This stock has nearly doubled in one year. Using options to catch further upside with less risk

Published Mon, Mar 25 202410:25 AM EDT

Here's an options strategy that allows traders to rent a stock instead of buying outright. This trade can be used often in cases involving a solid growing company where shares have already run-up a bunch lately. United Rentals (URI) , headquartered in Stamford, Connecticut, is the world's largest equipment rental company. It is also one of the past decade's most impressive earnings growth stories, increasing adjusted EPS 670% from 4.04 a share in 2013 to $31.05 a share for 2023 a nearly 670% increase. That kind of growth, if it is sustainable, justifies a well-above above-market multiple, but interestingly at just over 25 times earnings, URI is only trading at a small premium to the S & P 500 and its own historical multiple. According to a recent Deutsche Bank research report, United Rentals "operates in attractive end markets that are experiencing tailwinds from mega-projects, which are expected to provide a multi-year boost." URI 1Y mountain United Rentals, 1 year The only concern for those interested in purchasing United Rentals now is that perhaps things look too good. Having jumped nearly 13% after they reported earnings on January 24th, and now up 95% over the past 52 weeks, an investor could be forgiven for thinking they're arriving late to the party. Perhaps we can take a cue from the company's own business and rent before we buy? The trade One could purchase the May $730 calls, which expire after the company's expected April 26th earnings release and pay $35 a contract, or just under 5% of the current share price. In much the same way that United Rentals customers typically rent equipment and put it to work, one could then sell the April 5th expiration $740 calls for $7 per contract, 1/5th of the $35 spent to purchase the longer-dated contract. Trade example: Buy URI May 17 $730 call Sell URI April 5 $740 call This trade is a bet that while URI could trade higher in the near-term, a sharp move, absent a catalyst such as earnings is unlikely. Peak profits on this trade would be achieved if URI's share price advances to $740 a share by April expiration, but unlike simply purchasing the longer-dated call outright, which will decay slightly over the next 11 days, by selling the shorter-dated call we will offset much of the decay. Ideally, we hope to roll the short call to the subsequent expiration on or around the April 5th expiration. DISCLOSURES: (None) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.