Put Spread on NAV on 1/24/2014

Navistar International Corporation (NAV) manufactures and sells commercial and military trucks, diesel engines, and school and commercial buses; and provides service parts for trucks and diesel engines worldwide.

It operates through four segments: North America Truck, North America Parts, Global Operations, and Financial Services.

The company manufactures and distributes Class 4 through 8 trucks and buses in the common carrier, private carrier, government, leasing, construction, energy/petroleum, military vehicle, and student and commercial transportation markets under the International and IC brands; and designs, engineers, and produces sheet metal components, including truck cabs.

It also provides customers with proprietary products needed to support the International commercial and military truck, IC Bus, and MaxxForce engine lines, as well as other product lines; and a selection of other standard truck, trailer, and engine aftermarket parts. In addition, the company designs and manufactures diesel engines across the 50 through 550 horsepower range under the MaxxForce and MWM brand names; produces mid-range diesel engines primarily under contract manufacturing arrangements for sale to original equipment manufacturers in South America.

NAV has gone though a rough few years after making a big bet on exhaust gas recirculation (EGR) engines that backfired after the engines failed to pass EPA emissions standards. Fines and warranty costs have helped to swing NAV from an operating profit of $590 million in 2011 to a loss of $410 million in 2013. 

NAV also faces the disadvantage of relying on a competitor for the engines it puts in its trucks. After its issues with EGR engines, Navistar went back to using Cummins engines in its signature ProStar+ trucjs. Relying on a third party for such a large and important part of its truck means NAV has structurally higher costs than key competitors. We expect lower share prices for NAV.

52-Week Trading Range: $23.25 - $41.57

Last Trade: $35.15

Trade Buy 1 February $36.00 Put at $1.75 Sell 1 February $33.00 Put at $0.55 For a net debit of $1.20 Profit/Loss Analysis Breakeven at $34.80 Maximum profit is $180.00 at strike of $33.00 Maximum loss is ($120.00) at strike of $36.00 Closing Summary Sold 1 February $36.00 Put at $3.85 Bought 1 February $33.00 Put at $1.40

Position closed on 1/28/2014 at price of $2.45 with a 104.17% gain in 4 days.

Updates

1/28/2014 11:48:52 AM

We are taking profits on NAV Put Spread.

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