Option Trade of the Day: Zoetis Inc. (NYSE: ZTS)
The April employment report was pretty much perfect as far as investors were concerned. The report was released Friday morning and it showed solid job growth, a lower unemployment rate, and average hourly earnings rose modestly. Stocks did open slightly lower, but then rallied sharply for the rest of the day.
[hana-code-insert name=’adsense-article’ /]The Nasdaq was up 1.71% on the day to lead the indices.The Dow gained 1.39% and the S&P gained 1.28% by the end of the day.
All ten sectors moved higher Friday with six of them gaining over one percent.
The tech sector led the way with a gain of 1.9% and it was followed by the consumer staples sector with a gain of 1.45%.
The utilities sector was the worst performer, but it still managed to gain 0.45%.
My scans had a decidedly bullish skew Friday night with 76 names on the bullish list and only nine on the bearish list. When I added these results to the barometer readings, it jumped to 35.8.
The name that stood out most to me on the bullish list was Zoetis Inc. (NYSE: ZTS). The pharma company ranks very high in IBD’s EPS rating (96) and SMR rating (A). The company reported earnings last week and showed earnings grew by 42% and sales grew by 11%, but that was still disappointing to investors. This is a case where sentiment was too bullish ahead of the earnings report and it caused a drop.
We see the drop on Wednesday and I think it is giving us a great buying opportunity. I drew a regression channel for the last nine months and you can see that the stock was farther below its regression line last week than at any point during that time. I look for the stock to rally sharply in the next month or so and will move back above the regression line.
Buy to open the July18 80-strike calls on ZTS at $4.00 or better. These options expire on July 20. The stock will need to get to $88 for these options to double and that is only a gain of 7.9% from where the stock is now. With the slope of the line, the stock may not even have to rise above it for these options to double.
— Rick Pendergraft
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