Dykstra: Fuel Up on Methanex Calls
Before I discuss today's pick, I'd like to point out that my deep-in-the-money (DITM) calls on Jabil Circuit (JBL) closed for a nice win on Friday. I had 20 December 20 contracts open at an average price of $3.43, so when the option opened on Friday at $4.50, my good-till-canceled sell order was filled at that price and banked a $2,140 win in just 21 days.
If I had purchased the stock outright, I would have needed to spend about $43,700, but by buying DITM calls, I spent only $8,850 and cashed in for a beautiful 24% gain in 21 days. Try doing that at your local bank with standard market interest rates.
It should be noted that 10,169 contracts traded on Friday, when the option price reached our prescribed sell target, as compared with Monday when only 210 contracts were traded, and Thursday when 450 of the December 20s were traded.
Now on to today's pick: Methanex (MEOH), the world's largest producer, marketer and supplier of methanol to markets in North America, Asia Pacific, Europe and Latin America.Methanol is a liquid chemical used in a wide range of consumer and industrial products such as building materials, foams, resins and plastics. Methanol is also used to produce methyl tertiary-butyl ether (MTBE), a gasoline additive used to improve air quality. Methanol is also used to purify waste water and is a convenient fuel for fuel cells being developed for cell phones and laptop computers. Vancouver, B.C.-based Methanex has production facilities in Chile, Trinidad and New Zealand and employs about 800 employees with $2.32 billion in sales. The stock, which closed Monday at $25.60, carries a forward price-to-earnings ratio of 24.15 and has a mind-boggling return on equity (ROE) of 44.76%. The debt-to-equity ratio is 0.375, and free cash flow is $500 million. I like this stock and will be buying 10 October 20s (QPNJD) for $6.30 or better with a good-till-canceled limit order.
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