Today a recent retail favorite is getting slammed, probably by short sellers and profit takers, given its tremendous price rise and earnings announcement that surprised to the upside.
That stock, NTI (Northern Tier Energy) was upgraded by several brokerages when their first (partial quarter) dividend of $1.48 was announced a few days ago. One brokerage, Deutsche Bank, lowered its rating, but left the price target at $25.
As we speak, it’s down about $2 and trading around $22.50. The options, though, seem mispriced. I’m guessing that most of the mispricing comes from the dividend that’s about to pay, but my online stock trading platforms are showing the December $22.50 calls at implied volatility around 25%, and the puts at implied volatility three times that. I’m looking at buying the calls and/or selling the puts.
If I get exercised on the puts, my net cost will be $20.50 per share, and even the Street firm with the bearish outlook expects the stock to trade at $25. Others expect the stock to trade to the high 20’s or even $30 a share. And $2 a share in estimated quarterly distributions looks pretty tasty, though potentially ephemeral.
It’s a dicey play, in that the company owns exactly one refinery. And refinery business earnings are notoriously volatile, since the integrated oils can keep running their refineries when the “crack spread” doesn’t work economically, but these guys won’t have that luxury.
Still, the next quarter is basically in the books already, so if I end up owning these suckers, I’ll get a couple of more bucks to ease the pain.
Wish me luck. I may need it.