Option Investor

New Portfolio Position: SEE "Bull-Put" Spread Projected Gain = $225

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SEE - Sealed Air $54.50

Sealed Air (NYSE:SEE) operating through its subsidiaries, manufactures and sells a range of food, protective and specialty packaging products around the globe. The company operates its business in two segments: food packaging, with primary products including flexible materials and related systems for packaging perishable foods, and protective and specialty packaging, providing cushioning, surface protection and void fill. It sells its food packaging products to food processors, distributors and foodservice businesses and its protective and specialty packaging products and systems to distributors and manufacturers in a variety of industries.

We looked long and hard for a way to play the recent "asbestos legislation" rally and we believe this stock may offer a viable opportunity in that respect. Sealed Air has limited exposure to asbestos-related legal issues through its purchase of the Cryovac packaging business from W.R. Grace in 1998. After the acquisition, Sealed Air set aside $512 million in cash and 9 million shares in company stock to go toward a W.R. Grace fund for asbestos victims. Morgan Stanley analyst Edings Thibault said in a research note that SEE shareholders could see an almost $10 per share gain if an asbestos trust fund were established -- reasoning that Sealed Air's settlement agreement with W.R. Grace plaintiffs would be void if W.R. Grace didn't establish its own fund under the bankruptcy code.

Although that assessment seems a bit optimistic, investors certainly appear to be in favor of the Republican sponsored bill to create a $140 billion fund for claimants that would limit the asbestos liability of affected companies. In addition, the SEE price chart suggests a reasonable level of support above the sold (put) strike at $50, which should allow for a timely exit in the event of any future declines. Quarterly earnings are due on 4/27/05.

Fundamentals Chart Earnings Dates Analyst Ratings

PLAY (conservative - bullish/credit spread):

BUY PUT MAY-45.00 SEE-QI OI=0 ASK=$0.10
SELL PUT MAY-50.00 SEE-QJ OI=722 BID=$0.50

POTENTIAL PROFIT (X 5 contracts @ $0.45) = $225
MARGIN REQUIREMENT (X 5 contracts) = $2275
COST BASIS = $49.55


Once the position is open, traders should place a (contingent) order to close the short ($50.00) put options if the stock moves below $51.75. A "net-debit" order of $0.90-$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.

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