Sponsored By:

B/E Aerospace (BEAV)

February 12, 2009

"Buy to open" the BEAV April 15 Calls (BQVDC) for 40 cents or less, and "sell to open" the BEAV April 7.50 Puts (BQVPU) for 25 cents for more for a net credit of at least 15 cents

Dear Fellow Options Traders,

B/E Aerospace (BEAV) is the world's leading provider of interior products and solutions, and the world's leading distributor of aerospace fasteners and consumables for the commercial, business jet and military markets.

The airline industry isn't immune to the serious economic downturn. Airline traffic was down 4% in November and December and the International Air Transport Association forecasts that international passenger traffic will fall by an additional 3% in 2009.

The airline downturn may offer a clue as to why airplane fasteners and interiors are selling well. Rather than buying new jets, it appears airlines are maintaining and upgrading the old jets with BEAV manufactured parts.

On Feb. 2, B/E Aerospace reported a record year in 2008 for the company in terms of sales, operating earnings, net income, earnings per share, bookings and backlogs. More surprisingly, management raised its forward year EPS guidance to $2. The consensus analyst estimate was $1.89. The company is generating cash and has more than ample liquidity and no debt maturities until 2014.

Option investors have aggressively purchased 1,500 BEAV April 15 Calls (BQVDC) during the week. We believe their options purchase is significant.

But we like gaining upside exposure to this stock while collecting a credit. So, we're bringing you a "risk reversal" trade.

We recommend that you use a spread order "buy to open" the BEAV April 15 Calls (BQVDC) for 40 cents or less, and simultaneously "sell to open" an equal number of the BEAV April 7.50 Puts (BQVPU) for 25 cents for more, for a net credit of at least 15 cents.

We're looking for BEAV to exceed the $15 call strike to realize profits on our long BEAVE April 15 Call leg of this trade, and we want the short April 7.50 Puts to expire worthless, as we will have already collected our premium.

Again, you can use a "spread" order via your broker so that this is accomplished as one transaction, but you will need a margin account to complete this trade. Also remember, when selling a put, one should be prepared to buy the stock if it trades below the $7.50 strike price.

While both legs of this risk reversal trade are bullish, if we just buy the calls, we are risking 40 cents ($40 per contract) times the number of contract bought. By selling the puts, we have financed the call and put some money in your pocket.

By selling the put and buying the call, we are essentially being paid to wait to see if we make a big gain with BEAV appreciation. We win as long as BEAV stays above $7.50 through April expiration.

Bottom line: We will keep on top of the trade, like always, and give you timely instructions on when and how to close it out for maximum profits.

Have a great day trading.


Nick Atkeson and Andrew Houghton
Editors
Options Trader