Reynolds American, Inc. (RAI) Hits Record Highs Amid Takeover Talk

Even though the British American Tobacco buyout rumors have been dismissed, Reynolds American, Inc. (RAI) options may be worth a look

Mar 7, 2016 at 11:03 AM
facebook twitter linkedin


Tobacco giant Reynolds American, Inc. (NYSE:RAI) popped out of the gate this morning to an all-time high of $52.25, after The Telegraph released a story on Saturday suggesting British American Tobacco -- which already holds a 42% stake in RAI -- is considering a complete takeover of its American peer. However, CNBC's David Faber has since squashed the rumors, saying there have been no talks of such a deal. RAI stock was last seen 0.4% lower at $51.48. 

Still, RAI has been a technical juggernaut, as the shares have enjoyed nearly uninterrupted gains since their 2009 bottom. During the past 12 months, the stock has added almost 46%, and has outpaced the S&P 500 Index (SPX) by nearly 15 percentage points in the past 60 sessions. 

Call buyers are certainly betting on more upside. RAI's 10-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands at 5.69, topping 76% of all readings from the past year.  Today, options traders have been rushing to RAI -- especially on the call side of the fence, where intraday volume is at 21 times typical levels.

Now appears a good time to buy premium on RAI. The stock's Schaeffer's Volatility Index (SVI) sits at 22%, putting it a mere 1 percentage point from an annual low. In other words, premium on RAI's near-term options are extremely muted, from a volatility perspective.

It's also worth noting that Reynolds American, Inc. (NYSE:RAI) could further benefit from bullish analyst attention. For starters, three brokerage firms on Wall Street still rate the shares a "hold" or "sell," despite their technical prowess. Plus, RAI's average 12-month price target sits just above at $54.13, meaning the stock could be due for price-target increases.

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.

 

Minimize Risk While Maximizing Profits

There is no options strategy like this one, which consistently minimizes risk while maintaining maximum profits. Perfect for traders looking for ways to control risk, reduce losses, and increase the likelihood of success when trading calls and puts. The Schaeffer’s team has over 41 years of options trading success targeting +100% gains on every trade. Rest assured your losses are effectively limited to your initial cost at the time of making your move! Don't waste another second... join us right now before the next trade is released! 

 


 


 
Special Offers from Schaeffer's Trading Partners