Pacific Ethanol: A Trader's Take (PEIX)

I really think the Gates ownership buzz has caused Pacific Ethanol (PEIX) to run wild for no reason. Let's not forget Gates also owns MSFT which hasn't done so hot this decade.

This is a pure ethanol play and we are just about at the point in the cycle where we can expect the naysayers to come out anyway. While there is a lot of potential, there is also a forward p/e of 200 (if they hit ambitious numbers) and a price/book of 38 vs. say FCEL at 3 or SPWR at 7 or ADM at 3.

The stock is up 600% since Jan '05 but the options are out of control, so I like shorting the stock at $37.88 and selling the Jun $35 puts for $3 which gives you good upside protection and a potential 19% profit.

PEIX 1-yr chart:

Related: Ethanol Stocks Reviewed On Seeking Alpha