Close Smith & Wesson Trade on Friday

I wanted to send out a reminder for those of you who may be following Smith & Wesson Holding Corporation (SWHC, $5.67, up $0.09). The stock has gained nearly 25% since I mentioned it in the Weekly Wrap a couple of weeks ago (3/8/09).

At the time of the article, the stock was at $4.43 and briefly traded below $4 a couple of days later. This was before Smith & Wesson’s earnings announcement which I had also mentioned would be taking place. The option activity was pointing towards the stock making a run to $5 but the bears were trying to keep it below $5. However, as the option activity started to climb the shares rebounded to close at $4.59 before their earnings announcement.

That Friday (3/13/09) the company reported a higher-than-expected quarterly profit which was fueled by double-digit growth. Smith & Wesson earned $2.4 million, or 5 cents a share, compared with a loss of $1.8 million, or 4 cents a share, in the year-ago period.

Sales rose more than 25% to $83 million. Wall Street had been expecting the company to post a profit of 3 cents a share, on revenue of $74 million. As a result, the stock jumped 10% that day to close above $5 and hasn’t looked back. The stock also got a lift when it was upgraded to “Strong Buy” earlier this week.

Smith & Wesson has flirted with $6 all week and the March 5 calls (UWJCA, $0.70, up $0.05) have doubled since being originally profiled at 35 cents and were trading well over $1 earlier in the week. I said there was a hidden message with this one and our patience has been rewarded.

The March option chain expires tomorrow so be sure to close the call options or else they may be exercised since they are “in-the-money”. Some of you may have already done so earlier in the week at higher prices and that’s cool. I’ve been getting emails today from some of our readers about what to do with the position so I wanted to remind everyone one of this.

Rick Rouse
Rick@OptionsMentoring.com

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