We only have one option expiring next week, which is a long call on Western Union (WU) at the $18 strike.

I issued that trade alert on September 13, just before the stock market went into a long slide. At that time, WU was trading around $19. I put a buy limit price of $1.75 on that trade, and some of you reported paying less than $1.50 for it. After falling below $17 as the stock market correction bottomed out in late December, WU has recovered along with the overall market getting back above $18 in mid-January. It has traded in a narrow range over the past three weeks in anticipation of last night’s release of the company’s Q4 results.

Overall, the news was pretty good. Adjusted EPS (earnings per share) came in at 49 cents versus 41 cents the prior year. The company attributed the improvement to a combination of wider profit margins, lower taxes, and fewer shares outstanding due to buybacks. Although overall sales increased 2% on a constant currency basis, weakness in the Argentina peso relative to the U.S. dollar resulted in a 3% decline of adjusted revenue.

As a result, WU fell 3% in overnight trading but I suspect much of that was computer-driven in reaction to the misleading adjusted revenue figure. There was plenty of good news in the report that analysts should latch onto when they start parsing through the report today including a 25% jump in online money transfers during the quarter. Also, the company announced a 5% increase in its quarterly dividend payment.

With one week to go before this option expires, it is too soon to say if it will end up in-the-money or not. Today’s trading could be fairly messy as more program trading will be triggered at this morning’s open. However, I would not be surprised to see WU gain ground next week heading into Friday’s options expiration.

JCI and IP

I got some questions regarding two of our other positions in Johnson Controls (JCI) and International Paper (IP). Both of those options expire on April 18, more than two months from now. Today, they are both a dollar or two in-the-money and look strong technically. At this time, I see no reason to take action on either position.

I understand the desire to close out long call option positions that have recently moved crossed above their strike prices. However, time premium usually does not start disappearing until a month within expiration. In this case, I feel the potential reward of waiting another month to see how much more gain we get out of either stock is worth the potential risk of losing time premium during that span.