Small News Could Propel This Stock to a Large Gain for Investors
Sometimes, news can attract attention to a stock and even though the news seems insignificant, it can be the start of a trend. One example could be, as Business Wire recently reported,
“Ryder System, Inc. (NYSE: R), a leader in commercial fleet management, dedicated transportation, and supply chain solutions, recently announced the opening of a state-of-the-art maintenance facility 37 miles from Seattle in Marysville, WA.
The facility is the second new facility opening in the United States in the past month, as it aims to serve additional customers and provide more offerings across the United States.
Dennis Cooke, Ryder President of Fleet Management Solutions, said, “Seattle is currently the second-largest metropolitan area in the United States for growth, and Marysville is a growing city in Washington, so it was a natural fit for our next facility location.
As Ryder looks to better serve our new and existing ChoiceLease and commercial rental customers, we wanted to ensure we had a premier shop in an optimal location and this new facility fits both those needs.”
As the state’s largest and northern-most Ryder maintenance facility, and just three miles from the newly opened Paine Field Airport, the Marysville location offers nearly 16,000 square-feet including nine work stations, a 1,000-unit capacity, and two 24/7 mobile maintenance units.
Ryder Mobile Maintenance allows local fleets to schedule maintenance outside of the traditional 8 AM to 5 PM window. When their vehicles are idle, mobile maintenance offers a seamless, real-time experience that eases the challenge of tight delivery windows and hours-of-service regulations fleet drivers face.
The new site includes an exterior covered truck wash bay and features a full-service rental counter for businesses in need of a commercial vehicle. In addition, the new location features several new conference rooms equipped with enhanced technology for both internal and customer meetings.
The facility will also soon offer a diesel fuel service island for Ryder customers.”
The stock has been forming a series of higher lows on the daily chart, a potentially bullish pattern.
The weekly chart shows a similar pattern.
A Trade for Short Term Bulls
As with the ownership of any stock, buying R 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 R
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 R, the August 16 options allow a trader to gain exposure to the stock.
An August 16 $60 call option can be bought for about $1.25 and the August 16 $62.50 call could be sold for about $0.65. This trade would cost $0.60 to open, or $60 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 $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 R the maximum gain is $1.90 ($62.50 – $60= $2.50; $2.50 – $0.60 = $1.90). This represents $190 per contract since each contract covers 100 shares.
Most brokers will require minimum trading capital equal to the risk on the trade, or $60 to open this trade.
That is a potential gain of about 216% based on the amount risked in the trade. The trade could be closed early if the maximum gain is realized before the options expire.