HSY

O

oldnemesis

http://www.fool.com/investing/2016/06/30/hershey-cos-stock-soars-on-buyout-attempt-what-you.aspx

http://www.fool.com/investing/2016/...utm_medium=feed&utm_source=yahoo-2&yptr=yahoo

http://www.msn.com/en-us/money/stockdetails/financials/fi-126.1.HSY.NYS

http://stockcharts.com/h-sc/ui?s=hsy

This is an old story to me. It's a repeat of previous instances when some company (like Cadbury) decided they wanted to buy HSY only to be thwarted by multiple circumstances.

To people from Pennsylvania like myself, Hershey is not just a candy bar but a town:

https://en.wikipedia.org/wiki/Hershey,_Pennsylvania

In one of my former lives I spent a week at Hershey Medical Center as part of a team giving a course on the use of mechanical ventilators in intensive care.

https://en.wikipedia.org/wiki/Penn_State_Milton_S._Hershey_Medical_Center

I am going to make several hypotheses and generate a set of possible trades based on those hypotheses.
 
Hypothesis #1:

This whole thing will be thwarted by the forces that control HSY and by November will completely disappear returning HSY to $95.

Trade:
With HSY at 110.66
Nov 100/95 bear put spread for a net debit of $20

Price..... Profit / Loss..... ROI %
75.00.......... 480.00........ 2400.00%
85.00.......... 480.00........ 2400.00%
95.00.......... 480.00........ 2400.00%
97.67.......... 212.70........ 1063.50%
99.80............. 0.00.............. 0.00%
100.00......... (20.00)....... -100.00%
110.00......... (20.00)....... -100.00%
125.00......... (20.00)....... -100.00%
135.00......... (20.00)........ -100.00%

Hypothesis #2
The optimism is entirely justified and the stock will stay above $110.

Nov 105/110 bull call spread for a net debit of $335:

Price......... Profit / Loss......... ROI %
78.00........... (335.00).......... -100.00%
90.00........... (335.00).......... -100.00%
102.22......... (335.00).......... -100.00%
105.00......... (335.00).......... -100.00%
108.35............. 0.00................. 0.00%
110.00.......... 165.00............... 49.25%
115.00.......... 165.00............... 49.25%
125.00.......... 165.00............... 49.25%
140.00.......... 165.00............... 49.25%
 
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Hypothesis #3
I have no basis for believing or disbelieving hypothesis #1 or #2 and simply guess that HSY will remain above 90 in any case (90 was its trough value before it broke out on the take-over expectations):
Corollary: I am willing to own HSY for $90

Jan 90/85 bull put spread for a net credit of $40
Yield = 40/460 = 8.7% in 187 days or 16.9% annualized
(HSY pays a dividend of 2.1%)

Price............. Profit / Loss........... ROM %
75.00................ (460.00)............. -91.30%
80.00................ (460.00)............. -91.30%
85.00................ (460.00)............. -91.30%
89.60..................... 0.00................ 0.00%
90.00................... 40.00................ 8.70%
93.13................... 40.00................ 8.70%
110.00................. 40.00................ 8.70%
120.00................. 40.00................ 8.70%
130.00................. 40.00................ 8.70%

Which hypothesis you choose to follow depends, I suppose, on your 'trading personality'.
 
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Just as an exercise what if I would sell a Jan $90 naked put on HSY? (187 days)

OptionsXpress estimates that I could get $115 for this. I hold a cash account so the cash required would be $8885. My yield would be 115/8885 *(365/187) = 2.5% annualized.

Say isn't that the dividend on HSY?

But then if put I could write calls until called which, from current indications, could get me 5-6% annualized. Better than 2.5% but current call prices may be inflated due to the takeover speculation.

Lots of people do this cycle on 'reliable' stocks. Sell puts until put then sell calls until called.

It works until one of your 'reliables' gets killed. Over a couple of years it's bound to happen.

One 'upgrade' to the sell puts/sell calls cycle is to trade the stock for Single Stock Futures when you are put and write calls against those. This greatly increases the yield on the selling calls part of the cycle but has its own problems you must know how to handle. I have done it and it works pretty well on certain stocks. HSY has SSF's available and IB handles SSF's but many brokers do not.
 
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Nice pullback here in the larger scale uptrend. Bull flag forming on monthly and weekly was a little overbought, so was due for a correction. Should be a nice buy soon on fresh upside momentum with tight stop.
 
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