EOT Trade Alert – August 12, 2010

| August 12, 2010

August 12, 2010

Trade Alert:

   Buy APOL November 20 2010 $37.00 Puts at $2.65 or better

Company Background:

Apollo Group (APOL) is a for-profit education company.  They provide secondary education through a number of private colleges across the US and internationally.

Short-Term Catalyst:

Delve into the world of a for-profit education recruiter.  You’ll find it’s much like an old stock market boiler room.

At least that’s the picture a GAO investigation and testimony one former recruiter painted.  His written testimony to the U.S. Senate Committee on Health, Education, Labor and Pensions is pretty damning.

The high pressure sales tactics recruiters use have driven enrollment in the for-profit education industry.  They’ve shot from 365,000 student enrolled to over 1.8 million in the last several years.

These practices have landed the entire industry in the Federal Government’s crosshairs.  New legislation limiting marketing and recruiter compensation is going to hurt the industry.

And the government could go even further…

They could limit the amount of government-backed student loans and grants available to the industry.  In 2009, students at for-profit colleges received more than $4 billion in Pell Grants and more than $20 billion in federal loans provided by the Department of Education.

This is the industry’s lifeblood.  Without government-backed loans, the industry is dead.

How bad is it going to get?

Just let your imagination run wild.

You see, the new regulations won’t be handed down for a few months.  In the meantime, investors’ imaginations will run wild.  The uncertainty is going to crush stock prices.

It’s time for action.

Let’s grab puts on APOL now to profit from the demise of the for-profit education industry.

Trade Details:

Underlying Stock Symbol: APOL
Current Bid-Ask Price: $2.53 – $2.59
Option “Buy Up To” Price: $2.65
Break-Even On Stock At Expiration: $34.35
Maximum Risk Per Contract: $265

Exit Strategy:

APOL is trading at $40.94 per share.  Resistance levels will be at $45 and again at $50. Remember, we want this stock to move lower.  Support levels will be at $35 and $30. 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

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