By: Steve Smith
There’s nothing better than doing what you enjoy and making money while you’re doing it. The companies I’m looking at for options trading might be more likely to be placed in a “sin stock” portfolio than make into the socially responsible funds, but they involve mostly good clean fun.
More specifically, the two stocks I went long on today via call options are purveyors of pizza and gambling.
International Gaming Technology (IGT)
IGT designs and manufactures equipment and software for slot machines, lotteries, online poker and sports wagering.
Casinos are obviously their largest customer. But the London based company, which already sold into restaurants, bars and even retail locations is now seeing growth this sector in U.S as gaming rules have been relaxed.
IGT expects to earn $2.45 per share in 2018 meaning it trades at just 11x forward eps and currently yields an attractive 2.8% dividend.
The stock jumped up some 13% following its November earnings report, and the chart is now sitting above the $27 support level. Now let’s start options trading.
Buy the April 2018 Calls with the 30 strike for $1.50 a contract.
Papa John’s Pizza (PZZA)
It’s not just the pizza that’s on sale at Papa John’s; so are the shares of this 5,045 location dine-in or take-out/ delivery fast, casual chain.
The stock has tumbled some 35% over the past 52-weeks and now sits at key support at the $55 level.
The company faces stiff competition not just from other pizza chains such as Domino’s and Pizza Hut—which, going by recent announcements, now sell and deliver beer – but it has been its own worst enemy of late.
During the last conference call, the CEO blamed the disappointing earnings on low NFL ratings, related the ‘take a knee’ issue—comments that he then immediately had to walk back and apologize for.
This led to people taking to social media, complaining that the quality of the pizza has declined in recent years, which created a negative feedback loop news. Bottom line, politics and pizza don’t mix.
But at the current price level of just 15x forward earnings, and key technical support $55, I’m buying call options.
Buy the April 2018 calls at then 55 strike for $5.50 a contract.
Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.
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