Kansas City Southern (NYSE:KSU) is a transportation holding company that has railroad investments in the United States, Mexico and Panama. Its primary domestic holdings include The Kansas City Southern Railway Company, founded in 1887, and The Texas Mexican Railway Company, founded in 1885. Headquartered in Kansas City, Missouri, KCS serves customers in the central and south central regions of the United States. KCS' rail holdings and investments, including TFM, S.A. de C.V., are primary components of a NAFTA Railway system that links the commercial and industrial centers of the United States, Canada and Mexico.
After much deliberation, KSU emerged at the top of our list for this week's cash-secured put candidates. Although the entry timing is not particularly favorable, the technical indications are excellent and based on the company's fundamental outlook, the underlying shares would be a valuable addition to any blue-chip stock portfolio. KSU has already reported quarterly earnings, posting record revenues and operating income, and revenue growth at KCSR increased as the year progressed. In addition, a change in the corporate income tax rate in Mexico will benefit subsudiary Grupo TFM in the coming years.
In light of the recent sharp rally, traders should target a slightly higher premium for the sold options in order to take advantage of any near-term consolidation in the issue. A cost basis near $17.00 is our initial objective in this bullish position.
Sell Put MAR 17.50 KSU-OW
Current Bid = $0.40 Open Interest = 86
Potential Profit (5 contracts) = $200
Initial Margin (5 contracts) = $3,280
Return on Investment (max) = 4.5%
Cost Basis in Stock = $17.10
Days to Expiration = 41