Options Trade – Lorillard Inc. (NYSE:LO) Calls 
Thursday, April 03, 2014

**OPTIONS TRADE: Buy the LO Jun 2014 55.000 call (LO140621C00055000) at or under $2.10, good for the day. Place a protective stop limit at $0.85 and a pre-determined sell at $4.00.

by Ian Harvey

April 03, 2014


Lorillard Inc. (NYSE: LO) with only a $19.3 billion market cap, a relatively small fish in a small pond, is a fantastically successful cigarette and e-cigarette manufacturer which appears to be a good thing at the moment. Rumors are circulating that Reynolds American (RAI), the next biggest fish in the pond with a market cap $28.7 billion, may be interested in acquiring LO so that, together, they might be more competitive against big fish Philip Morris (PM) and Altria Group (MO).

When these rumors first surfaced at the beginning of March, LO jumped 16% to a 52-week high of $56.85. Following the initial burst higher, the stock pulled back and consolidated around $52. That is until Wednesday last week, when it broke out of a bullish pennant — a classic bullish continuation pattern. LO could easily jump back up to its early March highs in a matter of days. While this short-term 6%-plus move would be exciting, it is only the beginning of the bullish possibilities for LO.

Lorillard, originally known as P. Lorillard & Co., is America's oldest tobacco company. While the company's public shares have only been trading since 2008, when it was spun off fully from Loews Corp., it was originally founded in 1760. In fact, some of North America's first tobacco advertisements were run by P. Lorillard & Co. in Ben Franklin's newspaper.

Traders on Wall Street are starting to readjust their portfolios. They’ve been moving some of their assets out of riskier, small-cap momentum stocks and into more conservative, dividend-paying stocks, which should be good for LO in the near term. The company has a 4.7% yield and has consistently increased its dividend for years. This type of stable dividend payment is just what frazzled traders who have been riding the momentum train higher and higher for the past few years are looking for.


• Lorillard's market-leading position in electronic cigarettes is a potential source of growth and increased profitability.

• Being the market leader in menthol cigarettes has helped Lorillard avoid the decline in sales volume that the rest of the domestic cigarette market is experiencing.

• A rumored merger with Reynolds American is a potential short-term catalyst for price appreciation.

• Lorillard's capital efficiency will allow the company to buy back more shares and increase future dividends.

Therefore, based on the facts above the following options trade is recommended…..

**OPTIONS TRADE: Buy the LO Jun 2014 55.000 call (LO140621C00055000) at or under $2.10, good for the day. Place a protective stop limit at $0.85 and a pre-determined sell at $4.00.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.

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