UPDATE (12-20-17): Back on 11-6-17 StockJaw purchased call options in Huntsman International. See the Our Portfolio page for more detail. HUN sits at $33.24 now, less than 2% off a new 52 week high. That does not happen by accident. Our break even point for our call options is $32.15, with three weeks remaining before contract expiration.
If recent performance is any guide, we look for HUN to climb through December, slow, and then climb again just before they report earnings in February. We have three trading days to decide to sell the calls. After that their value erodes almost instantly. We can however wait until expiration to buy the stock, or not if it goes back down. If HUN backtracks below our 32.15 break-even point, we just eat the $215.00 premium.
Stocks are like real estate? Landing a crappy stock is like living with a crappy address.
Christmas comes every year. Lights twinkle and the pace quickens. That describes our StockJaw freight elevator Christmas Party and Huntsman Call Options Pow Wow. Who’s Huntsman International? HUN is a diversified chemical company operating in five major segments, the largest being their polyurethanes business.
Huntsman’s products are widely used–aerospace, refining, electronics. 1 year forecast EPS growth(earnings per share) 72%. That forecast comes on top of the 1 year 92% EPS growth they just posted. Forward P/E(price to forecast earnings) 12.04. By every metric HUN is cheap, with the exception of their current PEG ratio(price to earnings-growth) of 2.46. A reading of 2 is considered expensive, with 1 being inexpensive.
Mexico chili pepper theme freight elevator Christmas. Our poster backs for snaps.
“You seen some unsold real estate lately? Do you want to get intimate with that?” He pushed through warm bodies to the eyebrow bar. Noise swelled in the 10’x8′ space.
Right. Stocks are like that. If you own it, that’s intimate. People shuffled.
“How ’bout our trial period? he says. “It’s been just like living together.”
” Well, of course” I reply, “Call Options are like that, exactly that. Time to decide.”
“He’s a founder…” says our business manager.
“The grandson of a founder,” I say and bend my neck to look. The StockJaw Christmas Party trundled upward. The eyebrow bar jiggled gently and resounded with the crunch of ice being trafficed.
“Huntsman’s + 1% over our break even,” hs hisses looking at the red and white bulb panel flicker.
“And we have exactly one month to our 1/19/18 contract expiration,” I nodd in amid the quick-rebound din of our building-wide fete.
An inspiring StockJaw freight elevator Christmas 2017.
Back in late November StockJaw purchased call options for Huntsman International LLC. Buying call options provides the buyer the right, but not the obligation, to purchase shares of a stock at a preset price, during a preset period–prior to contract expiration.
$3100.00+com. up front. Or look at what we did. StockJaw risked 6.9% of that, or $215.00. Now it’s our choice. HUN was $31.00 when we snagged the options. We bought 79 days to watch, and a strike price of $30.00. It’s now $32.66.
So we bought the right to buy a specific stock(HUN), at a specific price(the “strike price–$30.00), before a specific date(expiration–1/19/18.) We paid a “premium” for this right. In this case $2.05 a share. Options “contracts” represent 100 shares of stock. Thus StockJaw paid $205.00 plus commission per contract.
Huntsman International LLC.(NYSE: HUN) Industrial, chemicals.
Huntsman International is a chemical company operating in five segments, the largest by far being their polyurethanes business. Huntsman products in used in nearly every; aerospace, digital inks, personal care, automotive, construction, electronics., The company’s led by CEO Peter Huntsman.
(NYSE: HUN). Huntsman International one year EPS growth estimate 72%. Forward P/E 12. This comes on top of their last 12 month performance–92% EPS growth.
Huntsman has been building momentum for over 18 months. On the call we hear a determination to reach “investment grade” metrics in ’18, and CEO Peter Huntsman says. They are doing just that, driven by strong demand, great positioning.
On their Q3, ’17 conference call we heard about both volume growth and pricing power–particularly in passing on input costs.. Huntsman also benefits from good visibility in terms of barriers to entry. Relatively few players occupy this space and the cost and lead time required to enter the business are both large.
On the heels of our research, StockJaw finds HUN compelling as a turn around story. Companies with long histories always suffer periods of under performance. Look at McDonald’s. Circumstances and leadership change and so do the companies involved. Peter Lynch has said many things. Peter told us this:
I prefer companies that can be run by an idiot, because sooner or later they will be.” –Peter Lynch
Peter also told us about “turn around” stories. Huntsman occupies the cyclical industrial space. The space is working now. Huntsman is benefiting and will continue. But should we buy?
StockJaw Freight Elevator Christmas Party–somewhere around here.
At the current share price, $32.66, HUN is above our break-even point of $32.15. That’s a 1.5% above break-even, but 4.7% above the price when we purchased the option. We like the price appreciation/time move here. It’s promising. We like the space and general economic strength needed to make industrials profitable. But will HUN continue to improve it’s metrics, and be recognized for said by investors?
30 days until expiration on our HUN calls. We’re 1.5% ahead now. The value of the call option will soon radically degrade. Time is money. We have maybe 5 trading days to decide.
Right now the call option itself has value–to be sold. Call options are routinely one month in length, or even shorter. Yet time is money to any potential purchaser or a call. More time remaining means more value. StockJaw however purchased the call options as part of our larger long-term strategy. We did not buy the call itself as the investment. Some do. They buy many at a stroke.
StockJaw seeks long-term buys. We look for long-term growth. The verdict on Huntsman remains out. However, our option window is closing. Within 7-10 days we will let you know which way we go. Hint. If Hun goes up another 2% this week, we’re in.
Thanks for reading. Keep looking.
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