Will Altria Group (NYSE:MO) Keep Heading Higher?

Philip Morris, Altria Group Late last week on CNBC’s Fast Money, a panelist vocalized a bullish thesis in Altria Group MO, the parent company of Philip Morris PM. The stock has been moving higher since late 2008, gaining more than 50% during this time, and recently overcame its mid-May peak to hit a new 52-week high.

While some investors may agree with the Fast Money participant and conclude that the trend is their friend, others could be expecting a reversal. For both bulls and bears, we’ve outlined a couple of options strategies below. These are just examples, not recommendations, and you must always be mindful of your own risk/reward profile before placing any new trades.

Moderately Bullish Option Strategy: Buy-Write

Yesterday, we discussed a buy-write in AT&T. We are looking at a buy-write in MO for one of the same reasons – the dividend payout. Because a buy-write involves the purchase of long stock, the investor does not lose the dividend payment. For Altria, that cash dividend is likely to be paid around mid-October for shareholders of record by September 15. The quarterly dividend is currently 34 cents per share.

With that in mind, investors could sell the upside December 23 call for 44 cents. For each call sold, purchase 100 shares of MO at the current price of $22.06. If MO is trading above $23 at expiration, the investor will likely be assigned and will deliver the 100 shares, keeping the 44-cent credit (plus the 94-cent upside in the shares). The maximum total profit for this trade, not counting the dividend, is $1.38.

Maximum loss for this trade, in the rare situation that MO falls to zero prior to expiration, is $21.62, or the stock price minus the credit collected for selling the call. This is also the breakeven price.

Profit/Loss of Altria (MO) buy-write

Bearish Option Strategy: Bear Put Spread

Investors who expect a bearish reversal in MO shares could consider buying a January-dated put spread. The January 22.50/15 is currently priced for $1.57, which is the most the trader can lose if MO has moved north of the $22.50 strike when the options expire in about six months.

Conversely, the most this spread trader can profit is $5.93, which occurs if MO falls below the 15 strike. Breakeven (at expiration) is $20.93, so if MO is trading below this level, the spread will be profitable (before commissions).

Profit/Loss of Altria Group (MO) bear put spread