Smith & Wesson Holding Corp (NASDAQ:SWHC) is soaring today on the heels of better-than-expected earnings. The firearms manufacturer was up as much as 13% in morning trading after reporting earnings per share for the past quarter of 20 cents.
SWHC has really turned a corner in 2015. Last year the bears mauled the stock, taking shares down some 47% before all was said and done. This year, however, the bears have seen an upsetting reversal of fortune.
It’s been open season for bear hunting in the land of Smith & Wesson and the bulls have had deadly aim.
SWHC stock is already up 54% on the year, reclaiming much of the ground lost in last year’s bloodbath.
Not surprisingly, the technical structure of SWHC looks stellar. The price trend is pointing higher and the stock sits atop all major moving averages. The relative strength has been rising all year, showing its outperformance of the broader market.
Following today’s earnings jump, shares of SWHC are a bit overbought in the short run, so don’t be surprised if the stock pulls back or consolidates to digest recent gains before heading higher. A pullback would also provide a lower risk entry than currently offered.
Fire Away With Call Spreads on SWHC
With such a cheap price tag of $14.50 or so, would-be buyers of SWHC could simply buy shares of the stock. Those still interested in a lower-cost alternative can consider using options.
Buy the Jun $14/$16 call spread for 78 cents or better. The risk is limited to the initial 78-cent debit and will be lost if SWHC sits below $14 at June expiration.
The maximum reward is limited to the distance between strikes minus the net debit, or $1.22, and will be captured if SWHC stock can rise above $16 by June expiration.
By using June options you give yourself four months for SWHC to rise above the $16 mark.
At the time of this writing Tyler Craig had no position on any of the aforementioned securities.
