Mentor (YSE:MNT) develops, manufactures and markets products serving the medical specialties market. The company's products are utilized by three segments: aesthetic and general surgery, which includes plastic and reconstructive surgery; surgical urology, and clinical and consumer healthcare. Aesthetic and general surgery products include surgically implantable prostheses for plastic and reconstructive surgery, as well as capital equipment and consumables used for soft tissue aspiration or body contouring, such as liposuction. Surgical urology products include surgically implantable prostheses for the treatment of impotence, surgically implantable incontinence products, urinary care products and brachytherapy seeds for the treatment of prostate cancer. Clinical and consumer healthcare products include catheters and other products for the management of urinary incontinence and retention.
Mentor was "in the news" last week after the U.S. Food and Drug Administration's advisory panel urged approval of the company's silicone breast implants by a 7-2 margin. The price of MNT soared in the wake of the announcement as investors anticipated the gain in market share from the eventual FDA approval. However, there's a chance the FDA will overrule the panel just as they did in early 2004 when Inamed (NASDAQ:IMDC) requested to market its silicone implants. This "veto" potential is the primary reason the stock has not moved higher and until the FDA makes a final decision, the share price will likely remain in the current range. Since many analysts believe the verdict will not be announced in the coming month, this position offers a reasonable risk/reward outlook for spread traders.
Fundamentals Chart Earnings Dates Analyst Ratings
PLAY (speculative - bullish/credit spread):
BUY PUT MAY-30.00 MNT-QF OI=463 ASK=$0.20
SELL PUT MAY-35.00 MNT-QG OI=1039 BID=$0.80
INITIAL "NET-CREDIT" TARGET = $0.65-$0.70
POTENTIAL PROFIT (X 5 contracts @ $0.65) = $325
MARGIN REQUIREMENT (X 5 contracts) = $2175
RETURN ON INVESTMENT (max) = 14.9%
COST BASIS = $34.35
INITIAL EXIT STRATEGY:
Once the position is open, traders should place a (contingent) order to close the short ($35.00) put options if the stock moves below $35.25. A "net-debit" order of $1.20-$1.30 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.