I did some research over the weekend on Disney (DIS, $26.95, up $0.67) after its buyout of Marvel Entertainment (MVL, $48.73, up $0.09) for $50 a share.
The first thing that I had reservations about was that the deal calls for cash AND stock from Disney which means there may be limited upside for the stock until the merger officially closes. My other concern was that we already have a trade on with Imax. However, I still did the leg work and here is what I came up with.
For the past 4 out of 5 years, Disney has traded higher from September thru October and I was looking at the October 26 calls (DISJZ, $1.60, up $0.35) on Tuesday morning when they were at 90 cents. That trade has done well in two days.
The October 27.50 calls (DISJY, $0.75, up $0.15) traded at 50 cents on Wednesday and will do well if Disney is headed to $30. You can try to get in them for 65-70 cents but if the stock prints $30 by October 16th the calls are worth at least $2.50.
First Solar (FSLR, $136.61, up $2.20) has zoomed this week after announcing it was entering the China market. The stock added $13 on Tuesday and hit a high of $145 yesterday. This after testing $112 last Thursday. Our window of opportunity was small on the way down but this news is a game changer.
The October 165 calls (HJQJM, $1.90, up $0.20) can be used for further upside but try to get them for $2.00 or under. If the stock is still strong after the opening bell, don’t pay over $2.50 for the options. Confirm an uptrend and try to exit them at $4.
You can use the October 110 puts (QHBVB, $2.15) for a strangle trade in case the stock falters but it will limit your profits but control your risk.
Citigroup (C, $4.68, down $0.17)
January 7.50 calls (CAQ, $0.19, down $0.04)
Entry Price: $0.32 (8/28/09)
Exit Target: $0.60
January (2011) 10 calls (VRNAB, $0.50, down $0.07)
Entry Price: $0.60 (8/28/08)
Exit Target: $1.20
Action: The 2010 call options will be more volatile than the 2011’s. A 4 cent loss in the 2010 calls meant a drop from -20% to -40%. This position could lose as much as 75% from the entry level price but they are CHEAP out-of-the-money so we need to keep things in perspective. These types of moves will happen over the near-term but longer-term I still believe the stock heads higher.
Dendreon (DNDN, $23.73, down $0.07)
November 45 calls (UQBKO, $0.29, up $0.03)
Entry Price: $0.30 (8/31/09)
Exit Target: $0.60
Action: Dendreon made a quick pop to over $24 but ended the day slightly lower. The current “bid” is 25 cents, the “ask” is 29 cents. I’d like to see a move towards $27 this week but it will depend on what kind of news the company will presenting this week in their presentations to Wall Street.
Imax (IMAX, $9.22, down $0.08)
March 2010 12.50 calls (IMQCV, $0.40, flat)
Entry Price: $0.45 (8/10/09)
Exit Target: $1.00+
Action: Continue to hold. The December 10 calls (IMQLB, 60 cents) never made it to our limit price of 50 cents so put this one on the back burner. I still like the March 12.50’s better and if Imax does make a run to over $10 and holds, then we should be good either way.
Sirius XM (SIRI, $0.67, up $0.02)
December 1 calls (QXOLA, $0.15, up $0.05)
Entry Price: $0.15 (8/21/09)
Exit Target: $0.30
Action: Continue to hold.