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Tempur-Pedic Shares Set to Hit ‘Snooze’

After rising 35% in January, overbought TPX ready to rest


While the overall market has been on a resounding bull run of late, some stocks have been vastly outpacing these heady gains. One of these stocks is Tempur-Pedic International (NYSE:TPX), which has lifted from $52.50 to $71 this year, or a 35% gain over the past month.

Although this manufacturer and distributor of mattresses and pillows (which operates in approximately 80 countries worldwide) did have a small beat on earnings, the stock price would imply that it crushed expectations.

With expectations of $3.85 per share for 2012, the forward multiple is at nearly 18.5, well above its five-year average of 16.27. Other sentiment indicators, such as its nine-day Relative Strength Index (RSI) levels, are extremely overbought.

Putting a more-reasonable multiple of 17 on the shares places the stock at $65, which is our price target for June expiration.

Based on TPX’s current market price of $71.13 and using a target price of $65, a target date of June 15, 2012, and $1,000 of investment capital, you can capture some nice gains by selling a June 70-75 call spread, buying a June 75-65 put spread or using another options strategy that best fits your trading style and goals.

For the full details on this trade, visit, create a free Instant Login and try the TradeBuilder feature, where you’ll see several ways to trade this name. Best of all, you can see a potential profit-and-loss outline for each strategy.

Create your free login, and get access to the details about these TPX options trading strategies by visiting the TradeBuilder here.

Article printed from InvestorPlace Media,

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