NTRI Covered Call Opportunity – Post 2 of 3
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I initiated my NutriSystems, Inc (NTRI) covered call strategy on July 24th, 2007, before the company announced Q2 2007 earnings. This post is Post 2 of 3 regarding this trade. Part 1, which was posted on July 18th, described the setup of this short-term opportunity for existing long-term shareholders of NTRI, here is the link…. The earnings release was not well accepted by the Street, setting up a potential 670 incremental basis point gain* for the long-term shareholder.
After the bell on 7.24.07, NTRI announced their earnings for Q2 2007. Here is the link to the press release…link
Please note this strategy was highlighted for the long-term shareholders of NTRI, a group I am not a part of because of my value selection criteria.
Paper Trade Details:
- Long-term shareholder currently owning 500 shares valued at $31,890 ($63.78/share) at the close of 7.24.07
- Sell 5 August 07 call options with a 65 strike price for $2,125 ($4.25/share as of 7.24.07)
- $2,125 represents a 6.7% gain*.
Why did I choose the 65 November calls?
In the research that I published during my first post, I am using the 18-day % gain/(loss) from the last three reported quarters of an expected stock price gain of 1.3%. This results in a potential share price of $64.64 (1.3% above 63.78) at the date of option expiration on August 17th. I then take the next highest strike price of $65 to determine which strike price to sell, because I am trying to avoid the option be exercised. This trade does run the risk if the shares trade at the 18-day max levels, but most options buyers will wait to the last couple days to expiration to execute.
On August 17th, I will post the final part of this trilogy when the final results are in…
* Does not includes fees and taxes
Disclosure: Author does not own any securities, NTRI equity or options, mentioned in this article.
