CACI International (NYSE:CAI) operates as an information systems and high technology services company. It primarily delivers information technology and communications solutions through four divisions: Systems Integration, Managed Network Services, Knowledge Management, and Engineering Services. The company provides these solutions in support of U.S. national defense, intelligence and civilian agencies, agencies of foreign governments, state and local governments, and commercial enterprises.
This week's search for bearish spreads yielded only a few candidates with viable option prices and this position appears to offer the best ratio of potential profit versus possible loss. Over the past two months, the underlying issue has moved in a lateral pattern with resistance levels emerging at the sold call strike price ($65) and more recently, near $63. The fundamental outlook is less than outstanding with downgrades by UBS and IRG Research in the current quarter and there is no upcoming earnings announcement to drive the share value higher prior to the July options expiration. Traders who agree with a neutral-to-bearish outlook for the stock should consider this position.
Fundamentals Chart Earnings Dates Analyst Ratings
PLAY (conservative - bearish/credit spread):
BUY CALL JUL-70.00 CAI-GN OI=43 ASK=$0.25
SELL CALL JUL-65.00 CAI-GM OI=315 BID=$0.65
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 = $65.45
INITIAL EXIT STRATEGY:
Once the spread is open, traders should place a (contingent) order to close the short ($65.00) call options if the stock price moves above $66.00 on an intraday basis. A "net-debit" order of $0.90-$1.00 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.