I think that long term investors are getting a chance to make money in a name brand retailer whose shares have crashed over the past few months. The stock has lost more than 50% of its value and has recently bounced off its 52 week low. This is an options play for long term investors that would not mind owning shares of this small retailer.
The company is HHGregg (HGG).
Shares are currently trading at $12.70 per share and appear to have bottomed out. The $11.95 level has been a solid support level for the stock. I think that shares are remarkably cheap based on the long term potential of the stock. Investors that are bullish on the stock like I am can buy shares directly of the common stock.
A cheaper play is to buy options on HHGregg.
Options are an area that I have just started to discuss on this site over the past few months. Options investing works well for investors looking to maintain a position in a stock for a cheaper cost and investors looking to make some cash from options contracts.
Investors that are bullish on the stock can pick up $12 October 2011 call options for $1.95 per share. If the stock bounces back over the next 176 days, investors could reap a nice premium for taking very little risk. It is my expectation that the shares will be above the $14 level by the expiration of the option.
If the stock languishes, investors can still exercise the option and hold the shares. Investors an always let the shares expire and the only money that would be loss is the $1.95 paid for the option contract.
Bearish investors
Investors that expect little upside movement over the next 6 months can use a covered call strategy. Investors can buy shares at the current $12.70 level and sell $12 October 2011 calls. Investors could book the nearly $2 premium if their bearish call is correct. Owning the shares limits the potential downside if shares of HHGregg move substantially higher.
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