Why one bull is fired up over SmartHeat


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SmartHeat has lost more than three-quarters of its value since the start of 2010, but at least one option trader is bullish on the obscure Chinese small-cap stock.

optionMONSTER's systems show that 2,000 September 3 calls were purchased for $0.75 while an equal number of September 3 puts were sold for $0.40. Volume was more than 7 times open interest in both strikes.

The transaction resulted in a net cost of $0.35 and will simulate a long position in the stock, profiting from a push higher and losing money if it falls below $3.

HEAT fell 1.09 percent to $3.18 yesterday and has been falling since early last year, when it peaked over $18. The company's products are used to transfer and measure heat, mostly for large industrial and power-generation facilities such as refineries and nuclear-power plants.

The company's last financial report on March 15 showed year-over-year revenue growth of 52 percent and a 47 percent increase in earnings. Management said the results met or exceeded guidance.

HEAT could also be potentially attractive to some value investors because it trades at about 3 times forward earnings and its enterprise value is just 3 times EBITDA. Its long-term price/earnings growth ratio is just 0.2 times.

Yesterday's trade pushed total option volume in the stock to 13 times greater than average.

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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