I see that there hasn't been any posts on Western Union in awhile and I wanted to see if there was any opinion on it out there on the stock and the options. Specifically I'm looking at a strangle for either May 13 or August 13. WU is currently trading around $13.40 a share so I was thinking the $13 puts and the $14 calls for these two months. May was .58c/.71p at last trade, and August is .79c/1.05p at last trade. I would be interested in hearing any thoughts on this.Thanks,DC
I'm glad to give my 2¢. A long strangle profits from fast motion in either direction. For example, the August trade would only be profitable if the stock fell below $11.16 or rose above $15.84 (plus fees) before August 16th. You also miss out on the dividend.Are you neutral on WU, or bullish? I personally don't see much chance of profiting to the downside with WU falling below $11.16. At that point classic value measures like yield (~4.5%) and P/E (~5.5!) would be very attractive.I have bought the "straight" stock for the dividend and profit to the upside. You may consider forgoing the dividend and buying just the August call, making the trade profitable above $15.05 (plus fees). I believe it likely WU will go up 7.1% in 7 months.
Options-wise, the Jan 2015 calls look cheap if you're bullish on the company. I'd be interested in buying calls if the stock ever drifts down close to $10-$11.
I am intrigued by your precision. 7.1% in 7 months?Why not 5 - 9% in 6 - 8 months?I think I might learn something from your answer. I am currently carefully reviewing WU, and thinking about taking a posiiion -- always an anxiety / worry producing situation for me...
Don't let my "precision" fool you. I should have said at least 7.1%. The 7.1% increase is just $15.05/$14.05 (price at time of post, and not far from now!) With 6 more months to go, the bet looks good so far.Why not 5 - 9% in 6 - 8 months? That range sounds fair.Well, I think the stock is undervalued significantly. But even so, stocks on average go up about 10% a year, so even an overvalued stock can drift 7% in 7 months.Some other 'guesses': the industry and S&P500 are now averaging a P/E of 16. WU is 10, and earnings are predicted to grow about 10% per year. That would suggest WU could rise quite a lot to "catch up" to the industry's valuation, but even so, could be expected to rise in price by 10% in a year just to maintain a P/E of 10. In other words, if the stock stays a current price, next year's P/E will shrink to 9.1, then 8.2, etc...A few different valuation models put WU at $18-20 per share, a 25%-30% discount. If it takes three years to reach $20, that's 12% a year, or 1% a month. etc. etc.That's my opinion, what's yours?
1/19/2013:WU is currently trading around $13.40 a share so I was thinking the $13 puts and the $14 calls for these two months. May was .58c/.71p at last trade, and August is .79c/1.05p at last trade.WU has had a nice spike up the past few days, and is now at $15.64. I thought it would be worth a quick review.The May strangle with strikes of $14 call/$13 put and initial price of .58c/.71p is now at $1.65c/$0p. Initial outlay of $1.29 is now worth $1.65, or up 27.9% (not including fees, taxes, and Maalox)August strangle, same strikes bought for .79c/1.05p, is now at $1.85c/.15p. Initial outlay of $1.84 now worth $2.00, or up 8.6% (niftM)Compare these to the underlying stock itself:Jan 22, 2013 Open 13.46Mar 13, 2013 0.125 DividendMay 3, 2013 Close 15.64(15.64+.125)/13.46 - 1 = 17.1% returnand the market (aka the EFT SPY) has returned 161.37/148.47 = 8.7%Straight May calls was the one to do: $1.65/.58 = 184% profit, but then hindsight's 20/20, ain't it?
Jan 22, 2013 Open 13.46Mar 13, 2013 0.125 DividendMay 3, 2013 Close 15.64
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