EOT Trade Alert – December 10, 2008

| December 10, 2008

December 10, 2008

Trade Alert:

    Buy GVA January 2009 $55 CALLS at $2.10 or better (GVAAK)

Company Background:

Granite Construction (GVA) is a heavy civil contractor and a construction materials producer.  Their customers are primarily public governments and private sector clients.

Short-Term Catalyst:

Construction is normally an industry I’d look to invest in right now.  However President-elect Obama is working on a new government stimulus plan… and that changes the playing field.

The last government stimulus involved sending checks to tax payers.  As expected they promptly spent the money, driving good results for the retailers (short-term).  We were able to profit from that move and the eventual fall.

The newest economic stimulus plan is a little different.  The government’s going to spend billions on infrastructure improvements.  Think what you want about the President-elect, personally I think it’s a smart move.  It’s a stimulus package that will get people working again and eventually help the economy.

You know who else is going to benefit from it?  Big construction and engineering firms. That’s why I really like Granite Construction.  A big portion of their business is tied to government funded construction projects.  They are known for their abilities on highway construction and rehabilitation.

That will certainly be an area of focus for this stimulus package.

We’re going to see a ton of money flow into these firms.  As the Obama team releases more and more information to the public, I believe we’re going to see these stocks jump.

On a technical basis, the company’s stock is trading above its 50-day moving average… which recently started turning upward.  We also had a series of moving average crossovers to the upside in late November.  All of this points to a much higher price.

Trade Details:

Option Ticker Symbol: GVAAK
Underlying Stock Symbol: GVA
Current Bid-Ask Price: $1.75 – $1.90
Option “Buy Up To” Price: $2.10
Break-Even On Stock At Expiration: $57.10
Maximum Risk Per Contract: $210

Exit Strategy:

GVA is trading at $46.06 a share.  Resistance levels will be at $50 and again at $55. Support levels will be at $41 and again at $37.50.  Conservative investors should look to exit at the first resistance or support level reached.  Aggressive investors may want to wait for a more aggressive move.



Category: EOT Trade Alert

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