Call Options Or Put Options On Westport Innovations (WPRT)?

| February 20, 2013 | 0 Comments

Westport Innovations (WPRT) has one of the most compelling stories of any company around.  But so far, the company’s performance hasn’t lived up to the hype.

WPRT currently trades for $30.00 per share.  The shares are up 38% from the 52-week low of $21.93 but it’s also 39% below the 52-week high of $50.19.

Is this an opportunity to buy call options on WPRT after they signed a contract to sell natural gas engines to two of largest public transport fleets?  Or should you buy put options on WPRT because natural gas will never replace oil as the transportation fuel of choice?

The bulls make a convincing argument…

Long time readers might recognize WPRT from a ‘Call Or Put Options’ article a few months ago.  Those of you who took the bullish side of the story have been richly rewarded.  The March 2013 $29 call options I recommended have more than tripled in value since then.

The truth is… WPRT’s bullish catalyst remains the same.

Many truck fleets are being outfitted to run on natural gas instead of diesel fuel.  And WPRT’s industry leading natural gas fuel systems are the most popular way to outfit new trucks to run on natural gas or convert older diesel power engines to run on natural gas.

In fact, WPRT’s recent surge higher is because they just landed new contracts with LA Metro and the San Diego Metropolitan Transit System.

The deal netted WPRT 900 new engines for transit buses in LA and San Diego.  But the deal could be worth much more…  The cities have the option to purchase up to 12,500 natural gas fueled buses over the next few years.

Here’s the kicker… adding 12,500 natural gas powered city buses would increase the number of buses running on natural gas by 20%.  What’s more, the total number of natural gas vehicles (NGVs) is projected to soar from 12.6 million today to 19.9 million by 2016.

As you can see, this is an industry that’s still in the early stages.  But the potential market for natural gas powered vehicles is huge.  And don’t forget, WPRT’s partnership with major truck manufacturers and engine builders ensures their technology will be the most widely used.

WPRT is in the enviable position of being the industry leader in one of the fastest growing niches of the transportation industry.  As the orders continue to roll in, the sky is the limit for this stock.

But the bears have a compelling case as well… 

The recent order WPRT received from LA Metro and Sand Diego Metropolitan Transit System were big orders.  But still… it’s only an order.

The fact is, this new deal alone won’t make the company profitable.  WPRT is expected to lose money this year and next year.  And there really isn’t any hard data to indicate the company will ever turn a profit!

Right now, the world doesn’t have the infrastructure to support NGVs.  There simply aren’t enough refueling stations.  And without refueling stations, natural gas isn’t a practical alternative transportation fuel.

What’s more, the recent rally in WPRT has pushed the stock price up to just below the 200-day moving average.  This technical level is like a brick wall.  And it will likely be the point where sellers will step in to capture their gains they’ve made over the last few weeks.  And that spells trouble for the stock in the weeks ahead.

If you think the bulls are right, take a look at buying the WPRT April 2013 $30.00 calls for around $1.15.

If you think the bears are right, take a look at buying the WPRT April 2013 $27.00 puts for around $1.50.

Good Investing,

Corey Williams

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Category: Options Trading

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets on a daily basis. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

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