No Clowning Around: This Etsy Trade Is Dressed for Success

I'll admit when Etsy (ETSY) first came public, I thought it was a bit gimmicky. It was the real arts and crafts time from the movie Happy Gilmore.

Then, I went looking for a Halloween costume. I wanted to go all out for an event parents put on for our local high school band. The look I was going for was a legit Pennywise the Clown from Stephen King's It.

The problem I ran into was how fake and cheap most of the costumes were that I could find online and from local stores. Someone suggested I check out Etsy.

The result:

I'm not artist by any means, so you'll have to excuse the makeup, but the costume came out better than anything I expected.

For those not familiar, Etsy operates an e-commerce platform on which its users can make, sell, and buy goods online and offline around the world. Basically, it's a two-sided marketplace for unique crafts and goods. Etsy provides itself on the creativity you can find on the website.

The company has advanced its platform, so potential buyers can interact with sellers, asking questions or making requests. This also allows for more customization. Etsy management has found this significantly increases sales along with the average order value. In short, Etsy revels in the niche of being a purveyor of the unique, and sometimes bizarre. It's the P.T. Barnum of retail and it works.

Bulls rushed into the stock after its most recent earnings report, pushing shares into the low $70s. After a month of consolidation, an attractive pennant has formed with ETSY breaking above resistance on Tuesday.

The 21-day simple moving average (SMA) now aligns with support while secondary support is only two bucks lower. Additionally, the bullish crossover in the Full Stochastics has been a strong push for bulls in 2019. I believe we're set to test those recent highs and likely continue even higher.

The Trade:

Buy to open 1 ETSY May $70 - $80 call spread at $3.75.

Net Cost: $375

Max Risk: $375

Max Reward: $625

Breakeven: $73.75

Intrinsic Value: $0

Days Until Expiration: 44

If ETSY closes under $66 for multiple days in a row, I could consider cutting the position here and moving on.

At the time of publication, Collins had no positions yet in ETSY.