Color Technology Could Lead To A Big Gain
Early in the history of Ford, the company’s founder supposedly gave little consideration for customer service. He is believed to have said, “You can have your car in any color you want, as long as it’s black.” Manufacturers can now change the color of almost anything.
As Business Wire recently reported,
“Digital manufacturing leader, Protolabs (PRLB) has introduced an all-new color-matching system into its plastic injection molding service. PolyOne’s PINPOINT™ Express Color and Dosing System, featuring 3M precision dispensing and dosing technologies, allows Protolabs to develop custom colors on site, drastically reducing the time it takes to mold short-run plastic parts in precise colors.
When a part design is ready, customers can specify which Pantone number they require or simply provide a sample part that can be scanned and color matched.
Once a material is selected from 13 available resin combinations, PolyOne’s PINPOINT system creates a liquid formula that is dispensed and mixed before moving to the injection molding press. The material is then fed through the doser and injection molded.
The result is parts—in custom colors—in customers’ hands within days versus weeks as it traditionally takes.
“These new color-matching capabilities are a huge leap for the manufacturing industry, one stacked with benefits for our customers who are developing highly tailored products,” said Joel Matthews, global product manager at Protolabs.
“With development cycles shrinking to meet the market demand for increased customization, this is yet another tool to help our customers accelerate product launches and streamline supply chains.”
Protolabs, which specializes in on-demand manufacturing, has also recently added new injection molding capabilities to further its position as a single-source supplier from prototyping to production.
Along with custom color matching it has launched numerous secondary processes and finishing options to support true end-to-end manufacturing. These include pad printing and laser engraving, threaded inserts, mold texturing for Mold-Tech finishes, and part assembly.
“All of these new capabilities are things that our customers have wanted for a while, so we’re excited to finally be able to offer it to them—while still delivering finished parts at industry-leading speeds,” said Matthews.
Customers seem to agree.
“Speed and flexibility—being able to deploy different manufacturing options—and a commitment to customer service, are the main reasons we use Protolabs,” explained Andy Homyk, senior engineer at HemoSonics, a medtech firm that incorporated secondary processes to launch its new medical device in a fraction of the time traditional manufacturing would have taken.
This news seems to be contributing to the stock’s recent break out.
The weekly chart shows the possible launching of a new trend after consolidation.
A Trade for Short Term Bulls
As with the ownership of any stock, buying PRLB could require a significant amount of capital and exposes the investor to standard risks of owning a stock.
To reduce the risks of a trade, an investor could purchase a call option. This allows them to benefit from upside moves in the stock while limiting risk to the amount paid for the options. However, buying a call option can also require a significant amount of capital and includes the risk of a 100% loss.
Whenever an option is bought, the maximum risk is always equal to 100% of the amount of spent to purchase the option. Since options cost significantly less than a stock, the risk in dollar terms will usually be relatively small to own an option.
To further limit the risks of the trade, an investor could use a bull call spread. This strategy consists of buying one call option and selling another at a higher strike price to help pay for the cost of buying the first call. The spread strategy always reduces the risk of an options trade.
This strategy is designed to profit from a gain in the underlying stock’s price but has the benefit of avoiding the large up-front capital outlay and downside risk of outright stock ownership. The potential risks and rewards of this strategy are summarized in the chart below.
Source: The Options Industry Council
Both the potential profit and loss for the bull call spread are limited. The maximum loss is equal to the net premium paid when the trade is opened. The maximum profit is limited to the difference between the strike prices, less the debit paid to put on the position.
This strategy could be especially appealing with high priced stocks where the share price and options premiums are often a significant commitment of capital for smaller investors.
A Specific Trade for PRLB
Every day, we scan the markets looking for trades with low risk and high potential rewards. These trades are available almost every day and we share them with you as we find them. Now, it’s important to remember these are trading opportunities in volatile stocks.
When we find a potential opportunity, we evaluate it with real market data. But because the trades are volatile, the opportunities may differ by the time you read this. To help you evaluate the current opportunity, we show our math and explain the strategy.
For PRLB, the July 19 options allow a trader to gain exposure to the stock.
A July 19 $110 call option can be bought for about $3.60 and the July 19 $115 call could be sold for about $1.00. This trade would cost $2.60 to open, or $260 since each contract covers 100 shares of stock.
The amount paid to enter the trade is the largest possible loss on the trade. This is generally true whenever a trader is creating a debit to enter an options trade. “Creating a debit” means there is a cost to enter the trade. You could create a debit by simply buying puts or calls to open a directional trade.
In this trade, the maximum loss would be equal to the amount spent to open the trade, or $2.60.
The maximum gain on the trade is equal to the difference in exercise prices less the amount of the premium paid to open the trade.
For this trade in PRLB the maximum gain is $240 ($115 – $110= $5; $5 – $2.60 = $2.40). This represents $240 per contract since each contract covers 100 shares.
Most brokers will require minimum trading capital equal to the risk on the trade, or $260 to open this trade.
That is a potential gain of about 92% in PRLB based on the amount risked in the trade. The trade could be closed early if the maximum gain is realized before the options expire.