Random Stock Analysis - MSO - Martha Stewart

You know what looks as juicy as a Ruth's Chris steak?

The MSO MAR2007 20 calls for .95

Yep, that's the symbol for Martha Stewart stock. I think it has bottomed and on the verge of a breakout.

I took down some today for what seems to be a real "cheap" trade for all the potential upside that could come from any one or a combination of the following reasons:

1) Any good news out of the MSO camp would be a welcome change

2) People might start spending more of their discretionary cash to remodel/redecorate their home now that gas prices are down, and MSO could be a decent derivative play off of a housing rebound (Have you noticed the strength in the Homebuilder ETF lately? Symbol: XHB)

3) only about half of the analysts that cover the stock have buy ratings on MSO

4) potential heavy short covering from the nearly 10% of the float that is outstanding

5) Even a non-chartist can see the very solid base at 16 that MSO seems to have broken free of, and held strongly for the past month (starting with the high-volume gap up July 27).

6) Who knows, with that recent newspaper article about Eddie Lampert being on the prowl for another aquisition target... maybe he'll see some value in MSO (he sure as heck has a bit of experience with the brand since MSO products were a stable of Kmart stores)...

7) Current expectations for MSO 2007 revenue is horrible, and any upward revision of guidance will pop the stock from short covering alone. And if MSO benefits from a good holiday shopping season, well, its off to the races for the stock.

I think MSO has the potential to trade to 25-26 by next March turning these .95 cent calls into a potential 5 bagger. Wouldn't buy common stock though, too much headline risk for that.

For those of you who can short stock, it might be a good play to short a little bit of common against the calls on any run ups above the 22-23 area... and trade around it.

Full disclosure: I'm long the MSO MAR07 20 calls

(Ordinarily I don't trade options because I have a 60-day holding period requirement imposed by my employer for anything I trade in my personal account, but since this trade goes out 6 months I decided to go for it-I don't see any real short-term catalyst, I just thought the options were "cheap" considering the risk/reward profile I feel is available in the trade.)