A Speculative Play
Add ESI Calls
PLAY: Buy the ESI February 115 Calls (ESI BC) at or under $3.20, good for the day. Place a protective stop limit at $1.20 and a pre-determined sniper sell at $7.00.
Dear Bottarelli Research Member,
We’ve hit some nice winners lately (namely BG and MTB puts), which has caused some readers to ask for more of these potentially “explosive” plays. As you know, one such opportunity that I recently brought to your attention (but without a trade, unfortunately) was the strength of online/secondary education companies like Apollo (APOL – NASDAQ). As you know, APOL recently reported blockbuster earnings, which pushed the stock aggressively higher. But since making this upward push, shares have come back down, which could offer us another shot at an upside play. See below:
But before going any further, let me back up a second and address exactly why education companies are so strong right now. If you go back to 2000 and track the unemployment rate versus the performance of education stocks, you’ll see a crystal-clear pattern. In short, education stocks move higher as the unemployment rate moves higher. It’s really as simple as that. In 2000, 2003, and 2006, for example, school stocks traded higher right alongside an increasing unemployment rate. And if you think about it, the logic makes perfect sense.
After all, when the economy slows, job seekers must make themselves more attractive. The only way to accomplish this is by boosting your resume credentials by going back to school. Not only that, but current employees must also make the case for themselves staying on the job, and this typically means continuing educational programs as well. That’s exactly what’s happening right now.
As you probably know, the U.S. Bureau of Labor Statistics just announced a 7.2% unemployment rate. This is a 16-year high, and President-elect Obama is already saying this number could get up to 10%. According to the Fed, they expect unemployment to rise throughout 2009 and 2010. And this is only half of the story.
You see, if you account for those people who were recently laid off but accepted a “temporary” job (like a bartender or an oil-changer) just to make ends meet, the current unemployment rate could easily be in the 10% range already. Therefore, the case for educational stocks becomes even more solid. And that leads into today’s opportunity.
You see, similar to APOL, a company called ITT Educational Services (ESI – NYSE) is getting ready to report earnings on January 22nd. ESI provides post-secondary degree programs in the United States, which include diploma, associate, bachelor, and master degree programs in information technology, electronics technology, drafting/design, business, criminal justice, and health sciences. They currently have 100 institutes within 34 states that serve 54,000 students. And this number is growing by the day.
As you can see from the ESI chart, the stock has been remarkably strong despite a very weak market environment. And just like the trend says, it’ll keep rising alongside the unemployment rate. Therefore, I’d like to make a speculative call play on ESI leading up to next week’s earnings report.
Specifically, I’d like to enter the ESI February 115 Calls (ESI BC), which are currently trading between $2.85 and $3.10 per contract. Now I admit, these calls are not cheap. But if ESI rallies aggressively just like APOL did, we could be in for a sizable winner. Therefore, as a speculative trade, let’s get positioned now!
PLAY: Buy the ESI February 115 Calls (ESI BC) at or under $3.20, good for the day. Place a protective stop limit at $1.20 and a pre-determined sniper sell at $7.00.
And as always…
Lock and load!
Sincerely,
© 2012 CSR Group, LLC. All rights reserved. Published in USA.
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