from the desk of Dr. Terry F Allen

Skip navigation

Member Login  |  Contact Us  |  Sign Up

Down Goes Tyson

November 21, 2022

Down Goes Tyson

Tyson Foods (TSN) can’t seem to get out of its own way. The company reported earnings on Nov. 14 that missed estimates on profits but beat on revenue. Higher chicken prices squeezed gross margins, which were cut in half.

But TSN has other problems. The week before earnings, the company’s CFO was arrested for public intoxication and criminal trespass. This week, the company recalled 94,000 pounds of ground beef that reportedly contained a “reflective, mirror-like material,” whatever that means.

Analysts didn’t seem to like the earnings news, as the stock was hit with a few target price downgrades. Even so, the average price target is 24% above Friday’s close, which seems overly optimistic. Perhaps the options market is more in touch with TSN’s prospects, as out-of-the-money puts are priced higher than the corresponding calls.

The stock traded lower after earnings and throughout the week, falling nearly 3%. While hardly catastrophic, the more bearish development is the continued resistance provided by the 50-day moving average. The stock hasn’t closed a day above the 50-day since it crossed below it in early August. Moreover, recent rally attempts in the past couple of weeks were firmly rebuffed.

This trade is based on TSN continuing to trade sideways or lower beneath the weight of the 50-day moving average (blue line). Note that the short call strike (red line) of our credit spread lies just above this trendline, meaning that TSN will have to overcome this resistance to put our spread in danger

If you agree that TSN will continue to trade beneath the 50-day moving average, consider the following trade that relies on the stock staying below $67.50 through expiration in four weeks:

Buy to Open the TSN 16 Dec 70 call (TSN221216C70)
Sell to Open the TSN 16 Dec 67.5 call (TSN221216C67.5) for a credit of $0.50 (selling a vertical)

This credit is $0.02 less than the mid-point price of the spread at Friday’s $65.52 close. Unless TSN falls quickly, you should be able to get close to that price.

The commission on this trade should be no more than $1.30 per spread. Each spread would then yield $48.70. This trade reduces your buying power by $250, making your net investment $201.30 per spread ($250 – $48.70). If TSN closes below $67.50 on Dec. 16, both options will expire worthless and your return on the spread would be 24% ($48.70/$201.30). 

Making 36%

Making 36% – A Duffer's Guide to Breaking Par in the Market Every Year in Good Years and Bad

This book may not improve your golf game, but it might change your financial situation so that you will have more time for the greens and fairways (and sometimes the woods).

Learn why Dr. Allen believes that the 10K Strategy is less risky than owning stocks or mutual funds, and why it is especially appropriate for your IRA.

Order Now

Success Stories

I have been trading the equity markets with many different strategies for over 40 years. Terry Allen's strategies have been the most consistent money makers for me. I used them during the 2008 melt-down, to earn over 50% annualized return, while all my neighbors were crying about their losses.

~ John Collins

Member Login  |   Programs and Pricing  |  Testimonials  |  About Us  |  Terms and Conditions  |  Accessibility Statement  |  Privacy Policy  |  Site Map

Options are not suitable for all investors as the special risks inherent to options trading my expose investors to potentially rapid and substantial losses. Please read Characteristics and Risks of Standardized Options before investing in options

© Copyright 2001-2022 Terry's Tips, Inc. dba Terry's Tips
235 Primrose Lane, Ferrisburgh, VT 05456