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CSX: The Big Train Company That Could

NEW YORK ( Options Profits) -- CSX Corp. (CSX - Get Report) is a railroad company that operates in 23 states east of the Mississippi River. It has more than 21,000 miles of track and about 4,000 locomotives. It's also one of our country's best-run railroads.

In June, CSX split 3-for-1 when its stock was trading in the low $70s. Since that time, CSX has declined about 20%, probably because of the erroneous but rampant fear of recession. Like so many quality stocks/companies, CSX is now trading at bargain levels when you consider its past earnings performance and future prospects.

On Oct. 18, CSX should report that even during the rough-and-tumble third quarter of this year, it managed to grow the bottom line by a "mere" 25%! For the fiscal year ending in December, CSX analysts project earnings growth of 25% or more will have been achieved, under conditions that many consider recessionary. Some "experts" are wrong here on CSX's earnings performance (and that of many others), and we'll soon discover who they are.

Let's review the T3/ Options Profits video with Scott Redler and Jill Malandrino as they lay out the fundamental and technical case for the stock:

The charts support the fundamental prospects for CSX. You may want to consider a bullish vertical call spread in CSX, expiring in February. This trade is medium in risk because it a biased to the upside considering CSX stock price projections and potential. This trade is medium in reward potential because it is a hedged spread that caps reward potential. [Check out <a href="http://www.thestreet.com/options-profits/article/hot-topics/labeling-trades-measurement-risk-versus-reward">Skip's Risk Parameters</a>.]

Trades: Buy to open 3 CSX February 20 calls for $2.40 and sell to open 3 CSX February 25 calls at $0.50.

The total risk for the spread is the premium paid, or $1.90, per spread executed.


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At the time of publication, Raschke had no positions in the securities mentioned.

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