We continue to have a positive outlook for the technology sector as we see signs of improvement and stability.
Jabil Circuit (NYSE: JBL), together with its subsidiaries, provides electronic manufacturing services and solutions in the Americas, Europe and Asia. JBL recently reported better than expected earnings and offered strong guidance and bullish growth opportunities. In particular, we’ve noticed the upbeat tone from management and its view of the sector in its one-to-three year projection.
Though the shares have fallen from its recent high, we see opportunity in the sector.
JBL is trading at $20.79 and pays a quarterly dividend of $0.07. We think the floor in the stock is around $19, certainly a level where we are comfortable owning the stock. We also feel there is a possibility for an upside move in May ahead of earnings in June. Therefore we like this trade:
Buy JBL May 23 Calls, Sell JBL May 19 Puts
Based on our view we would buy the May 23 Calls and sell the May 19 Puts. This strategy is known as a risk-reversal. This position without any stock ownership simulates a long position in the underlying, and is sometimes referred to as a synthetic long position — Buy Call and Sell Put.
Find more option analysis and trading ideas at Options Trading Strategies.
In this example with JBL at $20.75 we are buying an out-of-the-money call and simultaneously selling an out-of-the-money put. An investor could purchase the JBL May 23 Calls for $0.30 and sell the JBL May 19 Puts for $0.50 and collect $.20 i.e. $0.50 – $0.30 = $0.20.
(Check the JBL option chains for the latest prices).
There are three possible scenarios with this trade:
It could potentially lead to nearly unlimited profit potential if the stock price exceeds the call strike of 23 at May expiration. The investor could sell the call for its premium or exercise the call to buy the stock and, potentially, ride it higher.
If the stock should trade lower than 19 at May expiration, the put would finish in the money and obligate the seller to purchase JBL for $19 a share.
If the stock were to trade in a small range and not exceed either strike prices both options will expire worthless at May expiration and investor would get to keep the initial credit of $0.20.
Stutland Equities is a premier futures and options trading company on the Chicago Board Options Exchange. Founded in 2005 and headquartered in Chicago, Stutland Equities specializes in volatility arbitrage across multiple asset classes.
