Posts Tagged ‘Option Strategies’

Option Strategies for Teva Pharmaceuticals (TEVA) Teva Pharmaceuticals (NASDAQ:TEVA) hasn’t had the greatest week as far as analyst opinion is concerned.  Research analysts at Deutsche Bank reduced their 12-month price target on the stock to $64 from $66 on Wednesday, albeit keeping a “buy” rating on the shares.

Elsewhere, Morgan Stanley lowered its earnings estimates on TEVA through 2012. The firm expects 2011 earnings of $5.05 – down from earlier projections of $5.29 – and 2012 earnings of $5.78, from its previous estimate of $6.04 per share.

In terms of price action, TEVA has been virtually flat over the past six months and is down 1% year-to-date, including a sharp drop last week after failing to match analysts’ earnings expectations for the fourth quarter of 2010 or the 2011 fiscal year. (more…)

Ford Motor option strategies With General Motors (NYSE:GM) available again for public trading, Ford Motor (NYSE:F) has gone back to sharing the trading spotlight. But this doesn’t take away from the stock’s impressive performance; Ford shares are up 68% year to date and have climbed nearly 470% during the past two years.

Last week, Mad Money host Jim Cramer reiterated his bullish take on Ford, noting that, “earnings power is huge and the balance sheet is getting better … it would not shock me to see Ford at $20 to $25 next year.” A move to $20 would be a 20% jump in the stock; a move to $25 would mean a gain of almost 50% from current levels. (more…)

Options strategies for Amazon.com Amazon.com (NASDAQ:AMZN) is in the business of selling Kindle e-readers, books, housewares, and just about everything in between (including the kitchen sink). In addition to its peddling of tangible goods, the retailing giant also generates revenue through credit-card services and marketing agreements.

The online business has dominated the e-business space for years, and this has been reflected in the share price. AMZN shares have gained more than 250% in the past five years and are up roughly 30% on a year-to-date basis.

Earlier this week, Credit Suisse upped its price target on the shares to $165 from $145 while maintaining a “neutral” rating on the stock. Perhaps the firm was playing a bit of catch-up with the stock bearing down on the $180 level. In a note to clients, Credit Suisse noted that Amazon has a strong gross and operation margins outlook. (more…)

Kohl's option strategies With the holiday shopping season now officially unleashed, analysts and investors are reviewing the nation’s publicly traded retailers.  Early this week, Bank of America adjusted its 12-month price target on Kohl’s (NYSE:KSS) to $60 from $55, maintaining a “buy” rating.

The firm said November sales numbers are poised to rebound following a weak October.  A price target of $60 implies less than 10% of upside from current levels. This would be roughly on par with the stock’s 12-month return of 6%. In the last three months, however, KSS shares have increased by more than 16%. (more…)

Last week, a number of financial pundits offered their revised opinions on Verizon Wireless (NYSE:VZ) and the message was decidedly mixed.  On one hand, Sanford Bernstein downgraded its rating to underperform from market perform.  The covering analyst noted that shares have run sharply higher since September 1, gaining about 12%. The firm feels this growth may be unsustainable and even worries that the company faces a challenging dividend environment.

On the other hand, Ji m Cramer made bullish remarks on his Mad Money program and Argus upped its rating to buy from hold. Argus did provide a caveat, however, that failure to synch up with Apple (NASDAQ:AAPL) could mean a negative surprise for the communications giant.

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FedEx Option Strategies Earlier this week, FedEx (NYSE:FDX) said it would raise prices by an average of 3.9% beginning January 3 (allowing those holiday packages to go out at the old rate, just under the wire). This could be bad news for companies who pay a lot of shipping costs but will help FedEx offset rising fuel costs. The company’s fuel bill rose 33% over the last year to $887 million.

The price increase was inevitable and probably expected; main competitor United Parcel Service (NYSE:UPS) nudged its own rates higher by 4.9% last year. On one hand, these price increases show some confidence in the health of the shipping business. And shipping is seen as a proxy for the overall economy; the more packages shipped, the more goods produced and sold (or so goes the theory). (more…)

Option Strategies for a Stagnant Market

Friday, October 1st, 2010

101001Stagnant.jpg On CNBC this week, Bill Gross – managing director at Pimco – said the new normal for investing means saying goodbye to double-digit returns.  His basis for thinking this is the new, expanding regulatory environment, which will likely curtail the use of leverage.

What this means to his investment outlook, he wrote in his monthly investment outlook, is that future investment returns will be “far lower” than the historical averages.  With bond yields at 2.5% and the GDP growing between 2-3%, he does not see stock returns being that exciting in the future.

If Mr. Gross’ outlook is correct, it likely means a tough road for stock investors. Hedge funds de-leveraging and banks closing down their proprietary trading desks may mean fewer investment dollars buying stocks. There are option strategies that may be suited to lessen the impact from such a low-return environment. (more…)

Hedging with Spiders Most investors have a long bias to their trading.  They likely research fundamentals of a company, read analysts’ opinions, check on the technicals, and attempt to find quality companies in which to invest.  Unfortunately for these bulls, a weak market will often punish this diligence in stock selection.  Remember all stocks have an overall market component to them, and just as a rising tide raises all boats, sometimes in a falling market the “baby gets thrown out with the bathwater.”

“Hedge your bet”, market commentators have suggested.   Sounds good in theory, right?  However, the cost of buying a stock and subsequently buying puts to hedge against downside moves in the stock’s price can be prohibitively expensive.  This strategy gets especially expensive when the market is nervous or in a downtrend, which may elevate implied volatilities and make those put options even more costly. (more…)

Toyota Motor (TM) option strategies The recall drama isn’t over for Toyota Motor (NYSE:TM), which last week announced the recall of 1.1 million 2008 Corolla and Matrix vehicles, citing engine control troubles.  The potential flaw may result in stalling, which is ironic given that the automaker’s recent high-profile recall dealt with unwanted acceleration.

There hasn’t been any acceleration in the stock of late – unwanted or otherwise.  Since mid-June, the stock has been see-sawing between the 68 and 74 levels. At their current perch, TM is within a chip-shot of its 52-week low and 25% south of its 52-week high, reached in mid-January.

Range-based trading such as Toyota’s can be frustrating for stock traders who see their investments heading nowhere fast. The options market, however, has some potential solutions for sideways-trending stocks, and the short straddle described below is one of them.  We’ve also outlined a bearish put ratio spread for investors who believe this latest recall could spur further downside in the shares.

These are not trading recommendations, merely examples of different options trading strategies for educational purposes. The prices are taken as of Friday afternoon, when TM shares were trading at $69.15, up 43 cents on the day. For a full dissection of the strategies including profit/loss information, (more…)

Boeing (BA)Boeing (NYSE:BA) is seeing some bullish attention this week surrounding its second-quarter earnings report.  Wednesday ahead of the open, the aerospace name said second-quarter earnings came in at $1.06 per share, a nickel better than the consensus view.  Revenue fell short of the mark, however. Nevertheless, Jim Cramer told his Mad Money audience that he likes the stock in the long term, particularly if it tests the $65-$66 region.

Thursday morning, Societe Generale offered its insight, upgrading Boeing from “sell” to “hold”. Interestingly enough, the firm maintains a 12-month price target of $65, which actually allows for a bit of downside in the next year.  Whether you are a Boeing bull yourself or think the stock could stay range-bound, we’ve outlined a couple of option strategies below as examples of how varying outlooks can be represented by options.  Remember that these are not buy/sell/hold recommendations.  The prices are taken Thursday afternoon, when the stock was trading at $67.45, up 13 cents on the day.

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