Intermediate Trade: BEN (original) (raw)

Use options tactics that buy plenty of time.

The Trade: buy 1 BEN January 2018 40strikecallandsell1BENJanuary201840 strike call and sell 1 BEN January 2018 40strikecallandsell1BENJanuary201845 strike call for a debit of 1.25 points per spread.

Franklin Resources (BEN) , a 70-year-old financial asset management company headquartered in California. BEN has traded over the past 52 weeks between a low of 31andahighof31 and a high of 31andahighof42 (both rounded) and has a PE ratio of 13. BEN's current annual rate of return on its common dividend is 2%.

BEN has an excellent balance, which shows that total cash exceeds total debt by about 6billion,ornearly6 billion, or nearly 6billion,ornearly10/share.

The company should finish this year with earnings near 2.80/share.Placinga15PEonearningspershareof2.80/share. Placing a 15 PE on earnings per share of 2.80/share.Placinga15PEonearningspershareof2.80 equates to a stock at $42. Now, have interest begin to rise in 2017 and with plenty of cash on hand that can be put to use to earn interest on it, earnings for BEN can nicely increase should rates begin to rise.

Of course, excess cash can also be used for other purposes that most times increase a stock's value.

Technically, I read the one-year stochastic and RSI patterns for BEN as bullish, with further potential for more upside. BEN has no substantial resistance above the $40 level and is now coiled as per what my coiling pattern looks for in coiled stocks and indices.

What BEN needs, as does any company in the financial sector, is time for interest rates to rise. And one way to play that game of patience is by using options tactics that buy plenty of time.

The trade tactic I prefer now for BEN is the longer term, bullishly biased out-of-the-money vertical call spread expiring in January of 2018. Note: that is 2018!

The trade is as follows:

-- Buy 1 BEN January 2018 $40 strike call;

-- Sell 1 BEN January 2018 $45 strike call for a debit of 1.25 points per spread.

The suggested target to close for a gain is a bid of 1.75andthesuggestedstopouttargetisabidof1.75 and the suggested stop out target is a bid of 1.75andthesuggestedstopouttargetisabidof0.75.

At the time of publication, Skip Raschke held no positions in the stocks or issues mentioned.