Fuel System’s (FSYS) stock option volume was up yesterday while its stock was down almost 10%.
If you’re looking to purchase a car or convert a car to operate on natural gas, then Fuel Systems is for you. Fuel Systems provides components for alternative energy in the transportation segment. Fuel Systems IMPCO subsidiary provides products in the industrial and power generation market segment and it’s BRC subsidiary provides products for the alternative fuels transportation market segment. Fuel Systems derives a large part of its revenues from selling its products in Italy. Italy provides a subsidy or support for natural gas through a reduced Value Added Tax [VAT].
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Fuel System’s stock price has been very volatile of late with it spiking up around the first of November and experiencing a spike down yesterday. Fuel System’s stock price is up over 300% from its low in March of this year. The company’s stock prices is near a 52-week high and has also nearing is two-year price around $60. Yesterday’s spike down in price breached the lower Bollinger Band.
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Yesterday’s unusual stock option volume for Fuel Systems was observed for both call options and put options with a majority of the action for the December and January at-the-money options.
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With the recent spike up/down in the price of its stock, a good play for Fuel Systems might be a collar, a covered call investing position with a put purchased for downside protection. A good candidate for this strategy might be selling the January 45 call option and purchasing the Jan 35 put option. The %if unchanged potential return is 5.5% with a %if assigned potential return of 7.6%. The maximum potential loss is 16.3%. The profit/loss chart for this collar is shown below:
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To enter the collar an investor would purchase the stocks in multiples of 100 shares for their trading portfolio and sell one call option and purchase on put option for each 100 shares of stock purchased for their personal stock portfolio.
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[tags] natural gas, transportation segment, IMPCO, power generation, BRC, alternative fuels, Italy, Value Added Tax, at-the-money, FSYS, Fuel Systems Solutions Inc. [/tags]