Infospace (NASDAQ:INSP) is a diversified technology and services company which provides mobile entertainment, private-label search and online directory. The company's Search and Directory division uses a unique metasearch technology to provide Internet search and directory services. The mobile division offers wireless solutions that help customers build stronger brands and generate incremental revenue. In short, Infospace enables delivery of information and entertainment services to consumers, while creating opportunities for partners, advertisers and content publishers.
This week's search for bullish (credit spread) candidates yielded a relatively small group of issues and since the market has been so unpredictable over the past few sessions, we decided an "earnings play" on a popular ISP was a viable approach given the outcome of Google's recent report. The web-search leader's quarterly profits showed more of the dramatic advertising growth that has made it a "blockbuster" stock and Infospace may benefit from this trend through a variety of partners that use marketing promotions to reach its vast and growing number of mobile subscribers. Infospace is set to announce its results on 4/26/05 and based on INSP's near-term technical strength and (relatively) limited downside potential, we believe this position offers a reasonable risk/reward outlook for speculative traders.
Fundamentals Chart Earnings Dates Analyst Ratings
PLAY (speculative - bullish/credit spread):
BUY PUT MAY-35.00 IOU-QG OI=1352 ASK=$0.40
SELL PUT MAY-40.00 IOU-QH OI=1410 BID=$1.00
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 = $39.35
INITIAL EXIT STRATEGY:
Once the position is open, traders should place a (contingent) order to close the short ($40.00) put options if the stock moves below $41.25. 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.