EOT Trade Alert – May 21, 2009

May 21, 2009

Trade Alert:

   Buy FWRD July 2009 $20 Puts at $2.50 or better (FQXSD)

Company Background:

Forward Air Corp (FWRD) provides ground transportation of cargo as an alternative to air freight.  They move cargo that is less time-sensitive than air freight.  Their customers are airfreight forwarders, airlines, and integrated carriers.

Short-Term Catalyst:

Forward Air’s first-quarter 2009 results were severely hampered by lower shipping volumes.  But the stock price has rallied since their last earnings announcement.

The amount of cargo shipped on its deferred-air network declined more than 20% in December.  So far this year, it’s down about 20% from last year.

The economic recession is putting a big dent in demand for cargo services.

And since the steep falloff in business occurred so abruptly, management was caught by surprise.  They haven’t moved very quickly to reduce the cost base.

All in all this company is facing a tough business environment and they’re not taking the steps they need to.

On a technical basis, the charts look like they are setting up for a pullback.  The stock price recently tested the 200-day moving average and immediately started moving lower.

I’m expecting a quick pullback.

Trade Details:

Option Ticker Symbol:	FQXSD
Underlying Stock Symbol:	FWRD
Current Bid-Ask Price:	$1.75-$2.20
Option “Buy Up To” Price:	$2.50
Break-Even On Stock At Expiration:	$17.50
Maximum Risk Per Contract:	$250

Exit Strategy:

FWRD is trading at $19.50 per share.  Resistance levels will be at $21 and again at $22.50.  Remember, we want this stock to move lower.  Support levels will be at $17.25 and $16.50.  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