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Three ways to play Dana’s earnings

Today's Financial News - Posted November 2, 2009

iStock_000010666307XSmallFord (NYSE:F) had some good news today. Now it is time for Dana (NYSE:DAN) to impress the market. Here are several ways to play tomorrow’s announcement.

By Andrew Snyder, TodaysFinancialNews.com

Baltimore – (TFN): Need a play for tomorrow? Thanks to Ford’s (NYSE:F) billion-dollar surprise this morning, the auto industry was a market leader today, with the sector climbing ahead by over 5%.

The timing is good for Dana (NYSE:DAN), a major component manufacturer. The company is due to release its latest earnings figures tomorrow. After a topsy-turvy ride, investors are ready to hear news of growth.

After nearly plunging into the bankruptcy abyss earlier this year, shares of Dana have made a steady climb forward. Since March lows of $0.19, shares of the Ohio-based company climbed a whopping, get this, 3,815% all the way to $7.44.

With shares currently trading at $5.79 a piece, investors are getting a strong discount to last month’s highs.

If the news is good tomorrow, today’s buyers could be selling for profits in no time.

Unfortunately, it won’t be so simple. A lot of good news is already priced into the stock and the industry’s troubles are far from over.

Play to win

Don’t forget the third quarter was host of the infamous Cash for Clunkers program that jump-started the market. Since then, however, the industry’s batteries appear to have run dry.

There are several ways to play tomorrow’s news.

First, like always, you can buy the underlying shares and go long. Simple.

Or, if you think good news is already priced in and we are set for more red from the major indices, you could borrow a few shares and sell them short. A bit more complicated, but still pretty simple.

If you are a fan of the options market, it is a similar situation. But thanks to the ability to buy puts, shorting the stock is super easy. Buy calls if you are expecting good news.

But easy is not often best, especially if the path ahead is far from clear.

That’s what makes the options market so interesting… and lucrative. You can find a way to prosper no matter what happens.

An options straddle allows you to gain if the underlying stock moves significantly in either direction. By purchasing puts and calls with the same strike price and the same expiration date, you can overcome the two sets of premiums if the stock makes a big move in either direction.

For Dana, volatility is high, which means the options are fairly expensive, but a quick look at the November spread shows some profit potential if tomorrow brings  a big surprise.

No matter what you do, there are no excuses for missing out on the profits if Dana makes a big move in either direction tomorrow.


Next Article: M&A Tuesday: A day late and lots of dollars short

Posted by Andrew Snyder · Filed Under Featuring..., Options 

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