The Toro Company (NYSE:TTC) designs, manufactures and markets professional turf maintenance equipments and services, turf and agricultural irrigation systems, landscaping equipment and residential yard products. The company operates in three segments: Professional, Residential and Distribution. A fourth segment called Other, consists of corporate functions and Toro Credit Company, a wholly owned financing subsidiary. Toro's products are sold at the retail level under the primary trademarks of Toro, Toro Wheel Horse, Lawn-Boy, Irritrol Systems, Exmark, Toro Dingo, Aqua-TraXX, Pope and Lawn Genie.
The search for bullish positions produced a number of good candidates however there were very few with viable option prices, despite the recent volatility in share values. A casual glance at the price history of the major indices would suggest robust option premiums, but that is not the case as most investors remain relatively complacent when it comes to the potential downside activity in stocks. With that fact in mind, we have selected a technically favorable issue that may offer an acceptable entry point in the coming sessions. Friday's sharp upside move in TTC was due to solid earnings and an optimistic forecast and although the trend should continue in the near-term, there will likely be a brief consolidation in the stock price before it moves higher. With any luck, traders will be able to use that event to initiate the recommended position at the target credit.
Fundamentals Chart Earnings Dates Analyst Ratings
PLAY (conservative - bullish/credit spread):
BUY PUT JUN-40.00 TTC-RH OI=901 ASK=$0.25
SELL PUT JUN-42.50 TTC-RV OI=1388 BID=$0.40
INITIAL "NET-CREDIT" TARGET = $0.25-$0.30
POTENTIAL PROFIT (X 10 contracts @ $0.25) = $250
MARGIN REQUIREMENT (X 10 contracts) = $2250
RETURN ON INVESTMENT (max) = 11.1%
COST BASIS = $42.25
INITIAL EXIT STRATEGY:
Once the position is open, traders should place a (contingent) order to close the short ($42.50) put options if the stock moves below $42.75 on an intraday basis. A "net-debit" order of $0.50-$0.60 to exit the entire spread may also be appropriate for some portfolios. Future adjustments to this loss-limit/exit point will be posted in the MCM Newsletter.