EOT Trade Alert – April 22, 2010

| April 22, 2010

April 22, 2010

Trade Alert:

   Buy WYN Nov 20 2010 $30 Calls at $1.70 or better

Company Background:

Wyndham Worldwide (WYN) is a hospitality company.  They operate hotels and motels under various brand names like Wyndham Hotels and Resorts, Ramada, Days Inn, and Super 8 in the US and internationally.

Short-Term Catalyst:

This is truly a momentum play.  The hotel industry is on fire.

Hotel stocks were among the hardest hit in the market crash of ’08.  So even after a year of moving straight up, they’re still well off their ’07 highs.

Investors continue to pile into hotel stocks as consumer confidence improves.  They’re hoping bookings and room rates will drive revenue and earnings growth.  We’ll see how much they’ve improved when management reports quarterly earnings next week.

WYN has beat the analysts’ consensus estimate in three of the last four quarters.  And each time it’s sparked a new rally.  If they do it again this quarter, I’m expecting the same.

WYN has already had a great run, but amazingly, it still looks undervalued to me.  Its PE is around 16x.  That’s well below the average for the hotel industry.

The charts tell the story of a stock with the mighty ‘mo’.

Since July of 2009, the 20- and 50-day moving averages are in a strong uptrend. Buyers are consistently stepping in to buy on any minor pullback to the 20- and 50- day MA.

Let’s go ahead and pick up these options now before they report earnings next week.

Trade Details:

Underlying Stock Symbol: WYN
Current Bid-Ask Price: $1.35 – $1.55
Option “Buy Up To” Price: $1.70
Break-Even On Stock At Expiration: $31.70
Maximum Risk Per Contract: $170

Exit Strategy:

WYN is trading at $26.68 per share.  Resistance levels will be at $30 and again at $35. Remember, we want this stock to move higher.  Support levels will be at $24 and $21. Conservative investors should look to exit at the first support or resistance level. Aggressive investors may want to hold for a bigger move.



Category: EOT Trade Alert

About the Author ()

Comments are closed.