Carter Worth And Mike Khouw's Reynolds American Trade

Carter Worth and Mike Khouw teamed up on

to deliver a bearish case for

. Worth's analysis showed that

has performed significantly better than its peers and that its performance is not sustainable. The stock is the most expensive in the sector when it comes to price to cash flow ratio and price to sales ratio and it has the lowest yield in the space. In 2015 it traded 52 percent higher, while

gained 25 percent and the sector jumped only 4 percent. Reynolds American return in the last five and 10 years was two times better than the return of

. Worth also presented a chart that shows that Reynolds American has recently moved away from its trend line, which in his opinion is a sign that it could return to its trend line. Mike Khouw thinks that fundamental story is not favorable for the tobacco stocks and he suggested that the best way to make a bearish bet using options is by purchasing the December 47.5 / 45 put spread for $0.70. The breakeven for this trade is at $46.80 and the maximal profit is $1.80 if the stock trades to $45 by December expiration.