Navistar International (NYSE:NAV) is a holding company that operates through its principal operating subsidiary, International Truck and Engine Corporation. The company's business occurs in three principal industry segments: truck, engine and financial services. Navistar's truck segment is engaged in the manufacture and marketing of Class five through eight trucks, including school buses. Its engine segment is engaged in the design and manufacture of mid-range diesel engines. The truck segment operates primarily in the United States, Canada, Mexico and other selected export markets while the engine segment operates in the United States and Brazil. Its financial services operations consist of Navistar Financial Corporationand the company's foreign finance subsidiaries that provide retail, wholesale and lease financing of products sold by the truck segment and its dealers within the United States and Mexico.
We have been monitoring the progress of Sunday's new candidates and since there may be fewer opportunities to achieve the target credit in some of the positions, we decided to add one more play to the "bearish" portion of the portfolio. Navistar's share value has been in a slump since the company said it plans to delay announcing the previously-postponed first-quarter results until later this month. In addition, Navistar is dealing with parts shortages that may lead to excess inventory in the near term. While the company says the current conditions will have no impact on full year earnings, investors are taking a "wait and see" attitude.
Traders who agree with a neutral to bearish outlook for the issue should consider this position. Target a higher credit ($0.45) initially, to take advantage of any short-term rebound in the stock price.
Fundamentals Chart Earnings Dates Analyst Ratings
PLAY (conservative - bearish/credit spread):
BUY CALL MAY-45.00 NAV-EI OI=152 ASK=$0.15
SELL CALL MAY-40.00 NAV-EH OI=211 BID=$0.50
INITIAL "NET-CREDIT" TARGET = $0.40-$0.50
POTENTIAL PROFIT (X 5 contracts) = $200
MARGIN REQUIREMENT (X 5 contracts) = $2300
RETURN ON INVESTMENT (max) = 8.6%
COST BASIS = $40.40
INITIAL EXIT STRATEGY:
Once the position is open, traders should place a (contingent) order to close the short ($40.00) call options if the stock moves above $39.25. Future adjustments to this loss-limit/exit point will be posted in the MCM Newsletter.