Easy-money trade in pawnbroker


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That was easy.

On Nov. 9, an investor rolled a long position in EZCorp by selling the December 22.50 calls and buying the December 25s. This allowed the investor to collect $1.25 of principal while remaining long the red-hot pawn-shop stock.

EZPW Today the trader sold 2,000 of those same December 25 calls for $2.60, more than twice their original price and purchased a new block of January 25s for $3.15. This time instead of collecting a credit, the investor paid $0.55, according to optionMONSTER's Heat Seeker tracking system.

In return, this move purchased the right to continue making money from EZPW, whose business is booming as banks cut lending.

The company's last earnings report on Nov. 5 showed a 33 percent gain, as profit and revenue both exceeded forecasts. It is also adding new locations and raking in cash from scrapping jewelry as people take advantage of high prices for gold and silver to sell their old necklaces and bracelets.

EZPW is up 0.84 percent to $27.62 in morning trading. It has risen 48 percent in the last three months and is close to its all-time high of $27.87 established Wednesday.

Despite the gains, there are reasons to expect more upside because it's valued at just 10 times forward earnings and has a price/earnings growth ratio of 0.73 times.

The call roll pushed total option volume in EZPW to 70 times greater than average so far today, according to the Heat Seeker.

(Chart courtesy of tradeMONSTER)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing , Options

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