Thermo Fisher And Medical Insturment Strength Presents Opportunity

Apr.13.12 | About: Thermo Fisher (TMO)

Daily Data: Thermo Fisher Scientific, Inc. (TMO)

This week, we were stopped out of our May'18 55/50 bull put spread in Thermo Scientific. Before our entry, the data on TMO showed a worst return of +2% from March to April option expiration for the past 9 years. Yes, that's correct, the worst return for TMO has been a positive 2% during this time period. A 2% increase from TMO's March option expiration price (57.91) implies a May expiration price of $59.06. Given that TMO is currently trading 10% below its estimated max low price for May'18, I'm still attracted to the stock. The May'18 50/45 bull put spread looks good for a sell limit entry of 0.55.

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If you're less faithful in historical returns then I recommend looking long TMO short S&P 500 SPDRs (SPY) for a quick 1%-2% gain from the chart show below:

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The chart above shows the basis between TMO and SPY. If I entered a long TMO / short SPY position I would have a stop on the basis at 0.38 and look for a profit at 0.405. Additionally, other medical instrument companies are looking undervalued heading into earnings and have good historical results. We are also a fan of TMO's competitors Becton Dickinson (BDX), Perkin Elmer (PKI), and Agilent Technologies (A).

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(Click to enlarge)

Suggested Trade: TMO - Sell May'18 50/45 put spread (Bull Put Spread)

  • (Sell 50 Put/Buy 45 Put)
  • Size - 5% of Option Spread Portfolio Size = (2 spreads)
  • Entry: Sell Limit: 0.55
  • Stop Loss: 1.15
  • Exit Price: 0.00
  • Max Return: 12.35%
  • (Max Return Calculated on Return on Risk from my entry, not Return on Margin)

Charts are from

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in TMO over the next 72 hours. We may short SPY.