EOT trade alert April 24, 2014
April 24, 2014
Trade Alert:
Buy JOY June 2014 $60 Puts at $2.40 or better
Company Background:
Joy Global (JOY) manufactures and services mining equipment for the extraction of coal, copper, iron ore, oil sands, gold, and other minerals.
Short-Term Catalyst:
Joy Global has been on the upswing lately. The stock is up 8.5% in the last month alone.
Today’s better than expected earnings from competitor Caterpillar (CAT) could be seen as a positive for JOY. But that’s not the case… in the comments about their earnings, CAT revealed the mining segment of their business is getting worse.
CAT was able to overcome this because they’re a much more diverse company than JOY. But JOY is solely focused on the mining business. And mining companies just aren’t spending enough money on new equipment for JOY to live up to current expectations.
If JOY’s earnings fall short, or if they provide worse than expected forward guidance at their quarterly earnings announcement, we could see a big drop in the stock price.
What’s more, the recent rally in the stock price has pushed JOY up to resistance of the price channel it has been trading in over the last several months. And it’s right at resistance from the high in May of 2013.
In short, this is an opportunity to buy put options on JOY in anticipation of a technical correction and worse than expected earnings.
Trade Details:
| Underlying Stock Symbol: | JOY |
| Current Bid-Ask Price: | $2.15 – $2.25 |
| Option “Buy Up To” Price: | $2.40 |
| Break-Even On Stock At Expiration: | $57.60 |
| Maximum Risk Per Contract: | $240 |
Exit Strategy:
JOY is trading at $61.34 per share. Resistance levels will be at $63.00 and again at $65.00. Remember, we want this stock to move lower. Support levels will be at $58.75 and $55.00. Conservative investors should look to exit at the first support or resistance level. Aggressive investors may want to hold for a bigger move.
Chart:
Category: EOT Trade Alert
