Option Investor

New Portfolio Position: YELL "Bear-Call" Spread Projected Gain = $200

Printer friendly version
YELL - Yellow Freight $54.45

Yellow Roadway (NASDAQ:YELL) is a holding company that, through its operating subsidiaries, offers its customers a range of asset and non-asset-based transportation services. The Yellow Roadway portfolio of brands provides a range of services for the movement of industrial, commercial and retail goods. The company moves shipments through its regional, national and international networks of terminals, utilizing primarily ground transportation equipment that it owns or lease. It's operating segments include Yellow Transportation, Roadway Express, Roadway Next Day Corporation and Meridian IQ.

Shares of YELL plunged Friday after the company's recent acquisition; USF Corporation (NASDAQ:USFC), said its first quarter earnings would miss consensus estimates. USF blamed its mediocre performance on "slow business from the auto industry, sluggish growth in the northeast and stiff competition in the southeast." The news came in the wake of multiple earnings warnings in the trucking sector and a downturn in airfreight demand, all of which conspired to send stocks in the group lower.

The technical indications suggest a correction in YELL is necessary and forthcoming and readers who agree with a neutral to bearish outlook for the issue should consider this position. Since the stock may be volatile in the coming sessions (and the bid/ask spreads are fairly large in the OTM options), traders should target a higher credit ($0.45-$0.50) initially, to take advantage of any short-term rebound in the share value.

Fundamentals Chart Earnings Dates Analyst Ratings

PLAY (conservative - bearish/credit spread):

BUY CALL MAY-65.00 YUX-EM OI=285 ASK=$0.25
SELL CALL MAY-60.00 YUX-EL OI=2279 BID=$0.60

POTENTIAL PROFIT (X 5 contracts @ $0.40) = $200
MARGIN REQUIREMENT (X 5 contracts) = $2300
COST BASIS = $60.40


Once the position is open, traders should place a (contingent) order to close the short ($60.00) call options if the stock moves above $59.25. A "net-debit" order of $0.95-$1.00 to close the spread may also be appropriate for some portfolios. Future adjustments to this loss-limit/exit point will be posted in the MCM Newsletter.

Monthly Cash Machine Newsletter Archives