Opportunity in Medium Term Call Options for Dryships

Dryships (DRYS), as with every other drybulk shipping company on the market, has taken a tremendous beating recently. Back in November, with the general market, Dryships hit its 52 week low of $3.04, and then charged back up the next 45 days to around $17.00 a share netting brave investors in the company a solid 400% gain in less than 60 days. While analysts' estimates went down again within the last couple of days, from $5.02 to $3.76, the Baltic Dry Index has just recently come off its lows of about $660 to a recent close of $1070. One can argue also that analysts estimates are more than likely off, or at least behind the market.

I feel that a safe way to profit from this wildly volatile stock in an already volatile market would be investing in medium-term Dryships call options with an expiration of June 2009, and a strike price of $2.50. I put in a limit order for $2.50, which leaves me at a break even amount for the trade of $5.00. Anything over $5.00 between now and the 3rd Friday in June is purely profit and i expect to sell the options closer to now than to June and cash in on some of extrinsic value that should be left.

Disclosure: Long DRYS.

Comments

[Ecomike:]

Your a little late with that call. DRYS is already up 26%, over $6 per share on bank news this morning.
I still think it's headed for $2 myself.

Feb 03 11:49 AM

[utahcoyote:]

a decent income related trade, if you are one who believes that drys survives is to sell june 5 puts for 1 70-80. basically, the sole risk here is drys going bellyup, and with its very selfserving ceo, that is not beyond the scope of possiblity. that said i took such a position today.

Feb 03 03:55 PM

[Chasman007:]

Why not take that premium and buy the call he cites? Your breakeven becomes $3.20, with the risk of having to buy more at $5.


On Feb 03 03:55 PM utahcoyote wrote:

> a decent income related trade, if you are one who believes that drys
> survives is to sell june 5 puts for 1 70-80. basically, the sole
> risk here is drys going bellyup, and with its very selfserving ceo,
> that is not beyond the scope of possiblity. that said i took such
> a position today.

Feb 03 05:47 PM

[PeteK:]

Drys will never belly up.
The boss is just up to something.

Feb 03 11:28 PM

[je:]

I agree with ECOMIKE. It just put in a head and shoulders and yesterdays little rally was from the PPG because they knew the Disney earnings was bad. The selling will soon begin.

Feb 04 08:24 AM

[John Cordes:]

Why take risks with Drys which could in fact fold or continue to be drastically dilluted with another 100M shares dumped into the market, by an alternative, EXM. They took one new build and rejected the other, the one being taken already have a profitable term lease in force. If the Baltic moves favorably, you get similar upside and a far lesser indimic risk for survivability.

Feb 04 09:23 AM

[je:]

EXM is headed to the two dollar range as well.

Feb 04 12:02 PM

[ramisle:]

The analysts didn't lower earnings enough. That "Soaring BDI" that everyone keeps talking about was at below break even rates for two months. Thats not good for DRYS or EXM with their spot exposure.
The BDI will be up again tomorrow according to FFA's, but you just never know when George Economou will drop another bombshell.
Dilution, Loan Covenants, Ship cancellations, oh my.

Feb 04 04:53 PM

[Shabba:]

Ramisle-

What is FFA?

Feb 04 06:25 PM

[ramisle:]

well, it's not Future Farmers of America!

It's Forward Freight Agreements,
Futures, or Freight Dirivatives, and the speculating of what rates will be.

often used as a hedge by ship owners.
Go to imarex.com

Feb 04 07:57 PM

[ramisle:]

According to the FFA's the BDI will be up well over 100 again on Friday.

Feb 05 07:58 PM