Get Rich - Stay Rich - Investing for Monthly Income

Archive for the ‘Covered Call Trades’ Category

Covered Call Write on Agilent Technologies (A)

Below is the option strategy for a covered write on Agilent Technologies (A).  This will produce monthly investment income over a 30 day time period.

OPTION STRATEGY:

Look at the December 2011 39 covered call.  For each 100 shares of Agilent Technologies (A) stock you buy, sell one December 2011 39 covered call option for a 37.65 (39.85 – 2.20) debit or better.  That’s potentially a 3.6% assigned return in 30 days or comparable to a 43.8% annualized return.

TECHNICALS:

The technicals for A are bullish with a weak upward trend. The stock is under accumulation with support at 37.03. S&P rates this stock 4 STARS (out of five) – buy.

RISK:

For investors seeking more downside protection, buy the May 2012 37 PUT for $4.50.  Sell the put when you exit the covered call trade.  The PUT protection is optional and not required to place the covered call trade.

RESEARCH NOTES:
S&P maintains buy opinion on shares of Agilent (A).  Oct-Q adjusted EPS of $0.84 vs. $0.65 is $0.04 ahead of our estimate.  Sales rose 10%, slightly below our 11% forecast.  Electronic measurement gained 12%, Chemical Analysis increased 4%, and Life Sciences grew 9%.  We are encouraged by the solid growth in Life Sciences, but see continued uncertainty in the U.S. government and academic end-markets. Agilent (A) indicated surprisingly stable and improving European academic markets.  The company guides FY 12 (Oct.) sales of $6.85B-$7.15B and EPS of $3.00-$3.35, in line with our estimates.  We keep our 12-month target price at $48.
Covered call write on Agilient Tecnology

Click to enlarge

Covered Call Write on Advanced Auto Parts

Covered Call trade on Advanced Auto Parts (AAP).

OPTIONS STRATEGY:

Look at the December 2011 70 covered call.  For each 100 shares of Advance Auto Parts (AAP) stock you buy, sell one December 2011 70 covered call option for a 67.06 (69.31 – 2.25) debit or better. That’s potentially a 4.38% assigned return.  This stock also pays a dividend which may add another 0.1% to the return. The stocks last ex-dividend date was 9/21/2011.

TECHNICALs:

The technicals for AAP are bullish with a possible trend reversal.   The stock is under distribution with support at 64.38. S&P rates this stock 5 STARS (out of five) – strong buy.

RISK:

For those wanting downside protection, buy the March 2012 65 put for 3.50.  Sell the put when you exit the covered call.  This is optional for the covered call to protect the downside of AAP at 65.

RESEARCH NOTES:
S&P reiterates strong buy recommendation on shares of Advance Auto Parts (AAP) .   For the 12-weeks ended October 8, EPS of $1.41, vs. $1.03, is $0.22 above our estimate.   While comp-store sales rose just 2.2%, this quarter lapped an exceptional 9.9% increase in the year-ago period, providing a challenging hurdle.   We continue to favor industry fundamentals, and expect global sourcing efforts and supply chain investments to drive improved gross margins over the medium term.  As a result, we are increasing our ’11 and ’12 EPS estimates to $4.96 and $5.71 from $4.72 and $5.47, and are also raising our DCF-based target price by $5 to $85.
EARNINGS HIGHLIGHTS:
  • On 11/09/11, the company announced quarterly earnings of 1.41 per share, a positive surprise of 19.4% above the consensus 1.18.  Over the past 4 quarters, the company has reported 3 positive (>2%), 1 negative(<-2%), and 0 in-line (within 2%) surprises.  The average surprise for this time period has been 5.0%.
  • AAP’s current quarter consensus estimate has remained relatively unchanged over the past 90 days at 0.68.  Estimates within its Subsector have moved an average of 0.0% during the same time period.
  • During the past four weeks, analysts covering AAP have made 1 upward and 0 downward EPS estimate revisions for the current quarter.

Covered Call Options Strategy for United Parcel Services (UPS)

Today’s covered call trade is on United Parcel Services (UPS) that reported better than expected earnings on 10/24/2011.

United Parcel Service Inc. (UPS) reported a 5.1% increase in third-quarter earnings Tuesday that topped Wall Street’s profit forecast, although overall package volume was stagnant due to a downturn in Asian exports and slack U.S. demand.  Executives of the Atlanta-based shipping giant voiced cautious optimism for the fourth quarter nonetheless, saying that the U.S. economy appears to have stabilized and noting that Asian imports could increase in the weeks leading up to the holidays if U.S. consumer confidence improves.

OPTION STRATEGY:

Look at the December 2011 70 covered call. For each 100 shares of United Parcel Service (UPS) stock you buy, sell one December 2011 70  covered call option for a 67.72 (69.57 – 1.85) debit or better.  That’s potentially a 3.37% assigned return in 52 days for an anualized return of 23.7%.  This stock also pays a dividend which may add another 0.8% to the return. The stocks next ex-dividend date is 11/08/2011.

TECHNICALS:

The technicals for UPS are bullish with a weak upward trend.  The stock is under accumulation with support at 67.61.  S&P rates this stock 4 STARS (out of five) – buy.

STOCK RISK PROTECTION:  For those wishing to add more downside protection, buy the April 2012 67.5 put for 4.40.  Sell the put when you exit the covered call trade.

S&P RESEARCH NOTES:

S&P reiterates buy opinion on shares of United Parcel Service (UPS) . Q3 EPS of $1.06, vs. $0.93, misses our $1.10 estimate, but is $0.01 above the Capital IQ consensus forecast.  UPS saw slowing international volumes and flat U.S. volumes, but offset this with higher yields and fixed cost leverage.  UPS reaffirms prior ’11 EPS guidance of $4.15-$4.40.  We trim our ’11 and ’12 EPS estimates to $4.30 and $4.90, from $4.35 and $5.00.  We keep our 12-month target price at $95, 19X our ’12 EPS estimate, and in the middle of UPS’ 5-year historical P/E range.  We still think UPS is well positioned for an eventual rebound in the global economy.

UPS Option strategy

Click to enlarge

Covered Call Write on Caterpillar (CAT)

Caterpillar (CAT) reported blow-out earnings on October 24. CAT jumped 5.7 percent to $92.39 and led the Dow higher after the heavy equipment maker reported a quarterly profit that topped estimates on record revenues. Excluding the impacts of the recent acquisition of Bucyrus International, profit was $1.93 per share, up 58 percent from a year ago. Sales and revenues excluding Bucyrus were $14.581 billion, up 31 percent from the third quarter of 2010. Excluding the impacts of Bucyrus, it was an all-time record quarter for both sales and revenues and profit.

STRATEGY: Look at the December 2011 92.50 covered call. For each 100 shares of Caterpillar (CAT) stock you buy, sell one December 2011 92.50 covered call option for a $88.85 (92.35 – 3.50) debit or better. That’s potentially a 4.11% assigned return in 25 days or a whopping 60% annualized return.

TECHNICALS: The technicals for CAT are bullish with a possible trend reversal. The stock is under accumulation with support at 80.76. S&P rates this stock 4 STARS (out of five) – buy.

RISK: The stock has to drop 3.8% to threaten the breakeven point.

PROTECTIVE PUT: For those wishing to protect your downside, buy the May 2012 90 put for $10.35. Buy one put for each 100 shares of stock you own. Sell the put when you exit the covered call trade.

S&P RESEARCH NOTES: S&P reiterates buy opinion on shares of Caterpillar (CAT) . Q3 adjusted EPS of $1.93, vs. $1.22, beats our forecast by $0.19. Revenue gain of 41% was above our 36% forecast, on higher demand in almost all products and geographies. Record Q3 sales and profit results were particularly impressive to us in light of economic challenges in developed nations. CAT’s current trends also lead us to expect ongoing demand growth in ’12. We lift our ’11 EPS estimate $0.05 to $7.35, and ’12’s by $0.10 to $9.20. In light of growing economic uncertainties, however, we trim our target price by $13 to $129, on our revised historical P/E analysis.

Performance of Caterpillar (CAT) stock

Click to enlarge

Covered Call Write on JP Morgan Chase (JPM)

Covered Call Recommedation on JP Morgan Chase (JPM) currently trading at $31.30.

STRATEGY:  Look at the March 25 covered call. For each 100 shares of JP Morgan (JPM) stock you buy, sell one March 25 covered call option for a 29.40 (31.30 – 1.90) debit or better. That’s potentially a 5.4% assigned return in 32 days.

Risk:   The technicals for JPM are bearish with a possible trend reversal.  The stock is under accumulation with support at 30.11.  S&P rates this stock 4 STARS (out of five) – buy.  The stock has to drop 6.5% to fall to the breakeven level.
Protective Put:  Those seeking more protection may look at purchasing the March 2012 30 put at $3.15.  Sell the put when you exit the covered call position.
S&P Research Notes:  S&P maintains buy recommendation on shares of JP Morgan Chase and Co (JPM).  Q3 EPS of $1.02, vs. $1.01, misses our estimate of $1.10 on higher than expected loan loss provisions.  As we expected, investment banking and trading fell significantly from Q2. However, credit card revenues, net interest income, and mortgage fees were in line with our expectations.  Quality of earnings improved greatly as reserve releases were relatively small.  We lower our ’11 EPS forecast to $4.67, from $4.87.  We also reduce our target price by $5 to $47, based on a slight premium to peers 10.0X multiple on our forward four quarters EPS projection of $4.76.

 Check out the latest Monthly Income Plan for free.

Monthly Income Plan Newsletter

Signup below to receive a free copy of the Monthly Income Plan newsletter for October 2011.  This report contains a market update, list of monthly dividend payers, covered call trades, protective puts and calendar spreads.  Subscribe to Monthly Income Plan.

 


Email Marketing You Can Trust

 

Covered Call Trade on AT&T (Video)

Brian Stutland lays out a covered call trade for income on AT&T (T)

Covered Call Trade on AT&T

 

Get more covered call trades by subscribing to the Monthly Income Plan.

Covered Call Trade Recommendation on Kohl’s Corp (KSS)

This is a covered call trade for monthly income on Kohl’s Corp (KSS) using stock and call option with optional protective put.

Covered Call Strategy: Look at the November 2011 50 covered call.  For each 100 shares of Kohl’s (KSS) stock you buy, sell one November 2011 50 covered call option for a $47.37 (50.17 – 2.80) debit or better.  This is potentially a 5.5% assigned return.

Blanket Put:  If you are looking for a blanket put for protection, look to buy the Apr 2012 50 Put for $5.90.  You will sell the Blanket Put when the covered call position is closed.
Stock Trend: The technicals for KSS are bullish with a possible trend reversal.  The stock is under accumulation with support at 47.72.  S&P rates this stock 4 STARS (out of five) – buy.

S&P research notes:

S&P sees September Retail Sales modestly better than expected.  Our sales weighted index of 13 retailers reported a September comp gain of 6.8% vs. our 5.4% estimate.  We see a cautious consumer with retailers offering both newness and value in their merchandise assortments successfully converting store traffic into sales. We think apparel remains a more promotional business than accessories, with exclusive brands a key comp driver for moderate-price retailers like KSS, which benefited from last month’s Jennifer Lopezand Marc Anthony launches. The company posted a 4% comp gain in September vs. our 1.5% estimate and August’s 2% decline.

Get more trades by subscribing to Get Rich Monthly Income Plan.

S&P Reiterates Strong Buy Opinion on Apple (AAPL)

S&P reiterates Strong Buy opinion on shares of Apple (AAPL) . AAPL announces the passing of Steve Jobs, its visionary and legendary co-founder and former CEO and Chairman. In August, he stepped down as CEO, concluding he could not sufficiently meet the rigors of the role, due to unfortunate health issues. One could argue that Jobs was the most celebrated innovator and businessperson of our time, and his loss to AAPL is immeasurable. Nonetheless, we think he created a company and culture that will continue to innovate and succeed, with countless executives and employees who will carry on. We think AAPL was largely prepared for this loss.

Apple closed yesterday at $377.37.  The November 2011 Call Option is selling for $13.55 at market close.

Get more trades at Get Rich Monthly Income Plan.

Covered Call Trade Recommendation on Celgene (CELG)

This is a covered call trade for monthly income on Celgene (CELG) using stock and call option with optional protective put.

Covered Call TRADE: Look at the November 2011 65 covered call.  For each 100 shares of Celgene (CELG) stock you buy, sell one November 2011 65 covered call option for a $61.05 (63.35 – 2.30) debit or better.  This is potentially a 6.5% assigned return.

Blanket Put:  If you are looking for a blanket put for protection, look to buy the Apr 2012 60 Put for $5.00.  You will sell the Blanket Put when the covered call position is closed.
Stock Trend: The technicals for CELG are bullish with a weak upward trend.  The stock is under accumulation with support at 61.63. S&P rates this stock 5 STARS (out of five) – strong buy.

S&P research notes:

S&P maintains strong buy opinion on shares of Celgene (CELG) . CELG updates information related to Article 20 European review of Revlimid that resulted in a positive risk/benefit ruling in September. CELG cites secondary malignancy rate of 3.98 per 100 patient years (vs. 1.38 in control group) in prior treated multiple myeloma patients, and 7% rate in newly diagnosed patients (vs 1.8% in control). While higher than we anticipated, we expect drug’s label to reflect these risks, and still see the positive bias on Revlimid’s survival benefits positioning the drug for approval in earlier treatment stages, which we view as a key share catalyst.

Get more trades by subscribing to Get Rich Monthly Income Plan.

Subscribe for FREE Trades

Subscribe for FREE Trades

* indicates required
/ ( mm / dd )
Archives