EOT Trade Alert – February 10, 2009

| February 10, 2009

February 10, 2009

Trade Alert:

   Buy TM April 2009 $55 PUTS at $2.25 or better (TMPK)

Company Background:

Toyota Motor (TM) is one of the world’s largest automobile manufacturers.  They make cars, trucks, vans, and busses.  Toyota has more than 300,000 employees worldwide.

Short-Term Catalyst:

Toyota is based in Japan.  This seems to be a small but important point.  Have you seen what’s going on with the Japanese Yen?  It’s been going up and up and up.  That makes exports from Japan very expensive.  Think about it this way.  As long as the Yen is high, the major companies in Japan are being hurt.

And Toyota is one of them.

Add to the Yen issue, the horrible sales numbers in the automotive market… and we have a recipe for disaster.  I’m not going to waste your time by rehashing all the bad news out in the market.  If you want to read about it, any major news source will have stories galore.  They’ll talk about the poor earnings, the layoffs, the excesses now catching up with these companies.

So, why am I now focusing on Toyota?

One of the big reasons is the technical indicators.

Take a look at the chart below.  Do you see how the stock seems to be on a roller coaster?  It trends up for a week or so, then it trends down for a week or so.  Then it starts trending up again.  This is the sign of a company trading in a channel.

Toyota should continue trading in this sideways channel for some time.  At least until some fundamental news pushes it out of the range.

The way I see it, Toyota just finished a move up and now looks poised to fall.

It could be good for 5 to 7 points at the least.  Now there is a bit of risk.  If the US government gets its act together and passes the stimulus bill, we might see the market rally.  But right now, this trade looks too good to pass up.

It’s important to note, the option I selected is out of the money.  That means the stock is trading for more than the strike price on the put option.

Our support levels (where you might look to exit the trade) will be higher than this strike price.  That means, we’re not looking to hold onto this option till expiration (we never suggest this).  We’re looking to trade this option.  When the stock price falls, the option value will go up.  When we have a nice profit in the option, we sell it.  I’ll never suggest exercising an option (you either “buy to open” or “sell to close” your options).

Keep your eye on this one, a move could happen very quickly.

Trade Details:

Option Ticker Symbol: TMPK
Underlying Stock Symbol: TM
Current Bid-Ask Price: $1.85 – $2.00
Option “Buy Up To” Price: $2.25
Break-Even On Stock At Expiration: $52.75
Maximum Risk Per Contract: $225

Exit Strategy:

TM is trading at $68.39 per share.  Resistance levels will be at $72.50 and again at $75.  Remember we want this stock to move lower.  Support levels will be at $62.50 and $60.  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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