2008 May | Momentum Stock Options Trading Alerts and Option Picks Blog

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Hershey Heats Up

Wednesday, May 28th, 2008

First Bud, now Hershey. It seems America’s favorite chocolate maker, Hershey (HSY, $38.84, down $1.09), is the latest company joining the rounds as possible takeover targets. On Tuesday, Hershey’s stock gained nearly 10% on speculation the company may be considering a joint venture to help lift slumping sales.

The short list for possible partners include Cadbury, Nestle and Kraft Foods (KFT, $32.17, up $0.17). The future of Hershey has been a hot topic lately, especially after the Mars/ Wrigley (WWY, $76.86, down $0.41) merger. Hershey has a lot at stake if it doesn’t do something quick because the new Mars-Wrigley combo is gunning for Hershey’s business in the U.S. and globally. Cadbury and Hershey have talked before and things haven’t worked out…yet. Some analysts believe Cadbury now has the leverage to get Hershey at a discount and close the deal under much better terms.

Either way, the put/call ratio for Hershey options has swung heavily towards the call side. In other words, option traders are trying to bid Hershey higher. There was considerable action today in the 40 calls. The June 40 calls (HSYFH, $0.90, down $0.90) traded nearly 2,000 contracts while the July 40 calls (HSYGH, $1.65, down $0.70) traded close to 5,000 contracts.

Both option contracts took a big hit today as Hershey traded lower. However, today may have provided a good entry point for those of you who are bullish on the stock and think a takeover is imminent. The July 40 calls do not expire until the 18th so they would provide you with more time.

Hershey’s stock is just below $39 and a 10% move would put the stock right around $43. If Hershey were to trade to $43 by July 18 then the July 40 calls would be worth at least $3.00 which would represent nearly a 100% return from current levels. For the June 40 calls; if Hershey was trading at $43 by June 20 then they would also be worth $3.00 and your return would be a little over 200%. The June calls still have three weeks before they expire and the stock would only have to be at $41 for you to break even.

A 10% jump might be asking a bit too much from this stock but there’s a good chance a buyer will emerge. Hershey simply cannot afford to sit around and watch Mars take market share away from it. Yes, there is plenty of risk buying the June or July 40 calls straight up as sometimes this type of news is purely speculation. And that is what this is. Often times these things come true but they take longer than expected. Keep this in mind as options are time sensitive.

Note: Share of Anheuser-Busch (BUD, $55.13, down $1.62) slipped 3% today.

Rick Rouse
Rick@OptionsMentoring.com

Tags: Cadbury, Hershey, Kraft takeover targets, Nestle
Posted in Hot Stocks | No Comments »

Kaydon Hits Blue-Skies

Wednesday, May 28th, 2008

Kaydon Corporation (KDN, $60.47, up $1.36) is doing well today and is in “blue-sky territory.” If you are unfamiliar with the term “blue-sky territory” it is something I say when a stock breaks above all previous resistance points and is at new all-time highs. I’ve been talking about “Wind Power” plays for a while now and these stocks are moving.

Granted, sometimes stocks go through fads and they are either undervalued then get overvalued or they are overvalued and everybody sells them. Kaydon is no different. The company is a supplier of wind-turbine bearings and other products and recently reported earnings that matched Wall Street’s estimates. Some analysts believe Kaydon is “pricey” at these levels but some of them may not truly understand Kaydon’s business.

The company is taking steps to take full advantage of the wind energy market and could surprise those same analysts in the upcoming quarters. Only time will tell just how good their earnings will or will not be but some options traders have been buying calls in hopes of a higher stock price.

The June 60 calls (KDNFL, $2.30, up $0.65) are up nearly 40% on Kaydon’s 2% move today. Some options traders are even buying longer-term contracts in hopes of a continued breakout. The October 60 calls (KDNJL, $5.70, up $1.90) are up 50% and the January 60 calls ($4.90,up $0.80) have advanced 20% today.

Rick Rouse
Rick@OptionsMentoring.com

Tags: blue-sky territory, Kaydon
Posted in Company Commentary, Hot Stocks | No Comments »

Black Box Recovers

Wednesday, May 28th, 2008

Last Friday Black Box (BBOX, $29.31, up $1.30) fell nearly 15% after reporting earnings. Yesterday, the stock recovered about 5% of that loss but will it be short lived? The company’s numbers were decent but were below what one analyst had penciled in. In other words, although Black Box said it expects its fiscal 2009 profit to rise 46% and anticipates profits between $3.25 to $3.40 a share, sales were seen to be flat year-over-year.

Compare this to the $3.36-$3.60 a share Wall Street had expected the company to earn and you can see why the stock fell. Black Box also had its price target cut to $46 from $59 which reflected the lowered forecast.

The options for BBOX were active on Friday but had cooled down by the end of Tuesday’s trading session. However, there was noticeable volume in the June 30 calls (QBXFF, $0.80, up $0.25) and the June 25 puts (QBXRE, $0.20, unchanged) before the final bell sounded.

From a technical standpoint, the stock broke below many of its moving averages and could be filling in some gaps before it starts another leg down. Either way, it would be a stock I would avoid because the average daily volume is barely over 100,000 shares traded and the fills on your option orders may have a wider bid and ask because it is not as liquid as other stocks in the same sector.

Rick Rouse
Rick@OptionsMentoring.com

Tags: Black Box
Posted in Company Commentary | No Comments »

Chipotle Mexican Grill Update

Tuesday, May 27th, 2008

I’ve been fielding a lot of questions on Chipotle Mexican Grill (CMG, $85.07, down $1.03) lately and I thought I would provide an update on what has happened since my last post on the company a couple of weeks ago. Restaurant stocks have taken a beating lately and in that time frame Chipotle has quickly fallen from $95 to $85. That is a small drop if you consider the stock has a 52-week high of $155.

One of the major uncertainties hurting Chipotle and Restaurant stocks in general is the effect of higher food costs. We have all heard about the supposed “rice shortage” and other commodities like corn and meat and veggies could continue higher for the foreseeable future. All of this will no doubt weigh on margins and eateries may have to increase menu prices just to keep up.

In April, when Chipotle was at $110 I talked about how active the May 105 puts were and that the bears could be ready to come out of hibernation. Those same May put options ended up going from $4.50 to over $9.50. I also said it appeared that traders were also rolling out their positions into the June 95 puts (CMGRS, $11.70, up $1.00) which were trading at $5 on 5/16. They have also more than doubled.

I point these things out because it is important to notice trends and what other factors can influence your holdings wheather you are bullish or bearish on a stock. When Chipotle fell below $90 I said momentum could take it to the lows $80’s and we got there Friday when the stock hit a low of $83 and change. Even if you don’t trade options and you were bullish on the stock, you would have saved yourself a lot of money by noticing Chipotle had broken key support levels.

The stock is just a trading day away from setting a 52-week low and usually in these circumstances new lows are made. If $78 is broken then the next level of support could be in the $60’s. Ouch! However, the stock has been hammered and the remaining Chipotle bulls might make a stand at current levels and save it from going below $80.

Rick Rouse
Rick@OptionsMentoring.com

Tags: Chipotle Mexican Grill Update, higher food costs, rice shortage
Posted in Commodities, Company Commentary | No Comments »

Ford/ General Motors Not Seeing Green

Tuesday, May 27th, 2008

It has been a tough road for Ford (F, $6.87, down $0.29) and General Motors (GM, $17.60, down $0.83) lately. Both stocks have taken big hits; GM has fallen from $23 to $17 while Ford has dipped from $8.50 to just below $7 since the start of May.

The race to “Go Green” has taken center stage with the price of oil unlikely to fall below $100 a barrel anytime soon. That may be an understatement in 6-12 months but it is apparent that consumers are doing anything they can do reduce their fuel bill. With the average commuter spending anywhere from $500 to $1,000 a month on a 120 mile round-trip drive to and from work, the auto-makers are scrambling to bring electric cars to the market.

This is where GM and Ford have really been slacking as both companies have always been a step behind the “Go Green” revolution. GM has a planned plug-in hybrid, the Volt, expecting to hit the U.S. market in 2010 but Toyota has the Prius which is selling well over in Japan and will also hit the U.S. market in 2010. Ford is working on the Escape but no date has been announced for its release.

Ford and GM have accelerated the development of the hybrids in the wake of the announced cutbacks in production. GM is also dealing with the strike settlements that will cost the company $2 billion for the current quarter. Ford announced an incredible first quarter last month when it posted a profit of 20 cents versus expectations for a loss of 16 cents. At the time, Ford also predicted a return to profitability in 2009 but you can kiss that promise goodbye as the company announced last week that ain’t gonna happen.

In a what’s hot and what’s not world, SUV’s and utility trucks are out while more fuel efficiency vehicles are in.

Rick Rouse
Rick@OptionsMentoring.com

Tags: Ford, General Motors, hybrid cars
Posted in Company Commentary | No Comments »

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TERENCE
“Rick – Thanks for Dendreon – it has made all the headlines today! I missed on RIMM earlier, but I’ve been holding onto DNDN calls since 3rd week March. Of course today it all paid off today, as DNDN rocketed up.”

Archive for May, 2008

Hershey Heats Up

Kaydon Hits Blue-Skies

Black Box Recovers

Chipotle Mexican Grill Update

Ford/ General Motors Not Seeing Green