Ride the Ryder Rebound

by John Kmiecik | August 12, 2013 8:17 am

The recent market activity has made bullish traders a little nervous. But just because the market isn’t moving higher, that doesn’t necessarily mean an individual stock can’t rise. Here is a trade idea on a stock that is possibly poised to rise if some criteria are met.

Ryder System (R — $60.64): Long Calls

The trade: Buy the Sep 62.5 calls for $1.10 or less.

The strategy: Buying a call option is probably the most basic strategy in options. For this trade to profit, the stock needs to move higher and the call premium needs to increase to an amount more than was paid. Maximum profit is theoretically unlimited because R can continue to rise, and the maximum loss is $1.10 or whatever was paid for the option if R finishes below $62.50 at September expiration. Breakeven is $63.60 at expiration based on a cost of $1.10.

The rationale: Just about three weeks ago, Ryder said its second-quarter net income rose about 33% compared to last year and also raised its full-year guidance expectations. The truck leasing company said its results were boosted by its leasing and commercial rental. Ryder has been trying to increase its natural gas-powered trucks during the past several years, but it still has been able to increase its dividend as well.

Rchart 300x121 Ride the Ryder Rebound
Click to Enlarge
The real reason this trade idea has a chance to work is because of the chart. The stock has been in an uptrend for about a year, and if we zoom in on a daily six-month chart, we can see the real reason. Ryder has a nice upward-sloping trendline that the stock has not closed below except in April after a wild movement caused by earnings. Currently the stock has traded down to the trendline, which has acted as support for the stock in the past.

A possible reversal would be triggered if the high of Friday — which was $61.28 — is surpassed this week. Watch for that to happen and consider that to be a bullish sign of a potential move higher once again.

As of this writing, John Kmiecik did not hold a position in any of the aforementioned securities. Get a free trial of John’s live options trading room here[1].

Endnotes:
  1. free trial of John’s live options trading room here: http://markettaker.com/options_insider_trial/

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