Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY) shares are off this morning after posting disappointing same-store sales in yesterday’s earnings report. The company’s expansion plan remains on track and even the comp-store shortfall was not particularly large.
With the news out of the way, we often look for buy-write opportunities using options that expire well before the next expected earnings event. For PLAY, one trade stands out. It’s the October 45 buy/write. At the moment, PLAY shares are going for around 44.80, while the October 45 calls are 1.70 bid. Thus you should be able to buy the stock and sell the call for a net cost of just above 43. The return, if called, is 4.4% over the next six-plus weeks. Annualize that, if you will, to about 43%.
Any buy/write requires comfort on the downside and this one is no exception. PLAY stock appears to have fairly good support around 42 (see chart below), representing a loss of about $1 or 2.3%. In other words, a reasonable downside scenario is about half the upside. Sounds good, but there’s no assurance the downside holds, particularly if markets get volatile. So you need to be comfortable with the story.
The story is one of growth and a go-to spot for young adults, always a highly desirable market. The market capitalization is less than $2 billion and the stock’s P/E to growth is only slightly above 1. Sounds like growth at a reasonable price, and a reasonable time for a buy/write.
Note: This article is written by Bill Feingold and originally published at Market Exclusive.