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Carbo Ceramics - Taking A Position With Options

|Includes: CARBO Ceramics Inc. (CRR)

There was a nice article by Kevin Quon today on Carbo Ceramics (NYSE:CRR) and after reading it I bought a vertical call spread, long the March 2015 40 calls and short the March 2015 45 calls, for a net debit of $3.20.

Carbo makes ceramic proppants for fracking, and they're getting some pressure by competition from sand. The shares are down seriously, and there is still a very substantial short interest. This in spite of a very strong balance sheet.

If you count extra cash/current assets above a ratio of 2:1, they have about $11, and no long term debt. When adjusted with this in mind, the forward P/E is about 11.

I've been here before. I went long on a very similar situation, same stock, back in 2009 and made good money. I played it safe, with a covered combination.

So with the stock in the $48 area, my full profit of $1.80 is earned if the stock is above $45 at expiration, and my b/e is at $43.20. Both are below the 52 week low, and are prices at which I would be happy to hold the stock long-term and wait for recovery.

It's always fun to reheat old ideas, particularly successful ones.

Disclosure: The author is long CRR.