by John Kmiecik | November 21, 2013 8:10 am
If you are trying to sell something, you usually need to advertise to have a better chance of succeeding. After all, people won’t buy something if they don’t know about it in the first place. Information works much the same way in trading — the more you know, the better your odds of success. This trade idea on Lamar Advertising (LAMR), for instance, looks pretty good once you start digging into the info.
The trade: Sell the LAMR Dec 46/48 Put Credit Spread (selling the Dec 48 put and buying the Dec 46 put) for 35 cents or better.
The strategy: The maximum potential profit for this trade is 35 cents if LAMR is trading above $48 at December expiration. The maximum loss is $1.65 ($2 – $0.35) if LAMR is trading below $46 at expiration. Breakeven is $47.65 based on a credit of $0.35.
The rationale: Lamar Advertising is one of the biggest owners and operators of outdoor advertising and logo signs. LAMR announced its third-quarter earnings earlier this month and showed signs of growth. Revenues increased 5.5% from a year earlier, and net income grew from $11.5 million to $18.3 million. Revenues also increased for the first nine months compared to last year. LAMR also has tried to improve its existing web presence by making it more user-friendly; if these latest numbers are any indication, it looks like it might already be paying off.
Click to Enlarge Lamar Advertising’s stock has been moving higher since the beginning of September. LAMR currently is trading at levels it has not been since late 2007, which correlates to a possible continued move higher with no pending resistance in the way.
LAMR has some minor support from previous pivot levels that needs to hold for this trade idea to profit. LAMR also has another area of possible support at the sold strike, which is at $48.
Implied volatility is currently above historical levels, too, which makes selling credit spreads like this one advantageous for the trader thanks to the premiums being potentially a little expensive.
This trade idea looks so good, it might not even need any advertising!
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.
Source URL: http://investorplace.com/2013/11/credit-spread-lamar-advertising-lamr/
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