EOT Trade Alert – May 25, 2012

| May 25, 2012

May 25, 2012

Trade Alert:

  Buy DRYS September 2012 $2 Call options for $0.60 or better

Company Background:

DryShips (DRYS) owns dry bulk carriers and tankers that operate worldwide.  The company also owns a fleet of 49 dry bulk vessels of varying sizes.  They primarily carry dry cargo including iron ore, grain, minerals, cement, and other construction materials. These raw materials and products are used in a number of industries.  In addition, DRYS owns and operates nine offshore ultra deepwater drilling units.

Short-Term Catalyst:

Shares of DryShips have recently fallen over 25% on the heels of ongoing global growth concerns.

Now, it’s no secret that the dry bulk shipping industry suffered a topsy-turvy 2011.  A glut of floods, collapsing freight rates, and earthquakes hit the industry pretty hard.

Now looking forward…

The dry bulk shipping industry seems to be on a strong comeback in 2012.

Despite the news of slowdowns in Europe and China’s industrial production, one thing is for certain, it won’t last forever.

Quite simply, when economics turn away from austerity and the focus turns to growth, production will quickly pick up.

I think the global economy will begin this recovery in the second half of the year.  And this will make the dry bulk shipping industry a leader in the global economy once again.

At this point, we’ll have to look no further than DryShips to carry products back and forth between countries so they can help in the rebuilding and growth process.

This recently beaten down stock will be on the brink of flourishing once again.

Wait, there’s more… while global production has slowed, DRYS has engaged in outside activities to remain profitable.

During the last year, DryShips has secured several off shore deepwater oil-drilling rigs.

Not only that, DRYS had secured long-term contracts in 2011 for two of its largest rigs.  This would allow them to spin off the units to oil company Ocean Rig (ORIG). This is scheduled to occur sometime by the end of this year.

To top it all off…

Between a second half recovery and the sale of some of DryShips assets, analysts expect a year-end price target of around $6.00 a share.

It’s now the perfect time to take advantage of this inexpensive stock to buy some call options and wait for this company to go parabolic.

Trade Details:

Underlying Stock Symbol: DRYS
Current Bid-Ask Price: $0.53 – $0.56
Option “Buy Up To” Price: $0.60
Break-Even On Stock At Expiration: $2.60
Maximum Risk Per Contract: $60


Exit Strategy:

DRYS is trading at $2.28 per share.

This is very important.  This option is in the money.  So, for example, if you purchase the option at $0.60 and it expired today, it would be worth $0.28.  Meaning, you’d only lose $0.32 a share or $32 for each contract you purchased.  The reason for using this strike is due to the slow and steady upward movement DRYS has shown in the past. The way this option will move will be closely correlated with the stock in a positive fashion.

Resistance will be at $2.90 and again at $3.20.  Don’t forget, we want this stock to move higher.  Support levels will be at $2.10 and $1.90.  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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