The Black & Decker Corporation (NYSE:BDK) is a global manufacturer and marketer of power tools and accessories, hardware and home improvement products, and technology-based fastening systems. B&D is also a global supplier of engineered fastening and assembly systems. The company operates in three primary business segments: Power Tools and Accessories, including consumer and professional power tools and accessories, lawn and garden tools, electric cleaning and lighting products, and product service; Hardware and Home Improvement, including security hardware and plumbing products, and Fastening and Assembly Systems.
Shares of BDK were among the "big winners" in Tuesday's session after the company announced it expects sales growth of 15% in the first-quarter and raised its quarterly EPS by roughly 25% to $1.33. The company cited strong sales in its North American power tools and accessories business and also said it received a cash payment of about $55 million in March resulting from settlement of environmental and product liability coverage litigation with an insurer.
While we don't want to "buy-in" at the current levels, there will likely be some consolidation in the underlying issue during the next few sessions and traders who use individual orders should be able to achieve a viable credit in this position. Our suggested minimum credit for the spread is $0.40 per contract, however will will target a higher price initially, to take advantage of any near-term pullback in BDK's share value.
Fundamentals Chart Earnings Dates Analyst Ratings
PLAY (conservative - bullish/credit spread):
BUY PUT MAY-75.00 BDK-QO OI=1991 ASK=$0.30
SELL PUT MAY-80.00 BDK-QP OI=1610 BID=$0.60
INITIAL "NET-CREDIT" TARGET = $0.45-$0.50
POTENTIAL PROFIT (X 5 contracts @ $0.45) = $225
MARGIN REQUIREMENT (X 5 contracts) = $2275
RETURN ON INVESTMENT (max) = 9.8%
COST BASIS = $79.55
INITIAL EXIT STRATEGY:
Once the position is open, traders should place a (contingent) order to close the short ($80.00) put options if the stock moves below $82.75. A "net-debit" order of $0.90-$0.95 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.