KKR appeared on one of my scanners for having a Composite Rating, EPS Rating and Relative Strength Rating all above 90.
KKR & Co. (formerly known as Kohlberg Kravis Roberts & Co.) is a global investment firm that manages multiple alternative asset classes, including private equity, real estate, energy, infrastructure and credit.
KKR is renowned for its expertise in leveraged buyouts and has played a pivotal role in some of the most significant acquisitions in corporate history.
Investors who think KKR stock will continue to rally and don't want to risk significant capital can use long call options rather than buy the stock outright. This can be a good way to protect precious capital in these volatile markets.
A call option is a contract between a buyer and seller. The contract gives the buyer the right to purchase a certain stock at a certain price (strike price) up until a certain date (expiration date).
Call Options Provide Leverage
One of the benefits of call options is that they provide leverage. This can be both a good and a bad thing.
Assuming investors want to buy 100 shares of KKR, they would have to invest around $13,200 at the current price.
Instead, the investor could gain a similar exposure using a fraction of the capital by buying a call option.
One call option gives the investor exposure to 100 shares.
If an investor were to buy one KKR 120-strike call option expiring on Jan. 17, they would only need to invest around $1,760 rather than $13,200.
The break-even price for this call option is equal to the strike price plus the premium paid. That would make the break-even price 137.60.
The most the trade can lose is the premium paid of $1,760. That would occur if KKR finishes below 120 on Jan. 17.
Upside On KKR Trade Unlimited
However, if KKR stock shoots higher, the upside is unlimited.
Using options in this way can be a great way to gain exposure to a stock without risking as much capital as required to buy the stock outright.
Savvy traders can further reduce the risk by selling an out-of-the-money call, turning the trade into a bull call spread.
For example, selling the Jan. 17, 145-strike call would reduce the trade cost by around $440 but would also limit the upside above 145.
A stop loss could be set if KKR drops 8% from the entry point.
According to the IBD Stock Checkup, KKR stock is ranked No. 1 in its industry group. It has a Composite Rating of 99, and EPS Rating of 91 and a Relative Strength Rating of 96.
Please remember that options are risky, and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ
