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Monday, June 27, 2005

Live Action: CKE Restaurants Inc (CKR) straddle

I bought CKE Restaurants Inc (CKR) July $15 straddle just before the closing time. CKR announces earnings report after market close. I see some movement. I paid $1.25 for the straddle (implied volatility about 40..45%), I paid $0.75 for the calls and $0.50 for the puts. I noticed CKR too late and that's why I had to pay so much, I think I could have get it with $1.15-$1.20 if I had more time.

Update (June 27, 2005 4:41 PM):
I believe that CKR moves upwards on the earning results, but I bought straddle to lower risks. It is possible that the company sees something negative in the issue of mad-cow disease, but I think this possibility is pretty low. Maybe it would have been better to buy just the calls.

5 Comments:

Anonymous Penny Stock Investing said...

I have a website where I research stocks under five dollars. I have many years of experience with these type of stocks. I find that the best measurement of how undervalued a stock is is the price to sales ratio of a companies stock. The price to sales ratio is the market cap of a companies stock compared to the amount of sales the company does on an annual bases. A good example of a company with a low price to sales ratio is carrols restaurant group the company has a market cap of just 240 million dollars but does over 800 million dollars in annual sales the company is solidly profitable. In other words the price that the market is valuing the company at is 240 million dollars this is only about one fourth of what the company does in annual sales 800 million dollars. The stock currently trades at about 11 collars a share under the symbol {TAST} I think the stock could get to 55.00 dollars a share over the next five years. I base this on the current net profit margin of around 1.75% or 14 million dollars on sales of 800 hundred million dollars. If the companies sales were to increase by 50% or 400 million dollars to 1.2 billion dollars over the next five years. And if the companies net profit margin were to expand from 1.75% to 5% or 60 million dollars over the next five years. Than if the companies stock increased in price to where it was trading at a price earnings ratio of 20 this would put the stock at 55 dollars a share. This may seem to be a somewhat optimistic scenario but not really that much. There are many stocks that trade at much higher price earnings ratios when they become popular than 20 times earnings. I find that companies like carrols restaurant group are very rare. I find companies that have low price to sales ratios that are profitable or of decent quality tend to become takeover targets or get taken private by private equity firms or the management of the company or other companies in the same business. A good example of a popular stock with a very high price earnings ratios is whole foods market it trades at 35 times annual earnings. If anyone has any question as to the validity of the information presented here any stock broker financial planner or CPA that knows how to value stocks will confirm everything presented here.

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