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New Oriental Education Called Into The Principal's Office

What's the best play with New Oriental Education? There may be an attractive short-term trade coming up Thursday. Near the end of the day, if still trading lower, sell out of the money puts.

Fear of continued losses tends to push portfolio insurance prices up dramatically, while at the same time the stock should bottom. Short interest is relatively small (about 5%), removing the largest catalyst for a move higher.

It's not one to get greedy with; hold on for a few days and as the implied volatility falls (hopefully with a dead-cat bounce), exit out with a quick hit and run for profits. Otherwise, for longer-term investors, the best play is to wait until the SEC investigation is finalized for an entry. (Read my Bridgepoint Gets Detention and Green Mountain's Down the Cliff article.)

BPI Chart BPI data by YCharts




The other education stocks will likely bounce back quickly as investors formulate the issue is isolated to New Oriental Education. I entered into a long position with Bridgepoint Education by selling put options.

At the time of publication the author was long BPI.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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