Jim Strugger's Options Strategy For Whirlpool
After going nowhere between mid-2009 and mid-2012, Whirlpool Corporation (NYSE: WHR) started a bull run that has continued until just recently, and has seen the stock tripling since then. This year seems like a minor recap of that move for the stock, where it went nowhere from January until mid-October, but is up more than 30 percent from its October lows.
Why Bet On Whirlpool?
“We are watching it because they have an analyst day later this week. Wednesday, it’s the first analyst day in four years and what’s happened here is the stock is up almost 35 percent since July,” Strugger said.
“They made an acquisition; they started looking at forward guidance that they haven’t provided. Previously a great move in the stock, it has significantly outpaced its comp. group and we want to be cautious here. What has happened is term structure has flattened down, so near-term implied volatility is lifted. That tells you that market is pricing in this event,” Strugger continued.
The Option Trade
Explaining the potential, Strugger said, “The straddle that expires this Friday is priced at about 3.5 percent move by the end of the week. We think that the analyst day could be a little bit disappointing, so, what we are going to do is put on a collar.”
“So for people already long Whirlpool stock, we want to look out to January, we want to sell a $190 strike call, we want to turn around and buy a $170 strike Put--you do that for about $0.50 credit.”
Shares of Whirlpool traded recently at $184.33, up 2 percent.
Image credit: Spotrebice Whirlpool, Flickr
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