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.