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Wyndham Primed for a Bounce off Support

Use simple call options to benefit from the hotelier's move


I hope everyone had a great Memorial Day weekend and got that much-needed mini-vacation you all promised yourselves. If that’s the case, I’ve got a trade idea for you — one that you might have unwittingly helped to profit!

Wyndham Worldwide (WYN — $60.48): Long Calls

The trade: Buy the July 60 calls for $2.45 or less.

The strategy: The long call is probably the most basic strategy in options. The strategy can profit from a bullish movement in the stock as the call premium increases to an amount more than was paid. Maximum profit is theoretically unlimited because WYN can continue to rise, and the maximum loss is $2.45 or whatever was paid if WYN finishes below $60 at July expiration. Breakeven is at $62.45 at expiration based on a cost of $2.45.

The rationale: Wyndham Worldwide announced earnings last month and generally did pretty well by most standards. WYN increased earnings by more than 18% year-over-year for the first quarter of 2013. Just last week, the company paid out a dividend of 29 cents per share. Wyndham continues to look strong as long as the demand for global travel continues to grow again.

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The fundamentals look solid on paper, but this trade idea really stems from the stock chart. The stock finally convincingly broke through a $60 resistance area at the beginning of March and has traded between $60 and about $65 ever since. Currently, it is right at that $60 support level and looks to move higher again like in the past.

A bullish sign for Wyndham stock would be if it can trade above Friday’s intraday high of $60.60.

As of this writing, John Kmiecik did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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