Strategic Options Update: Buy the April puts of this insurance and consulting conglomerate
Today's Financial News - Posted March 17, 2009
Our new TFN Strategic Trader options pick bets on a slew of bad news for this major insurance and consulting company.
by J. Christoph Amberger
Baltimore—TFN: There are two ways to interpret the relatively calm in the market for the past two days.
We could draw on the bullish sentiment, released in homeopathic dosages by Washington, to argue that the slowdown is merely a short-term break in an extended upward surge.
Or we could look at the plethora of bearish news to argue that this week is Wall Street’s way of sobering up after a week of pre-St.-Patrick’s-Day partying.
“I vote for the latter,” writes TFN’s options oracle Andrew Snyder. “While many sectors of the economy seem bullish, the bears have plenty of work left to do. The fallout from this week’s action is yet to be realized.”
Andy has his eye on one partticular company with a less-than-rosy outlook. It’s a huge global behemoth in the field of strategic consulting, risk management, and insurance brokering. So far, it has weathered the economic calamity quite well.
But as AIG is put in the crosshairs, they will suffer from shrapnel. Especially its large insurance brokerage business may get caught in the political turmoil about to erupt.
Even worse, over half of the company’s revenues are derived from its consulting businesses. When the economy is strong and companies are expanding, consulting is a great industry to be in. But consultants are often the first discretionary expenditures to be cut when things turn sour. And from what I hear, this company is doing very little to entice its customers to stay aboard.
The next earnings announcement will be quite surprising, especially to folks expecting good news. We expect shares to fall below recent 52-week lows.
That is why today, Andy recommend buying the company’s April puts. He admits to “a moderate amount of risk”, but the lack of any major signs of economic recovery will provide some upside protection: “I do not plan to hold this position for more than a week or two. The ultimate goal is to take advantage of a quick, one- or two-day sell-off. If it happens, expect big returns from this position.”
Due to slight risk factor, we reserve this play to members of the TFN Strategic Trader. Andy’s options on “The most powerful company in the world” —with its “genetic switching” technology being prepped for prime time— have already quadrupled in value! Get all the details here…
Next Article: Best Stock to buy: This MRSA-related stock is a strong buy at current prices!
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