Options Alerts

Options Alerts

Action EXPD

11/04/09 - 02:06 PM EST

Rolling Out a Spread

After you receive this Alert, we will roll out (in other words, trade one call spread for another) the current model portfolio position in Expeditors (EXPD:Nasdaq) as follows:

The Trade:
-- Sell to close 20 November $20 calls (URPKD) at $11.60.
-- Buy to close 20 November $30 calls (URPKF) at $2.10.

And
-- Buy to open 20 January $20 calls (URPAD) at $11.60.
-- Sell to open 20 January $30 calls (URPAF) at $2.85.

Note the following about this January call spread:

-- Will be profitable if the stock closes at $28.75 or higher at expiration.

-- Maximum gain is $1.25, minus commissions.

-- Maximum loss is $8.75, plus commissions.

Now for the important part: What is the justification for entering this trade?

My main reason is because the bull case for this stock still holds. On a fundamental basis, Expeditors currently trades at approximately 25 times trailing 12-month earnings. While that level is higher than the types of trades we usually like to pay, it is lower than the median multiple that Expeditors has traded on in the past. At that valuation, I think it can hold the floor we need to execute this trade.

Now let's get out there and make some money!

Regards,

Jud Pyle

Send email to optionsalerts@thestreet.com

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R. Judson (“Jud”) Pyle is the Chief Investment Strategist for PEAK6 Media LLC (also known as www.ONN.TV) and is also the author of TheStreet.com Options Alerts. Mr. Pyle is not restricted from owning individual securities or options. In addition, certain of TheStreet.com, Inc.’s affiliates and employees may, from time to time, have long and short positions in, or buy or sell the securities, or derivatives thereof, of companies mentioned in TheStreet.com Options Alerts and may take positions inconsistent with the views expressed.

TheStreet.com Options Alerts contains the author's own opinions, and none of the information contained therein constitutes a recommendation by TheStreet.com or any of the contributors that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The author will not advise you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Past results are not necessarily indicative of future performance.

IMPORTANT RISK DISCLOSURE: Options trading carries substantial monetary risk and may not be suitable for all investors. Unlike stock trading, there are different levels of risk associated with various options positions, and you should familiarize yourself with the type of option (i.e., put or call) you contemplate trading. Short options positions have an unlimited risk and are subject to margin calls or liquidation in accordance with Regulation T requirements. Due to the leveraged nature of options, a short or naked options position can result in loss several magnitudes greater than the initial investment or capital requirement. If the option is not covered, the risk of loss can be unlimited. You should calculate the extent to which the value of the options must increase in order for your position to become profitable (taking into account the premium and all transaction costs). Only risk capital should be used for margin-based trades.

TheStreet.com Options Alerts portfolio is a model portfolio of stocks and options chosen by the author in accordance with her stated investment strategy. Your actual results may differ from results reported for the model portfolio for many reasons, including, without limitation: (i) performance results for the model portfolio do not reflect actual trading commissions that you may incur; (ii) performance results for the model portfolio do not account for the impact, if any, of certain market factors, such as lack of liquidity, that may affect your results; (iii) the stocks and options chosen for the model portfolio may be volatile, and although the "purchase" or "sale" of a security in the model portfolio will not be affected in the model portfolio until confirmation that the email alert has been sent to all subscribers, delivery delays and other factors may cause the price you obtain to differ substantially from the price at the time the alert was sent; and (iv) the prices of stocks and options in the model portfolio at the point in time you begin subscribing to TheStreet.com Options Alerts may be higher than such prices at the time such stocks or options were chosen for inclusion in the model portfolio. Past results are not necessarily indicative of future performance.
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