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Options Investing: Profit from guns

Posted January 15, 2008

“The Supreme Court case is weighing heavily on the company. Fortunately, the damage is already done. With a single-digit price/earnings ratio, share price cannot go much lower, no matter what the news in June. ” – Andrew Snyder

By Andrew Snyder

Baltimore (TFN) — Smart investors are always looking towards the future. They are searching for those little-discussed opportunities that will lead to big profit potential. For options investors, the smallest of news stories could transform into the largest gains.

This year will prove to be a monumental one for the nation. Not because we are electing a new leader (that is kind of important though), but because of a landmark decision about to be made by the Supreme Court. One extra yea or nay vote could forever change an industry and put billions of dollars up for grabs.

In March, the nation’s top court will hear arguments relating to the meaning of the Second Amendment. By June, it will make a ruling that ultimately defines an American citizen’s right to bear arms. If the judges make a pro-gun decision, which is the likely outcome, the American firearms industry will soar.

American gun manufacturers, especially those that rely on the sale of pistols, are holding their breath. Many companies have already seen their share prices plummet because of fears of weak sales in 2008. Since November, Smith & Wesson (SWHC:NASDAQ), one of the industry’s foremost leaders, has seen its share price drop by about 75% thanks to a weakened 2008 sales forecast.

A supreme profit opportunity

The Supreme Court case is weighing heavily on Smith & Wesson. Fortunately, the damage is already done. With a single-digit price/earnings ratio, share price cannot go any lower, no matter what the news in June. The only direction the charts can go is up. That is what makes this such a ripe options play.

With a ruling set to be handed down by June, call options that expire on June 20 are a perfect choice. As I write, shares of Smith & Wesson are trading for $5.41. A jump to $8 or more within five months is a no-brainer. Almost ever analyst in the industry is looking for a positive jump. Meanwhile, the $7.50 June calls are selling for just $0.50, creating room for huge profit opportunity.

Remember this time one year ago, shares were selling for over $11. And just four months ago, they were trading for over $20. With a price hovering just above $5, there is an incredible amount of potential built into Smith & Wesson.

A national debate

As more and more investors begin to talk about the upcoming Supreme Court decision, the firearms industry is going to get even more attention. Already, Smith & Wesson’s June calls are gaining in popularity. Imagine what will happen as the presidential race begins to debate the court’s decision. It will be all you see when you flip on your TV.

Take a look at these options and take advantage of one of the largest industry catalysts we have seen in decades. For decades, the future of the industry’s products has been in question. If the Supreme Court decides in the favor of individual gun owners, the question will be answered and gun manufacturers will have their future cemented by the Constitution.

Smith and Wesson is going to be the number one benefactor. If you are smart, you will be sharing in its joy. This is the biggest profit opportunity of 2008.


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Posted by Andrew Snyder · Filed Under US Stocks and Markets 

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