Make More, Risk Less: Baidu And Priceline Are Attractive, And Why I'd Short L3 Communications

| About: Baidu, Inc. (BIDU)

Three large cap growth companies, three very different trades. Find out below why I am bullish on Baidu (NASDAQ:BIDU), Priceline (NASDAQ:PCLN), and bearish on L3 Communications (NYSE:LLL).

Baidu

Baidu provides Internet search services. The company offers a Chinese language search platform on its website, Baidu.com; and a Japanese language search platform on its Website, Baidu.jp. Its search services enable users to find relevant information online, including Web pages, news, images, documents, and multimedia files through the links provided on its websites.

The stock has pulled back from a high of 154.15 on 3/27/12 to close at 114.61 last Friday. It is right at support around the 114, 115 area. The stock is poised to rally higher from here. For the more aggressive folks, now is the time to enter on the long side. Less aggressive folks may want to wait to see some confirmation in the next few days. I like to play this move using a risk reversal options play by buying an upside call and selling two downside puts. This is a stock that I want to own, so even if I were put the stock at a discount, I am still fine with this.

I like to use options because I can make more money and risk less. Options are tricky, so picking the right strikes is key. I would buy 1 August 2012 120 Call for $4.95 and sell 2 August 2012 110 Puts for $5.15 for a net credit of $5.40. Note: I do use up some of my margin for this trade because of the short 2 puts. If the stock goes lower from here, I may be put the stock at 110. My breakeven is 107.33. I make money above 107.33 and lose money below 107.33. Profits trail off between 107.33 and 110. If the stock stays between 110 and 120, I keep the 5.50. Profit/Loss table below.

Price

Profit / Loss

ROM %

82.50

($4,965.00)

-22.57%

95.45

($2,374.00)

-10.79%

107.33

$0.00

0.00%

109.09

$353.20

1.61%

110.00

$535.00

2.43%

120.00

$535.00

2.43%

122.73

$807.70

3.67%

136.36

$2,171.40

9.87%

150.00

$3,535.00

16.07%

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Priceline

priceline.com, together with its subsidiaries, operates as an online travel company. The company provides price-disclosed hotel reservation services on a worldwide basis with approximately 185,000 hotels and accommodations in 160 countries primarily under the Booking.com, priceline.com, and Agoda brand names; and price-disclosed rental car reservation services in approximately 4,000 locations worldwide through the rentalcars.com name.

The stock has pulled back from a high of 772.35 on 4/30/12 to close at 666.98 last Friday. It bounced off of support around the 625 area recently and appears poised to go higher. I like to play this move using a risk reversal options play by buying an upside call and selling two downside puts. This is a stock that I want to own so even if I were put the stock at a discount, I am still fine with this.

I like to use options because I can make more money and risk less. Options are tricky, so picking the right strikes is key. I would buy 1 August 2012 680 Call for $30.90 and sell 2 August 2012 625 Put for $20 for a net credit of $9.10. Note: I do use up some of my margin for this trade because of the short 2 puts. If the stock goes lower from here, I may be put the stock at 625. My breakeven is 620.45. I make money above 620.45 and lose money below 620.45. Profits trail off between 620.45 and 625. If the stock stays between 625 and 680, I keep the 9.10. Profit/Loss table below.

Price Profit / Loss ROM %
468.75 ($30,340.00) -24.27%
541.92 ($15,706.20) -12.56%
618.94 ($302.20) -0.24%
620.45 $0.00 0.00%
625.00 $910.00 0.73%
680.00 $910.00 0.73%
695.96 $2,506.00 2.00%
772.98 $10,208.00 8.17%
850.00 $17,910.00 14.33%
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L3 Communications

L-3 Communications provides command, control, communications, intelligence, surveillance, and reconnaissance (C3ISR) systems; aircraft modernization and maintenance; and government services in the United States and internationally.

The stock has rallied from around 67 to around 74 in the past month. It is hitting up against resistance in the 74 area. I think L3 will pull back before heading higher. The put options are relatively cheap, so instead of doing a put spread, I will just go with an outright put. I would buy 1 August 2012 75 put for $3.70. My risk is well defined at $3.70. My breakeven is 71.30. I make money below 71.30 and lose money above 75. Losses trail off between 71.30 and 75

Price Profit / Loss ROI %
54.91 $1,639.20 443.03%
62.36 $893.80 241.57%
70.21 $109.10 29.49%
71.30 $0.00 0.00%
75.00 ($370.00) -100.00%
78.06 ($370.00) -100.00%
85.90 ($370.00) -100.00%
93.75 ($370.00) -100.00%
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.