EOT Trade Alert – May 1, 2008

| May 1, 2008

May 1, 2008

Trade Alert:

    Buy DSX June 2008 $35 Calls at $1.00 or better (DSXFG) 

Brief Company Background:

Diana Shipping (DSX) is a global provider of shipping transportation services.  They specialize in transporting dry bulk cargoes, including commodities like iron ore, coal, and grain.

Short-Term Catalyst:

Last week, Diana Shipping set a release date of May 14, 2008 for their first quarter results.  I’m expecting these results to be good.  We should take a position in the company prior to the announcement.

I know it’s risky.  If results disappoint we could see the stock trade lower.  I think results are going to be in-line or better than expected.  Either way, these options look undervalued and the risk/return ratio is favorable.

Earlier this year the company announced that they were signing long term contracts for two of their ships.  This is a great move as it guarantees future revenues, and allows for significant planning around future ship orders.

Also if customers are willing to sign long term contracts it shows that they are expecting shipping rates to increase.  Otherwise, why lock yourself into a set price if you thought rates would be going down.  This tells me customers are anticipating shipping rates to increase at some point.

The company’s also going to announce its dividend.  If they’re going to increase this dividend, now would be the time to do it.  Any hint of an increase in the dividend and we’d see investors jump into the stock and chase the increased yield.

Let’s see if we can profit from this upcoming earnings release.

Trade Details:

Option Ticker Symbol: DSXFG
Underlying Stock Symbol: DSX
Current Bid-Ask Price: $0.60-$0.80
Option “Buy Up To” Price: $1.00
Break-Even On Stock At Expiration: $36.00
Maximum Risk Per Contract: $100

Exit Strategy:

DSX is trading at 30.90. I’d see resistance levels at 34.50 and 42.  If the stock breaks to the upside beyond 42, it’ll be trading at all time highs.  Support levels are 27.50 and 24.



Category: EOT Trade Alert

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