Sponsored By:

Perrigo (PRGO)

March 06, 2009

"Sell to open" the PRGO May 17.50 Puts (IQPQW) for $1 or more and "buy to open" the PRGO May 25 Calls (IQPEE) for 35 or less for a net credit of 65 cents or more

Dear Fellow Options Trader,

Perrigo Co. (PRGO) is the largest maker of over-the-counter, "store" brand medications. PRGO's store band products compete with products like Sudafed, Nyquil, Commit, Claritin, Tylenol, Advil, Zyrtec and Prilosec.

Because PRGO's products are store-brand, they sell for about 30% less than the branded products. We are seeing what may become a secular shift from branded products to store brands as consumers become much more price sensitive.

On Feb. 3, PRGO reported less-than-expected earnings and lowered guidance. For fiscal year 2009, the company expects to earn $1.75 to $1.90, and analysts are projecting $2.20 in EPS for fiscal 2010. Earnings disappointed because of higher-than-expected raw materials costs. Analysts believe the management has factored this into their planning. On $2 of earnings power, the stock is trading at a P/E of 9-times.

Over the past several trading sessions, we have been monitoring bullish options flow on PRGO. Based on the flow and the overall market position of this company, we recommend collecting premium while we give the stock time to recover.

"Sell to open" the PRGO May 17.50 Puts (IQPQW) for $1 or more and "buy to open" the PRGO May 25 Calls (IQPEE) for 35 or less for a net credit of 65 cents or more.

Have a great day trading.


Nick Atkeson and Andrew Houghton
Editors
Options Trader