October 14, 2024
Trade Idea: CSX $34.96 (CSX Corp)
Buy November 15th $35 Calls for $1.20
CSX Corporation (CSX) is one of the leading rail transportation companies in the United States.
Despite a rise in industrial stocks, railroads like CSX have underperformed, mainly due to lower freight volumes, a sluggish economy, reduced coal usage, increased competition from trucking, and rising inflationary costs.
That said, CSX’s focus on efficiency has increased margins over the past two quarters and positions it well for future growth. Historically, railroads have had some pricing power. The stock would get a big boost if they could raise prices without losing volume.
In addition, there is always room for M&A speculation. After Kansas City Southern was taken out in 2021, there aren’t many railroad companies left.
What makes CSX exciting right now?
Catalysts
There are 3 catalysts in the next month that investors wil pay attention to:
- Earnings are on Wednesday.
- The Election is on November 5th.
- CSX Investor Day is on November 7th.
This week, the company is expected to reaffirm its second-half forecasts, with an optimistic outlook on future growth.
Investors would be particularly excited about a potential Trump victory, which could spur infrastructure development, onshoring, and rail investment.
The investor day will be a highly anticipated event to hear the longer-term strategic plan for growth in the company.
The Trade
There’s been some interesting call buying activity in CSX since earnings.
On August 6th, someone bought 5,500 CSX November 15th $37.50 Calls for $0.75 and sold 11,000 CSX November 15th $40 Calls at $0.24 with the stock $34.34. This strategy is usually done by a large stockholder trying to gain some leverage to the upside. Specifically, it targets a move toward $40.
Then on September 19th, 20th and 30th, someone bought 3,500 each day (10,500 total) of the CSX December 18th, 2026 $35 calls for $5.60. While it’s a long-term trade, paying 16% for calls does show you how much they think CSX is undervalued at these levels. The RR% was around $46.63, implying a move toward $50 over time.
Lastly, there is a big level forming at $35. A break there could give it some momentum to $38.
I like the CSX November 15th $35 Calls for $1.20. The Target Stock Price is $38.50.
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