Silgan Holdings Inc. (SLGN), a leading supplier of consumer goods packaging products, announced today that its Board of Directors declared a two-for-one stock split of the issued Common Stock of the Company, to be effected in the form of a stock dividend. Stockholders of record at the close of business on April 20, 2010 will be issued one additional share of Common Stock of the Company for each share of Common Stock owned on that date. Such additional shares will be distributed on May 3, 2010.
For those who don’t know about Silgan Holdings, it is a leading manufacturer of consumer goods packaging products with annual net sales of approximately $3.1 billion in 2009. Silgan operates 66 manufacturing facilities in North and South America, Europe and Asia. In North America, Silgan is the largest supplier of metal containers for food products and a leading supplier of plastic containers for personal care products. In addition, Silgan is a leading worldwide supplier of metal, composite and plastic vacuum closures for food and beverage products.
So how to play this stock split announcement via Options–
The Basic concept is that stocks usually trends up leading into the split day and it is so because many investors/traders think that stock split is a sign of confidence; and since majority follows it, it also serves as a self-fulfilling prophecy. Of course not all the stocks that announce split goes up, so one has to be selective in choosing to play this “potential uptrend” that might last for a few weeks. And I think SLGN maybe one of those.
A Bull call debit spread or a bull put vertical credit spread good be one of the ways to play a potential uptrend. I am personally of the opinion to sell to open a May 60/55 Bull Put Vertical spread. As of yesterday close, this spread will bring $1.25 credit and thus $3.75 on Margin. By May’10 expiration, if SLGN stays above $60, it may generate 33.3% returns. The Breakeven for this trade will be $58.75 (=$60-$1.25) below which the trade will start to lose money and will lose 100% by May expiration if either a) it is not adjusted or b) not taken off for a loss. I usually prefer to book profit/loss at 15-18%.
Disclaimer- As of this writing, I don’t have any positions in SLGN, but I may open anytime. I may open either any of the strategies discussed above or a different one. I may also change my opinion anytime. Pls do proper due diligence before investing even a single $.
Profitable Trading, OP