This Niche Product Maker Could Deliver a Triple Digit Gain
The truth is there are more ways to make money than any single investor realizes. An example is found in a recent press release from a niche company.
Globe Newswire reported, MKS Instruments, Inc. (Nasdaq: MKSI), a global provider of technologies that enable advanced processes and improve productivity, announced today a new program that provides easy online access to thousands of MKS vacuum products designed for labs, R&D and engineering facilities.
Under the banner “Research takes time. Ordering your lab equipment shouldn’t.”, the new Ultra-High Velocity (UHV) Program from MKS offers thousands of vacuum products in stock, a new streamlined online ordering experience and free two-day shipping in the United States.
With this program, MKS is committed to delivering proven, high-quality vacuum solutions directly into the hands of customers easier and faster than ever before.
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MKS has a proud 50-plus-year history of innovation and invention that continues to shape the technology solutions and products for research and laboratory applications. Now, customers can get them faster.
Highlights of the new UHV Program featuring a wide range of vacuum products:
- Stock Availability – thousands of SKUs now in stock
- Intuitive Online Ordering Experience – enhanced search and filter functionality
- Expedited Shipping – free two-day shipping in the U.S.
- UHV Snacks – ultra-high velocity fuel for the team
“In today’s highly competitive landscape, MKS understands that leading-edge science, engineering and technology are needed to power the next-generation products, solutions, and research of our customers,” stated Wayne Cole, vice president and general manager, Pressure & Vacuum Measurement Solutions, MKS Instruments.
“The expansive selection of quality vacuum products ranging from mass flow controllers and capacitance manometers to vacuum gauges, flanges, and fittings to pressure controllers and valves, ordered easily and delivered quickly, means our customers can focus on their research and development.”
The company also recently released earnings as Thomson Reuters reported,
“Revenue for fiscal 2018 was a record $2.1 billion, an increase over 8% from $1.9 billion in 2017. Non-GAAP net earnings were $7.83 per share, an increase of 31% from a year ago,” according to Gerald G. Colella, MKS Instruments, Inc., CEO & Director.
“Our ability to deliver these record results despite second half semiconductor market headwinds was driven primarily by a balanced exposure to a diverse range of Advanced Markets, coupled with our longstanding commitment to managing expenses.
For the fourth quarter, we achieved revenue of $461 million and non-GAAP net earnings of $1.54 per share, both of which were at the higher end of our guidance.
Our strong and longstanding relationships with our semiconductor customers have helped us deliver over $50 million in Light and Motion design wins in 2018. This selling model is working well for us, and we’ll apply the same strategy to ESI’s product portfolio.”
Traders seemed to like the news and pushed the stock up.
This could signal that the rebound that begun in December will continue for some time.
A Trade for Short Term Bulls
As with the ownership of any stock, buying MKSI 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 MKSI
Every day, we scan the markets looking for trades that MKSI 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 MKSI, the April 18 options allow a trader to gain exposure to the stock.
An April 18 $90 call option can be bought for about $2.30 and the April 18 $95 call could be sold for about $0.70. This trade would cost $1.60 to open, or $160 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 $160.
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 MKSI the maximum gain is $3.40 ($95 – $90 = $5; $5 – $1.60 = $3.40). This represents $340 per contract since each contract covers 100 shares.
Most brokers will require minimum trading capital equal to the risk on the trade, or $160 to open this trade.
That is a potential gain of about 112% based on the amount risked in the trade. The trade could be closed early if the maximum gain is realized before the options expire.