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This Smart Home Trade Has a Potential Return of Almost 100%

This Smart Home Trade Has a Potential Return of Almost 100%

In the news recently, Business Wire reported, that Allegion plc (NYSE: ALLE), a leading global security products and solutions provider, announced that Schlage® commercial electronic locks now support contactless student IDs in Apple Wallet – allowing students to open doors in residence halls and other secure spaces with just their iPhone and Apple Watch.

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  • The stock moved higher, possibly in part because of the announcement.

    ALLE daily chart

    Mercer University in Macon, Georgia, is the first school to launch contactless student IDs in Apple Wallet using both Transact Mobile Credentials and Allegion locks for a convenient and secure campus experience.

    “Best-in-class customer experience through great products and connectivity will drive our future innovation,” said David D. Petratis, chairman, president and CEO of Allegion.

    “Supporting contactless student IDs through Apple Wallet is an opportunity to leverage our historic strengths as a global security provider while also driving seamless access and simplifying people flow.”

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  • This new capability is specific to Schlage AD-300 and AD-400 electronic locks, which feature built-in credential readers and access control sensors for simplified installation.

    “We’ve seen the shift where people are becoming less dependent on cards and more dependent on their mobile phones, and it’s no surprise that college students are embracing this change,” said Jeff Koziol, Allegion business development manager, campus software partner.

    “Allegion is proud to support this digital and mobile transformation in a way that improves security and the student experience across campuses.”

    To help enable contactless student IDs in Apple Wallet, Allegion supports Transact Mobile Credentials.

    David Marr, CEO of Transact, said, “To properly serve tech-savvy students, we need to deliver solutions that meet their expectations of a frictionless and elegant experience.

    Mobile is central to that experience. Transact is excited to have the support of our partner community, like that of Allegion, to enhance and expand a native NFC mobile experience across campuses.”

    In addition to adding convenience, contactless student IDs in Apple Wallet provide added security. Universities can remotely issue credentials over-the-air, and credentials are protected by multi-factor authentication and can also be remotely deactivated by the student or university.

    Schlage AD-400 Series wireless locks were designed to reduce installation costs on interior access-controlled doors, such as student rooms, faculty offices, classrooms and lab spaces, while offering the adaptability to support future evolutions in technology.

    The AD-400 and AD-300 locks are available in cylindrical, mortise, mortise deadbolt and exit trim chassis options, and they integrate into popular electronic access control systems.

    The stock has been in an up-trend and could add to its gains.

    ALLE weekly chart

    A Trade for Short Term Bulls

    As with the ownership of any stock, buying ALLE could require a significant amount of capital and exposes the investor to standard risks of owning a stock.

    To reduce the risks of a trade, an investor could purchase a call option. This allows them to benefit from upside moves in the stock while limiting risk to the amount paid for the options. However, buying a call option can also require a significant amount of capital and includes the risk of a 100% loss.

    Whenever an option is bought, the maximum risk is always equal to 100% of the amount of spent to purchase the option. Since options cost significantly less than a stock, the risk in dollar terms will usually be relatively small to own an option.

    To further limit the risks of the trade, an investor could use a bull call spread. This strategy consists of buying one call option and selling another at a higher strike price to help pay for the cost of buying the first call. The spread strategy always reduces the risk of an options trade.

    This strategy is designed to profit from a gain in the underlying stock’s price but has the benefit of avoiding the large up-front capital outlay and downside risk of outright stock ownership. The potential risks and rewards of this strategy are summarized in the chart below.

    bull call spread

    Source: The Options Industry Council

    Both the potential profit and loss for the bull call spread are limited. The maximum loss is equal to the net premium paid when the trade is opened. The maximum profit is limited to the difference between the strike prices, less the debit paid to put on the position.

    This strategy could be especially appealing with high priced stocks where the share price and options premiums are often a significant commitment of capital for smaller investors.

    A Specific Trade for ALLE

     Every day, we scan the markets looking for trades with low risk and high potential rewards. These trades are available almost every day and we share them with you as we find them. Now, it’s important to remember these are trading opportunities in volatile stocks.

    When we find a potential opportunity, we evaluate it with real market data. But because the trades are volatile, the opportunities may differ by the time you read this. To help you evaluate the current opportunity, we show our math and explain the strategy.

    For ALLE, the September 20 options allow a trader to gain exposure to the stock.

    A September 20 $115 call option can be bought for about $2.20 and the September 20 $120 call could be sold for about $0.50. This trade would cost $1.70 to open, or $170 since each contract covers 100 shares of stock.

    The amount paid to enter the trade is the largest possible loss on the trade. This is generally true whenever a trader is creating a debit to enter an options trade. “Creating a debit” means there is a cost to enter the trade. You could create a debit by simply buying puts or calls to open a directional trade.

    In this trade, the maximum loss would be equal to the amount spent to open the trade, or $170.

    The maximum gain on the trade is equal to the difference in exercise prices less the amount of the premium paid to open the trade.

    For this trade in ALLE the maximum gain is $3.30 ($120 – $115= $5; $5 – $1.70 = $3.30). This represents $330 per contract since each contract covers 100 shares.

    Most brokers will require minimum trading capital equal to the risk on the trade, or $170 to open this trade.

    That is a potential gain of about 94% based on the amount risked in the trade. The trade could be closed early if the maximum gain is realized before the options expire.

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