While the overall market has been on a resounding bull run of late, some stocks have been vastly outpacing these heady gains. One of these stocks is Tempur-Pedic International (NYSE:TPX), which has lifted from $52.50 to $71 this year, or a 35% gain over the past month.
Although this manufacturer and distributor of mattresses and pillows (which operates in approximately 80 countries worldwide) did have a small beat on earnings, the stock price would imply that it crushed expectations.
With expectations of $3.85 per share for 2012, the forward multiple is at nearly 18.5, well above its five-year average of 16.27. Other sentiment indicators, such as its nine-day Relative Strength Index (RSI) levels, are extremely overbought.
Putting a more-reasonable multiple of 17 on the shares places the stock at $65, which is our price target for June expiration.
Based on TPX’s current market price of $71.13 and using a target price of $65, a target date of June 15, 2012, and $1,000 of investment capital, you can capture some nice gains by selling a June 70-75 call spread, buying a June 75-65 put spread or using another options strategy that best fits your trading style and goals.
For the full details on this trade, visit TradingBlock.com, create a free Instant Login and try the TradeBuilder feature, where you’ll see several ways to trade this name. Best of all, you can see a potential profit-and-loss outline for each strategy.
Create your free login, and get access to the details about these TPX options trading strategies by visiting the TradeBuilder here.