February’s high holy holiday is almost upon us. No, not Valentine’s Day — we’re talking about Super Bowl Sunday!
The playoff games offered one nail-biting finish after the next, and the Giants-Patriots matchup for Super Bowl XLVI in Indianapolis is sure to be the top topic at watercoolers all around the country on Monday morning.
While 100-million-plus viewers are expected to tune in to see the last game of the season, they would probably agree, however, that the real action takes place during the commercial breaks.
With 30-second ad spots going for $3.5 million, and with 70 slots available, keep a close eye on the companies that snapped up these coveted spots that will be filled appearances by such stars as Jerry Seinfeld, Jay Leno, John Stamos, supermodel Adriana Lima and the band Motley Crue, not to mention a bevy of shiny toys like autos and electronics that will capture your attention even if the celebrities don’t.
With all the talent being hired for just a few seconds of airtime, it’s safe to say the parade of marketing dollars being spent is sure to be an entertaining one … and one that’s likely to serve as an indicator of an economy on the mend or, at least, advertiser optimism that viewers are ready and eager to splurge on their products.
Your OptionsZone experts will be keeping a close eye on the big game (that’s how dedicated we are to you!), and we’ve got some predictions for the big winners of the day. No, we can’t tell you whether Eli Manning or Tom Brady will take home the trophy, but today we’re looking at five option plays that will let you play ball with the big boys, but without all the injuries!
Trade #1 — PepsiCo
Recommended by Wade Hansen and John Jagerson, SlingShot Trader
Ready to dig into some Cheetos, Doritos or Lay’s potato chips and then wash them down with a nice Pepsi or Mountain Dew while you’re watching the Super Bowl? Then you should consider munching on some long calls on PepsiCo (NYSE:PEP).
PepsiCo releases its quarterly earnings a few days after the Super Bowl — Thursday, Feb. 9, before the market opens — and we anticipate the announcement will propel the stock further along its current uptrend.
The stock is coming down from its recent highs around $67 but should find solid support at $64. This would be a great price point to enter your bullish option trade.
Revenues at PepsiCo are climbing. The company recently announced that three more of its beverage brands — Diet Mountain Dew, Brisk and Starbucks — have surpassed the $1 billion annual revenue mark, which brings the company’s billion-dollar-brand total to 22.
Analysts also anticipate the company is going to announce a new marketing and cost-cutting strategy to boost brand awareness and streamline operations. The boost in sales that should come from an increased marketing spend, coupled with higher profit margins as costs contract, should boost investor confidence in the company and warrant a higher stock price.
To take advantage of the Super Bowl snack rush and PepsiCo’s earnings announcement, we recommend you buy to open the PEP Feb 65 Calls for less than $1.35 before Super Bowl weekend.
Trade #2 — Diageo
Recommended by Jim Woods, InvestorPlace Contributor
I think one should always write about what one is most familiar with, and so I am pleased to choose as my Super Bowl option trade liquor company Diageo plc (NYSE:DEO).
Sure, we are likely to see a whole lot of beer commercials during the big game from company’s like Anheuser-Busch InBev (NYSE:BUD), but consumers are looking for something a little harder these days, and some of the most popular hard stuff is made by Diageo.
The company sports brands such as Bushmills Irish whiskey, J&B Scotch, Jose Cuervo tequila and Ketel One vodka, among many others, and is the 800-pound gorilla in the hard liquor industry. That industry is on the march and, according to the Distilled Spirits Council of the United States, the volume of spirits sold in the U.S. jumped 2.7% in 2011 from the prior year, while sales grew 4% to $19.92 billion.
I expect this trend to continue, and that means we are likely to see a move higher in DEO shares. Options players can take advantage of this move with the DEO July 95 Calls.
If you’re anything like me, you’ll be doing your part to support Diageo’s bottom line — and that’s something we can all drink to!
Trade #3 — Silver Wheaton
Recommended by Ken Trester and Jeff Carter, Maximum Options
The prize that the Giants and the Patriots will be fighting over on Sunday is the Vince Lombardi trophy (and bragging rights for life, of course). The trophy is made of sterling silver — seven pounds’ worth — and that is exactly what we’re betting on for our Super Bowl trade.
Silver Wheaton (NYSE:SLW) operates as a silver streaming company with operations worldwide. Its stock price basically tracks the price of silver, which is showing renewed strength on the back of U.S. dollar weakness. Consensus analyst opinion is for a stock price target of $48 over the next 12 months.
The stock made a double-bottom at about $27.50 and has been rallying off of that. It has crossed above its 200-day moving average, although the 50-day moving average is lagging the 200-day.
If you don’t want to buy the stock, establishing a put credit spread is a great way to get positioned in SLW and get paid at the same time. To establish this trade, you’ll “sell to open” the SLW March 31 Puts and simultaneously “buy to open” the SLW March 28 Puts for a spread credit of 30 cents or higher.
SLW has chart support at $33.50 with its 200-day average and again at about $32 with its 50-day moving average. This position generates a 10% return on margin (60% annualized). Your maximum risk is $270 per contract ($31 strike – $28 strike = $3, minus the 30-cent credit = $2.70 per share x 100 shares in a contract).
A put credit spread is a bullish position in which you want the stock price to stay above the upper strike price of the spread. Use an auto-stop order to close this position if SLW trades below $31 prior to March options expiration and you do not want to buy the stock. If you do not close the position and the SLW Mar 31 Put expires in-the-money you will be obligated to buy 100 shares of the stock at $31 per share for each credit spread contract you open.
A credit spread involves writing (selling to open) an option and purchasing (buying to open) an option at a different strike price in the same underlying security. The position, or leg, of the spread trade that you sell gives you a cash credit to your trading account. The option you buy limits your risk and lowers your margin requirement for the trade.
In a credit-spread trade, you collect more money on the leg you write than you spend on the leg you buy, so you are getting paid to enter the trade! For maximum profits, you want both options involved in the spread to expire out-of-the-money. But regardless of what happens to the options, the money you receive for opening the position is yours to keep.
Trade #4 — Anheuser-Busch InBev
Recommended by Tyler Craig, Tyler’s Trading
While the outcome of this weekend’s Super Bowl remains highly contested, one thing we can all agree on is that copious amounts of alcohol will be consumed by millions of football fans across the country.
No doubt this is a fact that Anheuser-Busch InBev (NYSE:BUD) plans on exploiting through its purchase of four-and-a-half minutes of commercial time set for Sunday’s game. Let’s hope they deliver the comedic goods for the sake of those who watch the Super Bowl for the commercials alone.
Though adopting an investing thesis around the Super Bowl borders on silly, it does provide an excuse to at least assess the charts to determine if the price action corroborates your bullish or bearish bias. BUD currently finds itself in the midst of a solid intermediate-term uptrend with a rising 50-day moving average. The recent pullback may be providing a low-risk opportunity to enter bullish plays.
Traders looking for bullish exposure might consider entering the BUD March 60-65 call spread by buying to open the BUD March 60 Call and selling to open the BUD March 65 Call for a net debit of $2. The risk is limited to the initial $200 ($2 x 100) paid at trade entry and will be incurred if BUD sits below $60 at March expiration. The max reward comes out to $300 and will be captured if BUD rises above $65 by March expiration.
Trade #5 — General Motors
Recommended by Dawn Pennington, InvestorPlace Contributor
Maybe your team got Tebowed out of its chance to shine in the Super Bowl, and you don’t have any skin in the actual game this year. Personally, I’ll be closely following my own fantasy football league of advertisers, particularly the dozen-plus automakers who are plunking down $3.5 million for every 30-second spot they buy.
While Honda (NYSE:HMC) brilliantly revived Matthew Broderick’s legendary “Ferris Bueller” character (you can watch the full 2 ½-minute version here) to promote its CR-V, the carmaker may not have enough momentum for the uphill battle it faces in the United States against its many competitors.
Sure, Honda expects sales to grow more than 20% this year here. But less-than-stellar sales combined with extensive inventory damage after last year’s tsunami in Japan and floods in Thailand, not to mention a strong yen (against the U.S. dollar) making its exports less competitive for overseas buyers, are all working against the Japanese automaker this year.
However, the big ad spend on the Super Bowl alone by Honda and its counterparts (nearly 15 ad spots are for cars) – along with January car sales coming in at +6% — tells me that automakers are optimistic that their collective $50 million-plus Super Bowl advertising bets will pay off big-time.
It’s no secret that, thanks to persistent economic woes and uninspiring employment figures, Americans are keeping their cars longer. The newest data from R.L. Polk & Co. says we’re holding on to our vehicles an average of 10.8 years. Of course, there are only so many times you can patch up the problems and “break down” (no pun intended) to buy a new … or newer … one.
I’m willing to take that bet that consumers are feeling a little more confident this year, and that it’s time to trade the comfort of not having a car payment for not worrying so much about their older vehicles’ safety. And the company I believe best-positioned to meet this renewed demand is General Motors (NYSE:GM).
Frankly it’s GM’s market leadership in China, not to mention its commitment to natural-gas-fueled vehicles, that captures my attention more than its advertising budget. Natural gas has the potential to help the United States reduce its dependency on foreign oil, and maybe even eliminate it eventually. Plus, China wants to have a million electric vehicles on its roads by 2015, and GM recently introduced the Chevy Volt to this audience, and it seems to be a perfect marriage … one that offers a nice dowry to traders and investors.
Earnings are coming up on Feb. 16, although I think this one is a longer-term play for 2012, and that’s why I like the at-the-money GM Sept 24 Calls here under $3. I think we’ll see more record sales at home and abroad, and I’d like to be situated for the next couple quarters at today’s prices.