RINO Environmental Remediation Repeat Play

RINO International Corporation is in the business of environmental remediation, or to more simply put it they make technologies to clean up the environment.  If you have a green focus then this company might be a good bet.  RINO is based in China and caters to the Chinese market.  Their two main specialties include industrial water purification and industrial desulphurization focused on China’s steel industry.  One good thing about this industry can be taken from one of their SEC filings:

“Our business is driven more by policy, environmental regulations which are mandating steel manufacturers to install these systems – THEY DON’T HAVE A CHOICE AND THE FINES FOR NOT COMPLYING ARE INCREASING

While this sounds nice several ratings agencies have labeled RINO a SELL.  Before stepping in we need to look at what is going on.  We can start by looking at past history to see if there is a pattern we can use for guidance.  By bringing up the 1 yr chart we can look for support and resistance points.  Over the past month we can see support at the $12 and $11 levels (the lower yellow lines). Previously in August it bounced off $11 support.  Looking back to September 8 we can see that support at $12 held and there was a price bounce.  In late September there was a large price move and the stock moved up at a rapid pace.  Looking at today’s pattern we can see similar behavior and a bull triangle forming.

Bull Put Spread

Buy Aug 10 10.00 Put @.32
Sell Aug 10 11.00 Put @ .50
Credit (Mid): 0.18
Amount at Risk: 0.83
Potential Return: 0.18
Potential % Return: 21%
Break Even: 10.83

Or if you are feeling more aggressive you can go for a combo.  The disadvantage is if the stock drops below $11 by August expiration you agree to buy it for $11 by selling the Put option, no matter how low it goes.  But after looking at the charts it seems unlikely that the stock will break down through support at $12 and at $11.

Combo Risk Reversal
Buy Aug 10 14.00 Call @1.05
Sell Aug 10 11.00 Put @ .45
Debit : 0.65
Amount at Risk: 0.65
Delta: 0.55
Potential % Return: Theoretically Unlimited.  85% (for $1 move up in underlying)

Or for something plain and boring you could buy the stock today for about $14 and ride it up to the next resistance point of $15.

RINO’s services are going to be in strong demand in China.  Until we see where the economy is going, this is something to trade in and out of, or limit your exposure through the use of options.

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