Trade Alert: Preserve Capital in United Rentals

Yesterday, United Rentals Inc. (NYSE: URI) announced that its subsidiary, United Rentals (North America), priced an offering of $250 million for its senior notes that are due in 2026 and $250 million for notes due in 2027.

Essentially, the company is issuing bonds.

This news didn’t cause an immediate hit to the stock, but as today wore on, shares have steadily declined. Investors apparently are a little apprehensive about the company going a half billion dollars into debt for these notes.

We own the United Rentals June $125 call option, and we’re now underwater by about 13%.

This isn’t an alarming drop — a small 13% loss doesn’t worry me considering we have a couple of months before we’ll look to exit. And the earnings updrift can certainly kick in before then.

However, I want us to protect ourselves should the drop continue.

So first, let’s cancel our standing limit orders to sell half the position for a 50% gain. We’ll then replace that with a stop-loss order that will limit our downside to a 50% loss. This would represent a smaller loss than the typical 75% we allow for. But I’m not sure why Wall Street is reacting this way to the announcement, and I don’t want to be sideswiped unexpectedly if something is amiss. If everything ultimately is copacetic, then the shares should return to a normal uptrend — and we will be fine.

But if something hinky is going on, well, we have some protection on the downside.

Be sure to set your stop-loss order at whatever nets you a 50% loss based on your individual entry price. Our official entry price is $10.15, so our official stop-loss order will be set at $5.07.

Here’s your action to take:

Action to Take
Sell Action to Take
Stock: United Rentals Inc. (URI)
Option Type: Call Option
Expiration: Jun-16-2017
Strike Price: $125
Option Symbol: URI170616C00125000
Action: Sell to Close
Order Type: Stop-Loss Order
Duration: GTC (Good ‘Til Canceled)
Limit Price: $5.07
Trade Deadline: Keep this order open until it is filled or canceled.

That’s all for today. Earlier, we locked in a 70% gain on the last half of our Juniper calls, and we entered a new trade by buying the Activision Blizzard (Nasdaq: ATVI) $45 April calls. If you didn’t get a chance to read that alert, be sure to do it now so you can get in. The price is still under my $1.60 limit order.

Until next time, good trading…

Jeff Opdyke
Editor, Earnings Drift Alert