Apollo Group, Inc. (NASDAQ: APOL) is one of the few for-profit education stocks trading higher now that at least some of the proposed government regulations regarding student aid are out. From student loans to “accredited” status to after-graduation employments rates, Washington, D.C., has the sector under fire.
The first round of regulation deals with the principal repayment rates, among other things. The comment period for the proposed rule expires on Sept. 9, which means that these education companies have three weeks to lobby. The Department of Education has indicated that it plans to issue a final regulation by Nov. 1, in which case the new regulation would be effective as of July 1, 2011. In short, whatever is coming is likely coming soon.
Apollo shares are higher even though it released this morning that its University of Phoenix unit has been asked by its accrediting agency to show evidence it complies with standards. The company said it believes it is fully compliant.
For a speculative options play, we are looking out to September and November at the far-out-of-the-money options to capture upside exposure in case APOL rallies. Shares are up almost 5% at $41, and the 52-week trading range is $38.39 to $76.86.
There are two trade ideas here: The APOL Sept 47 Calls at 75 cents will offer significant upside if the bounce continues. And if you want to buy more time to allow for more clarity, then the APOL Nov 50 Calls at $1.35 offer the best bang for your buck.
If the government comes up with more creative ways for the for-profit education institutions to be out of compliance, then there will be more pain ahead for this sector. There will be winners, but there will be some obvious losers too. Apollo is one of the more established of the online educators, and its shares are acting as though it will be one of the winners.
Keep in mind that this is a highly speculative trade. It is not quite a Hail Mary pass with six seconds on the clock, but it isn’t a fake field goal attempt either.
Follow Jon Ogg on Twitter @jonogg.
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