to opening down $3% ABNB closed the day up at 1%. To me, that was a real sign of strength on a great earnings report. I bought it and made it my Bullseye trade of the week on the technicals of how the stock responded to its corporate earnings. But I also really liked the fundamentals.
With the Covid reopening, ABNB had booming revenues. Q2 2021 revenue was up nearly 300% year-over-year and surpassed Q2 2019 levels by 10% as the travel recovery accelerated, with ongoing strength in North America. I myself tried booking a holiday, but there is so much demand that a lot of great places were all booked out.
When I was online looking for my own ABNB stay, only the worst ones were available on short notice, if at all. There was a lot of demand all the way out to the end of the year. This personal research and knowledge is a classic trading strategy by great trader Peter Lynch. He advocates buying stock in what you know, use, and like because this information tells investors a lot about a business. If I like a product or service and continue to use it, so too will probably many other people, and this is a sign of continued demand and growth which eventually should be reflected in the stock price.
So why did the stock gap down? Well, I attribute most of that to fears of the new Delta virus. All the other fundamentals around ABNB I love, but the risk of Delta holding people back from getting back out again or another lockdown is there weighing on investors. However, I felt that given the rollout of vaccines and the lockdown last year, psychologically, people have had enough and do not want to stay in their houses anymore. They are ready to get back out and enjoy the great outdoors. As a whole, I feel that people are not scared anymore as they were originally, and it’s time to get back out there. So ABNB was a great play on that thesis.
Structuring the Trade
Daily chart of ABNB
Taking a look at the chart from a bigger picture standpoint, we can see that it has been consolidating since its IPO in Jan 2020 between $130 and $215. Last month in July, ABNB retested the $130 area making a recent double bottom and a triple bottom if we go back to the start of the year. To me, that was a strong support level and possibly the low before the stock is to march higher post-earnings.
Looking at the 60minute chart, which is my trading timeframe, here is the note I sent out to subscribers.
And right now, I really love AirBNB Inc (ABNB) and the pattern that is forming in the charts.
Thursday night last week the company reported earnings and the initial reaction from the traders was to sell the stock off by nearly 5%.
During the day on Friday, traders calmed down and cooler heads prevailed pushing ABNB higher.
I do believe there will be more shake outs along the way, but I am pretty confident the trend will continue higher from here.
My initial price target is $170 in the next month or less, and I don’t expect ABNB to trade back below the 200 hourly moving average.
At the start, I will not be looking to place a full-sized trade in order to leave room to add whether the stock moves higher or lower from here. The stock falls below $142, I will not add to my position. Instead, I will start to look for a place to exit my trade.
Short-term “spicy” idea: ABNB Sep 3 2021 155 Call near $3.60
Longer-term “mild” idea: ABNB Sep 17 2021 145 Call near $10.00
I took the more conservative trade. As it happened, the market sold off on the morning of Monday August 16th and then the following three days taking ABNB with it. But I was prepared. I understood that the market had been very fickle with trades lately, and to be honest, I was not quite sure why. As a trader, I need to adapt to the market environment and change my strategy when necessary.
For this reason, I wanted to start holding trades for a longer period of time and give the markets more time to “do its thing”. Thats why I began not only sharing the shorter-term ideas I had, but also a couple of ways to trade a longer-term strategy as well.
For me, “longer-term” means that holding is still only a month at the most but will allow me to be in the trade longer and ride out more volatility if needed. This is exactly what happened with ABNB. Let’s see how the trade played out:
$145 was a support level from Earnings and the 200-hour moving average was at around $143.60. Furthermore, $142 was a major support level. Thus I made my stop a hold or close below $142. As the market sold off and ABNB moved lower, I scaled into my position. I bought some of the calls at $8 and added around $6 as the stock broke below 145 and tested $142. ABNB tested $142 a few times, at least 4 times on the 1-hour chart, but it never closed or held below. I had my stop in exactly in the right place, and this is why I use mental stops. Had I used an order below $142, I might have been wicked out as price dipped below, but the stock never closed or held below, the requirements of my stop out.
The stock held $142 got back above $145. Then on Tuesday August 24 we had some great news, the FDA gave Pfizer Vaccine Approval, and hospitality stocks rallied. ABNB broke $160 to hit a high of $163, and I was able to get out of my ABNB options in the $13’s from an average in the $ 7’s. It took a few weeks for my idea to work, but my ability to adapt to the market and give myself some added time and room allowed the trade to play out.
It was not the easiest trade, I had to hang in there as the market tested my resolve, but the trade setup was executed.
Your everyday experiences can help you find nice trading setups. My experiences with ABNB helped me find the conviction to trade the stock post corporate earnings. I love the product, and I use it. My recent experiences with their site gave me the impression that there was a lot of pent-up demand for their product. When this was reflected in their earnings, I had the confidence to take a trading setup despite some market fears related to the Covid Delta Variant. When the price action, chart and fundamentals lined up I pulled the trigger. By learning from recent action, I gave myself the time and room for the setup to play out its course. Putting technicals and fundamentals together can lead to some satisfying trade ideas!