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Even the reduced estimates are not bad on a valuation basis with the stock under $18. The consensus view for the June quarter (fiscal third quarter) is now 50 cents, and it’s $2.37 for the fiscal ending September.
If you’re a K-cup fan and like the stock, consider a combination buy/write such as this:
| GMCR at $17.98 | Cash Outlay | Cash Inflow |
| Buy 1000 GMCR at $17.98 | $17.980 | |
| Sell 10 Dec. $18 calls at $3.65 | $3,650 | |
| Sell 10 Dec. $18 puts at $3.75 | $3,750 | |
| Net Cash out of Pocket | $10,580 |
If GMCR closes at $18 or above on Dec. 21, 2012:
· The $18 calls will be exercised and the puts will expire worthless.
· You will sell your shares for $18,000.
· You will have no further option obligations.
· Your final position will be no shares and $18,000 in cash.
Net profit equals $18,000 minus $10,580, which equals $7,420, on a stock that only needed to rise by 2-cents from the trade inception price.
If GMCR closes below $18 on Dec. 21, 2012:
· The $18 puts will be exercised and the calls will expire worthless.
· You will be forced to buy another 1,000 GMCR shares for an additional $18,000.
· You will have no further option obligations.
· Your final position will be 2,000 GMCR shares.
Your total cost for GMCR would be $10,580 plus $18,000, which equals $28,580 divided by 2000, which equals $14.29 per share.
GMCR could fall by up to $3.69 or -20.5% without causing a loss on this trade.
Green Mountain’s 52-week range: $17.11 to $115.9
Disclosure: No position
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