Trade of the Day: Halliburton Company (HAL)

HAL did not live up to its earnings expectations, but I'm expecting a rebound

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It was recently projected that gross domestic product (GDP) could hit 4% for the third quarter, which is something that was not even considered a few years ago. The employment figures have also been strong lately, especially the labor force participation rate, which has actually started to increase lately. The participate rate edged higher in June by 0.2%, and it was a very positive report in that respect.

Additionally, earnings from the second quarter are coming in pretty strong and are up significantly over the prior year, and I think they’ll continue to show double-digit growth over at least the next two or three quarters. I think a lot of that increase has come from the reduction in regulations over the past year and the corporate tax cuts, and earnings tend to lead the market.

However, one stock that did not live up to its earnings expectations yesterday was Halliburton Company (NYSE:HAL). HAL fell more than 8% on Monday, even with the company reporting earnings per share of $0.58 that matched expectations. Revenue actually came in ahead of estimates, but what caused Wall Street to sell the stock was that the company reduced guidance for the third-quarter and warned of slower growth in the Permian Basin.

That was serious enough for many investors to dump their shares, but I think the selling was overdone. For that reason, I’m electing to write a put on the stock, as I think HAL will easily rebound and stay above support at $40 by expiration on Aug. 24.

Sell to open the HAL Aug. 24th $38.50 put at about $0.28.

For those who may not have used this strategy before, with these naked put writes you want the underlying shares to move higher or at least remain above your strike price through expiration. This would allow you to walk away with no further obligation and full profits.

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Ken Trester is editor of the popular Maximum Options program. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.

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