Under Armour (UA) is trading at $69.73. The volatility is high so premiums are being richly rewarded. Additionally, this covered call is in-the-money to provide more downside protection. The summary of this covered call recommendation is below.
The UA October ’11 COVERED CALL with a 67.50 strike price could potentially yield a 7.6% return if UA stock stays above $67.50 a share through expiration 50 days from now. The covered call shown here has a 4 Key (Low Relative Risk) ranking and 10.04% downside protection. On July 26, 2011 S&P set a $93.00 12-Month price target for UA which is currently trading at $23.27 below that target. The covered call trade offers limited protection if the stock drops in price but if the stock goes below $62.73 expect losses.
Sell the October 2011 67.50 strike price at $7.00. Sell one call for each 100 shares of stock you own. The call strike price is 3.2% in-the-money. The annual assigned return is 55.51%. The breakeven is $62.73 so if using a stop, set it above the breakeven.
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